Cobham Plc, Re Companies Act 2006

The court considered an application to sanction a scheme of arrangement under the Companies Act 2006 and applied the four-part test set out in Re TDG plc: (1) compliance with statutory requirements, (2) whether the class was fairly represented and the statutory majorities acted bona fide, (3) whether an intelligent and honest member of the class might reasonably approve the scheme, and (4) absence of any "blot" or technical flaw. The convening directions and class composition were properly complied with and there was no technical flaw.

The court accepted that the meeting vote (1,222 participants; 775 for, 447 against) satisfied the statutory threshold (more than 50% by number and 75% by value), representing 64.48% by number and 93.22% by value. Two objections by an individual shareholder were rejected: disclosure of a dividend adjustment (0.4p per share) was held to be sufficiently prominent in the scheme documentation, and changed political and economic circumstances after the meeting did not invalidate a vote properly taken at the time of the meeting. The Scheme was accordingly sanctioned.

This was a first-instance application by Cobham plc for the court to sanction a scheme of arrangement under the Companies Act 2006. The applicant was represented by counsel; Mr Christopher Sills appeared in person as an objecting shareholder. The relief sought was the court's sanction of the proposed scheme following a class meeting in which the scheme had been approved.

The court identified the four issues derived from Re TDG plc: (i) statutory compliance in convening the meeting and other procedural matters, (ii) whether the attending members fairly represented the class and whether the statutory majorities acted bona fide and without coercion, (iii) whether an intelligent and honest member of the class might reasonably approve the scheme, and (iv) whether there was any technical flaw or "blot" on the scheme.

The factual background relevant to the contested points was that 1,222 shareholders participated at the meeting, with 775 voting in favour and 447 against; the scheme thus achieved 64.48% in number and 93.22% in value, with a turnout of 29.06% by number and 78.52% by value. The objector advanced two principal complaints: first, that the scheme documents did not make sufficiently clear that the headline offer price of 165p would be reduced by a previously announced interim dividend of 0.4p (payable 8 November 2019); second, that events after the meeting (notably the calling of a General Election and a period of "purdah" affecting Ministry of Defence approvals relevant to the takeover) meant that shareholders voting now might reach a different decision, so the sanction should be refused or a confirmatory vote required.

The court's reasoning was that the scheme documentation did adequately and repeatedly disclose the dividend deduction (notably in the chairman's letter), and thus shareholders were properly informed. On the timing point the court held that the question whether an intelligent and honest member might reasonably approve the scheme is to be assessed by reference to the position at the time of the meeting; subsequent changes in political or economic circumstances did not invalidate a properly taken earlier vote. Having found that statutory requirements were met, the class was fairly represented, the "intelligent and honest person" test was satisfied as at the meeting date, and there was no technical flaw, the court sanctioned the scheme.

The court also observed practical matters such as turnout and the value-weighted support for the scheme, and noted that although some shareholders might be elderly or face difficulty in digesting the documentation, the specific disclosure complained of was sufficiently prominent.

The court sanctioned the Scheme. The judge held that statutory requirements had been complied with, the class was fairly represented and the statutory majorities had acted bona fide, the "intelligent and honest person" test was satisfied when applied to the time of the meeting, and there was no technical flaw. Objections that the dividend adjustment was insufficiently disclosed and that changed political circumstances after the meeting justified refusing sanction were rejected.