Re GW Pharmaceutical plc

The court granted the applicant company’s application for an order convening a court meeting under Part 26 of the Companies Act 2006 to consider a takeover scheme. The court accepted jurisdiction and authorised a single class meeting. It approved virtual meeting arrangements and the explanatory statement. The court gave two specific directions: (i) a Proxy Direction permitting a member to appoint multiple proxies provided each proxy is appointed in respect of different share(s); and (ii) a Headcount Direction that, where a holder casts votes both for and against the scheme, the chair shall treat that holder as voting in favour if more votes are cast for than against and otherwise as voting against for the purposes of the majority-in-number test in section 899(1) CA 2006. The judge considered alternative approaches (including the Equitable Life and Jersey decisions) and explained why fractionalising members for the headcount was inappropriate in the circumstances, given the Depositary’s overwhelming holding (97.4%).

Background and parties: GW Pharmaceuticals plc (the Company) applied for an order under Part 26 CA 2006 to convene a court meeting to seek approval of a scheme of arrangement by which Bidco, a wholly owned subsidiary of Jazz Pharmaceuticals PLC, would acquire the Company. The Company’s ordinary shares are represented in ADS form on NASDAQ under a depositary arrangement: one ADS represents 12 Ordinary Shares and the Depositary held 97.4% of the issued ordinary share capital as at 4 March 2021.

Nature of the application: The Company sought a convening order for the court meeting, directions on class composition, approval of the explanatory statement, authority to hold the court meeting virtually, and specific directions about proxy voting and the application of the headcount (majority-in-number) test under section 899(1) CA 2006.

Issues framed:

• whether the court had jurisdiction and whether the scheme fell within Part 26;
• class composition and whether a single members class meeting was appropriate;
• whether the explanatory statement and communications were adequate;
• whether the meeting could be held virtually;
• whether members (including the Depositary) could appoint multiple proxies and split votes;
• how votes should be counted for the majority-in-number (headcount) test when a member splits its vote.

Court’s reasoning and disposition: The court concluded the Company is within Part 26 jurisdiction and that a single class meeting was appropriate because all members receive the same consideration (with a minor and not class-determinative currency election difference). The explanatory statement (drawn from the Proxy Statement prepared for US regulation) and communications proposals were adequate. Given the pandemic context and the proposed LUMI platform arrangements, the court approved a virtual court meeting.

The court accepted that members may split their votes and may appoint multiple proxies (consistent with the Company’s articles and section 324(2) CA 2006) and therefore granted the Proxy Direction. On the headcount question, the court analysed competing authorities: Re Equitable Life (permitting a nominee counted on both sides), Royal Court of Jersey authority which fractionalised a member according to instructions of beneficial owners, and other cases on custodial arrangements. The judge rejected fractionalising a member for the headcount as inappropriate here and adopted a tailored Headcount Direction whereby a member who casts votes both for and against will be treated as voting for if the number of votes for exceeds those against and otherwise treated as voting against. The rationale was to avoid inflating the number of voters, to ensure that the Depositary’s overwhelming economic interest is given some effect in the headcount, and to produce a result more representative of underlying economic interests. The convening order was made, including the Proxy and Headcount Directions; the court noted any issues affecting fairness could be addressed at the sanction hearing.

The court made the convening order sought and directed that the Court Meeting be held (virtually) and that: (i) holders may appoint multiple proxies provided each proxy is appointed in respect of different share(s) (Proxy Direction); and (ii) for the purposes of the majority-in-number test under section 899(1) CA 2006 a holder who casts votes both for and against the scheme shall be treated as voting in favour if more votes are cast for than against and otherwise as voting against (Headcount Direction). The order was made to ensure voting is representative of underlying economic interests and to avoid distortions in the headcount test arising from the Depositary’s large holding.