Realm Therapeutics Plc, Re Companies Act 2006

In a scheme of arrangement, class composition depends on material differences between members’ existing rights and their rights under the scheme. Different commercial interests or voting intentions do not, without more, create separate classes. A shareholder’s cross-holding in the bidder is ordinarily relevant to the later sanction discretion, not class composition. Nor does acquiring shares after announcement of the transaction fracture the class where the acquirer remains a scheme shareholder and is not acting in concert with the bidder.

At the sanction stage, the court asks whether the statutory requirements have been met, the class was fairly represented, the majority acted bona fide, and an honest and intelligent class member could reasonably approve the scheme. The court does not decide whether the scheme is the best available transaction or substitute its commercial judgment for that of the properly informed class.

Realm Therapeutics plc proposed a scheme under Companies Act 2006 by which Essa Pharma Inc would acquire all Realm shares in exchange for newly issued Essa shares. Realm had sold its operating assets and held substantial cash, while its board preferred reinvestment in Essa’s life-sciences business over liquidation and distribution.

Bavaria Industries Group AG, a shareholder seeking to realise its investment for cash, objected. It argued that a single class meeting was improper because another shareholder, BVF Partners LP, held shares in Essa, had acquired additional Realm shares after the transaction was announced, and received special contractual treatment. Bavaria also challenged the voting majority, the absence of a cash alternative, disclosure, and the commercial fairness of the scheme.

The court had to decide whether the scheme had been validly constituted and approved, and whether it should be sanctioned.

1. Class composition. The court applied the rights-based test stated in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573. The relevant comparison is between members’ existing rights and their rights under the proposed arrangement. Separate classes arise only where material differences make it impossible for the members to consult together in a common interest. Different personal or commercial interests do not themselves create separate classes.
2. BVF’s cross-holding in Essa did not fracture the class. Such a holding may be relevant to whether votes should be discounted or to the court’s later discretion to sanction, but it was not ordinarily a class-composition issue. BVF’s contractual designation as a principal shareholder also conferred no material difference in rights under the scheme.
3. BVF’s acquisition of Realm shares after announcement did not create a separate class. Essa and BVF were separate entities and there was no evidence that they acted in concert. BVF remained a vendor under the scheme. Re Hellenic and General Trust Ltd [1976] 1 WLR 123 was distinguished because the parent and subsidiary there were treated as one commercial entity.
4. Sanction principles. The statutory requirements under sections 895, 897 and 898 of the Companies Act 2006 were satisfied. The single class had been fairly represented, the requisite majorities were achieved, and the evidence did not establish that BVF or other supporting shareholders had acted for a collateral interest adverse to the class. The approach in Re Lehman Bros International (Europe) [2018] EWHC 1980 was adopted for analysing special interests, motivation, treatment of votes, and the consequences for sanction.
5. The fairness inquiry was whether an honest and intelligent member of the class, acting in respect of that membership interest, could reasonably approve the scheme. The court was not required to decide whether a cash option or another transaction would have been preferable. Nor was it appropriate to assess fairness by reference to different statutory mechanisms under sections 110 and 111 of the Insolvency Act 1986. The properly informed shareholders were better placed than the court to make the commercial judgment whether the Essa investment offered sufficient potential value.
6. No material disclosure failure, conflict, technical blot, or other discretionary ground justified withholding sanction. The scheme was sanctioned.

First-instance decision. The judgment records that an ICC Judge had previously ordered the convening of a single scheme meeting, which the court upheld.