Organic Milk Suppliers Co-Operative Ltd, Re

The court considered an application for permission to convene a meeting under Part 26 of the Companies Act 2006 for a members' Scheme of Arrangement that would transfer ordinary shares in OMSCo to a new member-facing company, Omsco Group Limited, and involve novation and modification of milk supply contracts. The principal legal issue was class composition for the purposes of the meeting. Applying the established test derived from Sovereign Life Assurance Co v Dodd and explained in subsequent authorities (including Re Hawk and Re Telewest), the court focused on the rights to be released or varied and the new rights to be given under the Scheme. Although certain shareholders (four founder members) held enhanced voting and appointment rights under the existing articles and there were different forms of milk supply contracts, the court concluded those differences did not make it impossible for the shareholders to consult together in their common interest because the enhanced rights would be preserved under the new articles and the contractual changes affected all shareholders in the same way. The court therefore held that all Scheme shareholders constituted a single class for the convening of the meeting under Part 26 and granted permission to convene that meeting.

Background and parties:

• The applicant company, Organic Milk Suppliers Co-Operative Limited (OMSCo), sought permission to convene a court meeting under Part 26 of the Companies Act 2006 for a members' Scheme of Arrangement. The Scheme would transfer ordinary shares of Scheme shareholders (all milk producers) into a new company limited by guarantee, Omsco Group Limited (OGL), and include novation and modification of members' milk supply contracts.
• The underlying commercial purpose was to improve returns to members and to enable different corporate and tax arrangements (including the ability to collect levies and offer security to support additional bank funding).

Procedural posture and relief sought:

• This was a first instance application for permission to convene the required class meeting(s). The court was asked to determine, inter alia, whether the proposed class constitution was appropriate.

Issues framed:

1. Whether the proposed Scheme amounted to a compromise or arrangement between the company and its shareholders;
2. Whether the company had produced the required notice and explanatory statement under the Act;
3. Whether the correct class or classes of members had been identified for the purposes of voting on the Scheme; and
4. Whether appropriate directions for convening the meeting were proposed.

Court reasoning and findings:

• The court accepted that the Scheme, the notice and explanatory statement, and the proposed directions were satisfactory and focused its reasoning on class composition.
• The court applied the established approach to class constitution: identify the rights to be varied or released under the Scheme and the new rights to be conferred, taking a broad approach and recognising that commercial differences do not automatically require separate classes (relying on authorities such as Sovereign Life, Re Hawk, Re Telewest and Re Baltic Exchange/Re Stemcor guidance on looking at collateral arrangements).
• The court analysed two potential sources of differentiation among shareholders: (a) four founder members who held enhanced voting and appointment rights under certain articles; and (b) different forms of milk supply contracts (the Standard Agreement, Processor's Agreement and a PWAB Addendum). Although these gave rise to differences in rights, the court concluded the enhanced rights would be preserved in the articles of OGL and the contractual modifications would operate uniformly so that all shareholders faced the same broad question when voting: whether to exchange their existing bundle of rights in OMSCo for the same bundle in OGL.
• Because the differences did not make it impossible for shareholders to consult together with a view to their common interest, the court held that all Scheme shareholders should be treated as a single class for convening the meeting. The court noted that any differing commercial interests could be considered at the sanction stage under the court's discretion (section 899 of the Companies Act 2006).

Result: Permission to convene a single class meeting of Scheme shareholders was granted.

Permission to convene the members' meeting under Part 26 of the Companies Act 2006 was granted. The court held that all Scheme shareholders constitute a single class for the purposes of the meeting because the differences in rights (founder members' enhanced article rights and variants of milk contracts) did not prevent them from consulting together in their common interest: the enhanced rights would be preserved in the new articles and the contractual changes affected all shareholders in the same way.