Lakes Distillery Company Plc, Re

In sanctioning a takeover scheme, the court must independently verify jurisdiction, statutory compliance, proper class constitution, fair representation, absence of coercion and any legal defect. The scheme jurisdiction is judicial, not ministerial.

Collateral arrangements must be considered with the scheme when assessing class composition, but independently created rights are not necessarily part of the scheme merely because the takeover triggers their exercise. Disclosure must be clear, sufficient and tailored to the particular scheme. A material deficiency will ordinarily prevent reliance on the meeting’s vote, although, exceptionally, the court may sanction without a further meeting where the evidence shows that no reasonable member would have changed their decision.

The Lakes Distillery Company Plc applied under Part 26 of the Companies Act 2006 for sanction of a scheme transferring its shares to Nyetimber Wines and Spirits Group Ltd’s acquisition vehicle for cash consideration.

The scheme was approved by the statutory majorities at a single court meeting. The hearing was adjourned because the explanatory statement did not sufficiently highlight directors’ interests in convertible loan notes, including a contractual 100% repayment premium on a change of control. The court therefore considered the proper interpretation of the notes, whether those arrangements formed part of or were collateral to the scheme, whether they fractured the shareholder class, and whether the disclosure deficiency required a further meeting.

1. The court sanctioned the scheme. The statutory requirements under Part 26 of the Companies Act 2006 were fulfilled, the scheme involved the necessary give and take, the court meeting was properly convened and the required majorities approved the scheme.
2. The convertible loan notes were properly construed, in light of their terms, surrounding documents and the parties’ agreed intention, as providing a 100% premium on a change of control. The notes were negotiated as urgent financing, independently of the takeover, and were not part and parcel of, or ancillary to, the scheme.
3. Collateral arrangements must be considered with the scheme when assessing class composition. Nevertheless, the loan-note interests did not make it impossible for the relevant shareholders to consult with the other shareholders in their common interest. The single class was therefore not fractured.
4. The court applied the classic test that shareholders fall within one class where their rights are not so dissimilar as to make consultation together impossible. The directors’ additional interests did not require their votes to be discounted, and the scheme would in any event have passed without votes connected with the loan notes.
5. The disclosure of the directors’ loan-note interests was deficient in form and substance. A conventional format does not satisfy the requirement for clear disclosure in plain language of matters reasonably capable of affecting attendance or voting. The deficiency was highly relevant to discretion, but did not ordinarily constitute a jurisdictional impediment.
6. Although materially inadequate information will usually require refusal of sanction or a further meeting, the court exceptionally accepted the existing vote. The evidence established that a further meeting would probably not change the result and might confuse or discourage shareholders, while the company faced serious consequences if the acquisition failed. There was no blot on the scheme.