Organic Milk Suppliers Co-Operative Ltd, Re

For a scheme meeting, class constitution depends on members’ rights, not merely their commercial interests. The relevant comparison is between the rights released or varied and any new rights granted by the scheme. A broad approach is appropriate: differences do not require separate classes unless they make it impossible for members to consult together in their common interest. Rights arising from collateral arrangements may be considered where those arrangements form part of the overall reorganisation. Different commercial interests may matter at the later sanction stage, but do not themselves create separate classes. The court retains a safeguard against majority oppression because it is not bound by the meeting’s decision.

Organic Milk Suppliers Co-Operative Limited applied for permission under Part 26 of the Companies Act 2006 to convene a members’ meeting concerning a scheme of arrangement. The proposed reorganisation would transfer the ordinary shares in the existing company to a new company limited by guarantee, with the existing company becoming its wholly owned subsidiary. Related milk supply contracts would be varied and novated.

The company submitted that all scheme shareholders formed one class, despite differences between founder members and other members, and between shareholders with different milk contracts. The court had already been satisfied on the other permission requirements. The issue addressed in the judgment was whether those differences required separate scheme classes.

1. Permission granted on class composition. The court was satisfied that all scheme shareholders formed a single class for the proposed meeting. The other requirements for convening the meeting were also satisfied, but were not addressed in detail.
2. Class constitution is determined by an analysis of rights rather than interests. The comparison concerns the rights to be released or varied and any new rights granted by the scheme. Members may be placed in one class where their rights are not so dissimilar as to make it impossible for them to consult together in their common interest, applying the approach in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 and Re Hawk Insurance Co Limited [2001] 2 BCLC 48.
3. A broad approach is required. Differences may be material without requiring separate classes, as explained in Re Telewest Communications plc [2005] 1 BCLC 752. Similar commercial interests are not required at the class stage. Different commercial interests may instead be relevant to the court’s discretion whether to sanction the scheme under section 899 of the Companies Act 2006.
4. The court may consider collateral arrangements forming part of the same reorganisation when assessing class composition, rather than examining the scheme in isolation. The court relied on Re Baltic Exchange Ltd [2016] EWHC 3391 and Re Stemcor Trade Finance Ltd [2016] BCC 194.
5. The founder members’ enhanced rights were preserved under the new articles. They therefore faced the same broad decision as other shareholders: whether to surrender their existing bundle of rights in exchange for the same bundle of rights from the new company. The different milk contracts were also varied and novated in the same way. Those differences did not make consultation in a single meeting impossible. The court therefore directed that all scheme shareholders constitute one class.