Realm Therapeutics Plc, Re Companies Act 2006

The court considered a contested scheme of arrangement under ss.895–899 of the Companies Act 2006 and sanctioned the scheme. The central legal principles were (i) the rules for class composition derived from Sovereign Life Assurance Co v Dodd and subsequent authorities (focusing on existing rights and any material dissimilarities of rights under the proposed arrangement), and (ii) the well‑established discretionary principles for sanctioning a scheme, including whether the statutory majorities were obtained, whether the majority acted bona fide for the benefit of the class and whether an intelligent and honest member could reasonably approve the arrangement.

The court held that a single class meeting of all Realm shareholders was properly convened and that the statutory majorities were validly obtained. Objections based on a large shareholder’s cross‑holding in the bidder (BVF’s holdings in Essa) and on BVF’s purchases of Realm shares after announcement were considered but rejected as grounds for splitting classes or for discounting BVF’s votes. The judge distinguished Re Hellenic on the facts. The court also rejected complaints about the absence of a cash option, alleged disclosure defects and asserted conflicts of interest as insufficient to withhold sanction.

Accordingly the scheme was sanctioned because (i) statutory requirements had been complied with, (ii) the single class was appropriate, (iii) the requisite majorities were achieved and were not tainted by improper motive, and (iv) there was no discretionary basis to refuse sanction.

Background and parties. Realm Therapeutics plc (Realm) held a substantial cash balance after disposals and adopted an Investing Policy. Essa Pharma Inc (Essa) agreed to acquire Realm by means of a scheme of arrangement, with Realm shareholders to receive New Essa Shares calculated by reference to Realm's net cash and a 60‑day VWAP for Essa. Bavaria Industries Group AG (Bavaria), a shareholder seeking a cash exit, objected to the structure and sought to prevent sanction. Major institutional shareholders (including BVF and OrbiMed) gave irrevocable undertakings to support the scheme. The application was heard in the Companies Court (ChD).

Nature of the application. This was an application for the Court's sanction of a scheme of arrangement under ss.895–899 Companies Act 2006, following the approval of the scheme by the requisite majorities at a convened meeting.

Issues framed by the court.

• Whether the single class composition (all shareholders treated alike) was appropriate.
• Whether the statutory majorities had been validly obtained and whether votes of certain shareholders (notably BVF) should be disregarded or discounted because of cross‑holdings or subsequent purchases.
• Whether the majority acted bona fide and whether an intelligent and honest member of the class could reasonably approve the scheme (the fairness/discretionary test for sanction).
• Whether other matters (absence of a cash option, alleged insufficient disclosure, conflicts of interest) warranted refusing sanction.

Court’s reasoning and conclusions. The judge applied the established test for class constitution: focus on rights as they exist and as they would be under the arrangement, and whether material dissimilarities made it impossible for members to consult together with a view to their common interest. Authorities including Sovereign Life Assurance Co v Dodd, Re BTR, Re TDG and others guided the analysis. The court found:

• The convening judge had correctly directed a single meeting of all shareholders; the circumstances did not resemble Re Hellenic, where parent/subsidiary control meant separate commercial interests.
• BVF’s cross‑holding in Essa and its purchases of Realm shares after announcement did not, on the evidence, establish a special adverse interest or improper motive sufficient to discount or exclude its votes. Alternative innocent commercial explanations existed and the evidence did not show predominance of an illegitimate motive.
• The Circular provided adequate information; the absence of a cash alternative and suggestions that other statutory routes might have produced different outcomes were not reasons to withhold sanction. Alleged director conflicts or disclosure shortcomings were not shown to be material to the voting decisions.
• On the overall discretionary assessment, a large experienced majority of shareholders, the board’s reasoning, and market commentator support showed the scheme was one that honest and intelligent members could reasonably approve.

Result. The court exercised its discretion to sanction the scheme and ordered implementation.

The Court sanctioned the scheme of arrangement. Norris J held that the single class of all Realm shareholders was properly constituted, the statutory majorities were validly obtained, and there was no established basis (such as improper motive, material unfairness or inadequate disclosure) to exclude or discount votes or to refuse sanction. On that basis and applying ss.895–899 Companies Act 2006 and established authorities, the sanction was granted.