Smith & Williamson Holdings Ltd, Re

At the convening stage of a scheme meeting, class constitution is determined by differences in rights, not differences in commercial interests. The court compares the rights released or varied with the rights conferred by the scheme. Differences between members do not require separate classes unless they make it impossible for the members to consult together with a view to their common interests. The court should adopt a broad approach and consider the scheme together with connected arrangements. Where the court gives provisional views without full notification to members, those views do not prevent class issues being raised at the sanction hearing.

Smith & Williamson Holdings Limited applied under section 896 of the Companies Act 2006 for permission to convene a meeting of holders of its A ordinary shares to consider a scheme of arrangement facilitating the acquisition of the company by companies in the Tilney group.

The company sought a single meeting despite possible differences arising from the mix-and-match facility, management incentive arrangements, leaver provisions, an acquisition-related arrangement and irrevocable undertakings. The court considered whether those matters required separate classes and the extent to which it could express provisional views at the convening stage.

1. Order made. Permission was granted to convene a single scheme meeting of the A shareholders. The notice was to be sent at least 14 clear days before the meeting.
2. Class constitution depends on differences in rights, rather than differences in commercial interests. The relevant comparison is between rights released or varied under the scheme and rights conferred by it. Separate meetings are required only where the differences make it impossible for members to consult together with a view to their common interests.
3. The court should not adopt a narrow approach. It must consider the scheme together with other arrangements entered into at the same time. Differences arising from the number of shares held, including a different blend of otherwise equivalent consideration, will generally concern the enjoyment of rights rather than differences in the rights themselves.
4. The mix-and-match facility, restrictions affecting overseas shareholders, unallocated incentive arrangements and the proposed treatment of the Oracle SPA did not give rise to an obvious class impediment. The bad-leaver arrangements raised a more substantial issue, but the differences sufficiently reflected members’ pre-scheme positions and were unlikely to make consultation impossible.
5. Irrevocable undertakings without collateral benefits did not create a class issue. The court considered that, viewed overall, the transaction contained more matters uniting than dividing the A shareholders.
6. The creditor-scheme practice concerning early consideration of class issues could be adopted pragmatically by analogy in member schemes, but, absent full notification, the court’s views were provisional. A member could raise a class issue at the sanction hearing without showing good reason for not raising it earlier, and the sanction judge might revisit class issues in detail.