Diversified Energy Company Plc, Re

The court has an unfettered discretion whether to sanction a scheme of arrangement. It will ordinarily do so where the statutory requirements are met, the relevant class has been fairly represented and acts bona fide without coercing the minority, an intelligent and honest member of the class might reasonably approve the scheme, and there is no technical or legal defect or other blot. A share exchange supplies the required element of give and take. In confirming a reduction of capital, the court must be satisfied that the resolution is valid, shareholders are treated equitably, the proposal is properly explained, it has a discernible purpose, and creditors are not prejudiced. Where the statutory exception applies, a scheme may be accompanied by a reduction and expedited re-registration as a private company.

Diversified Energy Company plc applied for court sanction of a scheme under section 899 of the Companies Act 2006. The scheme was intended to place a Delaware-incorporated company, New DEC, above the Company and exchange shareholders’ existing interests for shares in New DEC on a one-for-one basis.

The Company also sought confirmation of reductions involving the cancellation of the scheme shares, B ordinary shares and share premium account, together with expedited re-registration as a private company under section 651. The applications were heard on an unopposed basis after the scheme and related resolutions had received the required shareholder approvals. The central issues were whether the statutory and judicial criteria for sanction, reduction of capital and re-registration were satisfied.

1. Scheme sanction. The court’s jurisdiction under sections 895 to 897 of the Companies Act 2006 involves both statutory criteria and a discretion. The court must be satisfied that the statutory provisions have been complied with, that the relevant class was fairly represented by members attending the meeting and that the majority acted bona fide without coercing the minority, that an intelligent and honest member of the class might reasonably approve the scheme, and that there is no blot or technical or legal defect. Those principles were drawn from Re National Bank Ltd, Re TDG plc and The Co-Operative Bank plc.
2. The proposed exchange of shares in the Company for shares in New DEC constituted a compromise or arrangement containing the necessary element of give and take, applying Re NFU Development Trust Limited. There was one class of shareholders, the circular and convening arrangements were adequate, the scheme was properly explained, and the substantial shareholder approval was informed and bona fide.
3. Reduction of capital. The statutory exception in section 641(2B) applied because the Company would have a new parent undertaking, substantially all its members would become members of that undertaking, and their proportions of equity ownership would remain substantially the same. The cancellation of the B shares and share premium account was distinct from the scheme; alternatively, the saving in section 641(2C) applied.
4. For confirmation of the reductions, the court applied the criteria derived from Re Ratners Group plc and Re Thorn EMI plc: valid passage of the special resolution, equitable treatment of shareholders, adequate explanation, a discernible purpose, and absence of creditor prejudice. Those requirements were satisfied.
5. The reduction would temporarily take issued capital below the authorised minimum. The expedited re-registration procedure under section 651 was therefore available and appropriate under section 650(2). The applications were granted and the orders sought were made.

not stated in the judgment.