Steris Plc, Re The Companies Act 2006

This was an application for the sanction of a cancellation scheme of arrangement under Part 26 of the Companies Act 2006 and confirmation of the associated reduction of capital. The court applied the established Part 26 sanction principles (statutory compliance; fair representation of the class; that an intelligent and honest member might reasonably approve the scheme; and absence of any "blot"). The judge held that the scheme fell within Part 26, that creditors would not be prejudiced by the reduction (the reserve arising would be applied to pay up new shares) and that the statutory majorities had approved the scheme at the court meeting. The court considered whether the statutory prohibition in section 641(2A) applied and concluded that the restructuring exception in section 641(2B) permitted the reduction because substantially all members would become members of the new Irish parent and their proportionate holdings of equity would be preserved. A drafting "blot" concerning the Reduction Record Time was identified and permitted to be corrected. The court therefore sanctioned the Scheme and confirmed the reduction of capital.

Background and parties: The applicant was STERIS plc, a multinational group parent company with Ordinary Shares and a small class of redeemable Preference Shares. Ordinary Shares were significantly held through the Depository Trust Company such that the registered holder was Cede & Co. The proposal was to insert a new Republic of Ireland incorporated holding company (STERIS Ireland) to redomicile the parent company in order to mitigate Brexit-related commercial and tax risks.

Nature of the application: First instance application for court sanction of a cancellation scheme of arrangement under Part 26 of the Companies Act 2006 and confirmation of the associated reduction of capital, together with related steps (re-registration, listing of STERIS Ireland shares on the NYSE and subsequent redemption of Preference Shares after an amendment to the articles).

Issues framed by the court:

• Whether the statutory requirements for Part 26 sanction had been complied with (including meeting convening and explanatory statement requirements);
• Whether the scheme fell foul of the prohibition on certain reductions of capital in section 641(2A) CA 2006, or whether the restructuring exception in section 641(2B) applied;
• Whether the class meeting was fairly representative and the statutory majority had acted bona fide rather than coercively;
• Whether an intelligent and honest member might reasonably approve the scheme; and
• Whether there was any "blot" (defect) on the scheme, and if so whether it was material.

Court's reasoning and subsidiary findings: The court found that the statutory requirements of Part 26 were met: the court meeting had been convened under order, an explanatory statement compliant with Part 26 had been sent and the Scheme Shareholders approved the scheme by large majorities (96% in number, 99.5% in value of those voting). The judge addressed a potential voting irregularity arising from differing record dates for beneficial owners through DTC and the registered holders, and concluded any risk of double voting was immaterial on the facts. On the section 641(2A) prohibition, the court analysed the statutory restructuring exception in section 641(2B) and concluded it applied because (i) the company would have a new parent undertaking, (ii) all or substantially all members (everyone other than the single holder of the small class of Preference Shares) would become members of the parent, and (iii) the members would hold equity in the parent in the same or substantially the same proportions as before. The court noted that the Preference Shares were not equity under section 548 and represented an insignificant proportion by headcount and value, so the exception's requirements were met. The court identified a drafting blot in the Scheme's definition of the Reduction Record Time and allowed its correction to reflect shareholders' reasonable expectations about NYSE trading; no prejudice arose from that amendment. The court also accepted that the reduction of capital did not prejudice creditors because the reserve would be applied to pay up new shares and any temporary dip below authorised minimum was permissible in a cancellation scheme.

Conclusion: The court exercised its discretion to sanction the Scheme and to confirm the reduction of capital, having found statutory compliance, representative and bona fide shareholder approval, reasonableness for an intelligent and honest shareholder, absence of prejudicial blot after correction, and that the restructuring exception to section 641(2A) applied.

The court sanctioned the scheme of arrangement and confirmed the reduction of capital. The judge concluded that the statutory requirements for sanction under Part 26 were satisfied, that the restructuring exception in section 641(2B) disapplied the prohibition in section 641(2A), that the class meeting results were representative and bona fide, that an intelligent and honest member might reasonably approve the scheme, and that the single drafting "blot" (the Reduction Record Time) could be corrected without prejudice.