Steris Plc, Re The Companies Act 2006

On an application to sanction a scheme of arrangement, the court must verify statutory compliance, proper class representation and bona fide voting, whether an intelligent and honest member might reasonably approve the scheme, and whether any defect constitutes a “blot”.

A cancellation scheme inserting a new holding company may fall within the restructuring exception in section 641(2B) of the Companies Act 2006 where substantially all members become members of the new parent and their equity holdings remain proportionate. The court may amend a scheme before sanction where the amendment corrects a defect, causes no material prejudice and would not have affected voting.

Steris plc sought sanction under Part 26 of the Companies Act 2006 for a cancellation scheme and confirmation of an associated reduction of capital. The scheme would insert a newly incorporated Irish company as the group’s parent, cancel the company’s ordinary shares and issue equivalent shares in the Irish parent.

The company also had redeemable preference shares, whose holder would not become a member of the new parent. The issues were whether the scheme was excluded by section 641(2A), whether it satisfied the restructuring exception in section 641(2B), whether the reduction should be confirmed, and whether a correction to the reduction record time could be made before sanction.

1. Sanction and reduction. The scheme was sanctioned and the reduction of capital confirmed. The court was satisfied that the statutory requirements had been met, the relevant class was fairly represented, the statutory majority acted bona fide without coercing the minority, and an intelligent and honest member might reasonably approve the scheme. The reduction had a discernible commercial purpose and proper provision had been made for creditors.
2. Applicable sanction principles. The court applied the established four-stage approach: statutory compliance; fair class representation and bona fide voting; rational approval by an intelligent and honest member acting in his own interest; and absence of any “blot” or other defect on the scheme. The strong shareholder approval and the commercial purpose connected with Brexit supported sanction.
3. Section 641. Although section 641(2A) generally prohibits a reduction of capital forming part of a scheme by which a person acquires all shares, section 641(2B) provides a restructuring exception. The reference to “substantially all” permits a small difference between the members of the existing company and those of the new parent. The preference shareholder represented only a very small proportion of the members and capital, so the requirement in section 641(2B)(b) was satisfied.
4. The comparison required by section 641(2B)(c) concerns the identities and proportions of holders of equity share capital before and after the scheme. It is unnecessary to replicate holdings that are not equity share capital. The ordinary shareholders would hold the equity share capital of the new parent in the same proportions as before.
5. Amendment. The draft scheme contained a defect because its reduction record time might have preceded the stated final trading date. The court permitted the amendment because the scheme involved an equivalent share exchange, no material prejudice was apparent, and the amendment would not have affected the voting decision.

The court order would sanction the scheme, confirm the reduction, and authorise the related re-registration and implementation steps.