TISO Blackstar Group Se Plc, Re

The court considered an application to sanction a Part 26 scheme of arrangement proposed by Tiso Blackstar Group SE PLC to effect a cash-out of a substantial proportion of shares, accompanied by a reduction of capital. The judge was satisfied of jurisdiction, that the proposal constituted an "arrangement" with the necessary give and take, and that statutory requirements and the terms of the convening order had been substantially complied with.

The court found the meeting was properly constituted, the requisite majorities were obtained and members were fairly represented despite the predominance of dematerialised holdings in the STRATE system and certification of certain management-held certificated shares. The scheme was held to be fair to the class as a whole, supported by a fairness report from BDO and by the commercial logic of offering an exit to shareholders in a thin market. Directors' interests were disclosed and did not invalidate the class vote.

On the question whether section 641(1)(a) of the Companies Act 2006 prohibited the reduction of capital element, the court concluded the provision was not engaged because the change in registration of title by dematerialised holders did not amount to an "acquisition" by a common acquirer or associates and the scheme was not of the type aimed at by that section. The scheme was sanctioned, but the court adjourned final confirmation of the reduction of capital element to enable final ascertainment of the extent of the reduction once elections were finalised.

This was a first instance sanction hearing for a Part 26 scheme of arrangement under the Companies Act 2006 proposed by Tiso Blackstar Group SE PLC, an English-registered societas Europaea whose operational business and most shareholders are in South Africa and whose shares are listed on the Johannesburg Stock Exchange. The scheme sought to permit an exit for some shareholders by a cash payment (ZAR4.15 per share) and cancellation of their shares, funded by the sale of a subsidiary's holding in a private company; up to 59.8% of scheme shares could be cancelled. The proposal includes a default "exit" election for non-responding shareholders and a separate reduction of capital element requiring confirmation.

• Nature of application: sanction of a scheme of arrangement under Part 26 Companies Act 2006 and consideration of a linked reduction of capital.
• Key issues framed: (i) jurisdiction to sanction a scheme proposed by an English-registered SE; (ii) whether the proposal amounted to an "arrangement"; (iii) compliance with statutory requirements and the convening order; (iv) whether the scheme meeting was properly constituted and fairly representative given the STRATE dematerialised holdings; (v) fairness of the scheme to the class and treatment of directors' interests; (vi) whether s.641(1)(a) prohibited the reduction of capital element; and (vii) whether the variations between the scheme as voted and the scheme as presented for sanction were material.

The court applied the established approach to sanction hearings: independent scrutiny of fairness and compliance despite limited objections. The judge accepted jurisdiction and that the statutory and convening-order requirements had been met or substantially complied with. He analysed turnout and voting in the context of the STRATE system and concluded certification of management shares did not amount to abusive headcount manipulation. On fairness, the court relied on the disclosure in the circular, the BDO fairness report, the favourable vote margins and the commercial rationale for enabling an exit in an illiquid market. Directors' holdings and interests were disclosed; their unanimous vote for continuation and the asymmetric allocation to exiting shareholders did not undermine fairness.

On s.641(1)(a), the court held the section was not engaged: registration of legal title by dematerialised holders becoming certificated was not an "acquisition" in the sense intended by the provision, there was no single common acquirer or associative relationship between transferees, and the scheme was not of the mischief (takeover cancellations to avoid stamp duty) targeted by the section. The court sanctioned the scheme but adjourned confirmation of the reduction of capital to enable final ascertainment of the reduction once the election period closed; the judge gave a provisional view that confirmation should be granted at the subsequent hearing.

The court also noted practical and timing pressures related to Brexit and delisting, but found it had sufficient material and time to carry out proper scrutiny.

The court sanctioned the Part 26 scheme of arrangement proposed by Tiso Blackstar Group SE PLC. The judge held that he had jurisdiction, that the proposal was a proper "arrangement", that statutory requirements and the convening order had been complied with or substantially complied with, and that the scheme was fair to the class. On section 641(1)(a) of the Companies Act 2006, the court held the provision did not prevent the capital reduction element because the change in registration of title did not amount to an acquisition by a common acquirer nor did the scheme involve the mischief at which the section is directed. The reduction of capital element was provisionally acceptable but adjourned for final confirmation once the final extent of the reduction could be ascertained following the close of elections.