Re Columbus Energy

The court sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 to effect a takeover of Columbus Energy Resources plc by Bahamas Petroleum Co plc. The judge found that the convening order and statutory requirements were complied with, including transmission of the scheme documents and achievement of the statutory majorities. The court held that the scheme involved a sufficient element of "give and take" to constitute a compromise or arrangement under Part 26 and that a single class of shareholders was appropriate: fractional entitlements were immaterial, irrevocable undertakings were not class‑creating and additional benefits to directors flowed from loss of office rather than from shareholding.

The judgment considered the temporary statutory regime in Schedule 14 to the Corporate Insolvency and Governance Act 2020 and concluded that Parliament intended paragraph 3 to permit meetings of members to be conducted in a way that limits participation to voting only. That change does not prevent a meeting for the purposes of section 896 where the formal requirements are met, provided adequate explanatory material and means of communication are given to shareholders. The court was satisfied the meeting convened in accordance with the ICC Judge's order and Schedule 14, that the majority acted bona fide, and that an intelligent and honest member might reasonably approve the scheme. The scheme was therefore sanctioned.

Background and parties: Columbus Energy Resources plc (the Company), an AIM‑quoted oil and gas producer, applied for sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 to effect a takeover by Bahamas Petroleum Co plc (BPC). The convening order had been made by ICC Judge Jones on 29 June 2020. The Scheme shareholders were to transfer their shares to BPC in exchange for BPC ordinary shares.

Nature of the application: The application was for the court's sanction of the Scheme following its approval by the statutory majorities at the meeting of Scheme shareholders held on 27 July 2020.

Issues framed:

• Whether the statutory requirements for convening and holding the meeting and for approval under Part 26 were complied with;
• Whether the proposed arrangement amounted to a compromise or arrangement between the company and its members;
• Class constitution: whether a single class meeting was appropriate given fractional treatment, irrevocable undertakings and additional director benefits;
• Whether a meeting held without physical attendance of shareholders (with participation limited to voting) could constitute a meeting under section 896 in light of Schedule 14 to the Corporate Insolvency and Governance Act 2020;
• Whether the meeting process was fair, bona fide and whether an intelligent and honest member might reasonably approve the scheme.

Court's reasoning and conclusions: The judge found that the convening order requirements had been met (notice and documents despatched more than 21 days before the meeting) and that the statutory majorities were achieved (approximately 89.15% by number and 98.05% by value of votes cast). Applying authority on what constitutes a compromise or arrangement, the judge concluded there was sufficient "give and take." On class composition, fractional entitlements were immaterial, irrevocable undertakings were not class-creating and director benefits related to loss of office rather than shareholding, so a single class was appropriate.

The judgment analysed Schedule 14 of the Corporate Insolvency and Governance Act 2020 and concluded Parliament had altered what constitutes a meeting for members by permitting meetings where participation may be limited to voting only (paragraph 3(6)(b)). That statutory change did not prevent the meeting from being a meeting for Part 26 purposes provided the court directed appropriate procedural steps and adequate explanatory material was supplied. The company had provided a detailed explanatory statement, Q&A material and other communications. The court was satisfied the class was fairly represented, the majority acted bona fide, there was no coercion or blot on the face of the Scheme, and an intelligent and honest member might reasonably approve the scheme. The court therefore sanctioned the Scheme and made the order sought.

This was a first instance application and the court sanctioned the scheme of arrangement. The court concluded that statutory requirements under Part 26 had been complied with, that a single class of members was appropriate, and that Schedule 14 to the Corporate Insolvency and Governance Act 2020 permitted meetings of members to be conducted with participation limited to voting only; on the facts the meeting and voting process were fair and the statutory majorities had approved the Scheme.