GW Pharmaceuticals PLC, Re (Part 26 of the Companies Act 2006)

Under Part 26 of the Companies Act 2006, the court may give directions regulating voting at a scheme meeting so that the meeting fairly reflects the interests of the relevant class. It may permit a member to split its vote and appoint multiple proxies in respect of different shares. The court should not fractionalise a registered member for the statutory headcount, since membership is a unitary concept. Where a nominee holds most of the shares and may receive instructions both for and against the scheme, the court may direct that the member counts once for the side on which it casts the greater number of votes. The fairness and effect of the voting remain capable of review at the sanction hearing.

GW Pharmaceuticals plc applied for an order convening a members’ meeting to consider a takeover scheme under Part 26 of the Companies Act 2006. The company’s depositary held 97.4% of the issued ordinary shares for American Depositary Share holders and could receive voting instructions both for and against the scheme.

The company sought directions permitting split voting and multiple proxies. It also sought a direction that, for the statutory majority-in-number test, a member voting both for and against the scheme should count in favour if more votes were cast for the scheme, and otherwise count against. The central issue was how to reconcile representative voting with the statutory headcount requirement.

1. The court made the convening order, including the proposed Proxy Direction and Headcount Direction. The court meeting’s objective is to determine fairly the views of the relevant class, and the court has an inherent power to direct how the meeting is conducted.

2. A member may be permitted to split its vote at a court meeting. The court may also permit a holder of scheme shares to appoint multiple proxies, provided that each proxy exercises rights attached to different shares or groups of shares. Those directions can enable nominees and trustees to reflect the views of underlying beneficial owners, at least by value.

3. Beneficial owners who are not entered on the company’s register cannot be treated as members for a members’ scheme. The statutory members are those identified by section 112 of the Companies Act 2006. Accordingly, the court could not treat the underlying ADS holders as members for the headcount.

4. Section 899(1) of the Companies Act 2006 requires a majority in number of the members or class of members. Membership is generally a unitary concept. The court therefore rejected fractionalising a member according to the proportions in which underlying beneficiaries instructed it to vote.

5. The approach in Re Equitable Life Assurance Society (No 1) could be appropriate in some cases, but was less suitable here. Counting a split nominee once for and once against could neutralise the votes attached to 97.4% of the shares and give disproportionate influence to the remaining members. The Headcount Direction preserved one head for the depositary while allowing its greater side of the vote to determine how that head was counted.

6. The court recognised that the direction might improve the scheme’s prospects of securing the statutory majority. Any issue affecting the fairness or result of the meeting could be considered at the sanction hearing.