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How flexible is the procedure for schemes of arrangement?

Print publication

21/10/2016

SABMiller plc was the subject of a takeover by Anheuser-Busch InBev SA/NV. The structure of the scheme included a partial share alternative, which was primarily for the benefit of two of SABMiller’s largest shareholders, Altria Group Inc and BEVCO Ltd, who held respectively 26.48 per cent and 13.85 per cent of SABMiller’s issued share capital and each of whom had entered into a relationship agreement with SABMiller entitling them to appoint directors.

Each of Altria and BEVCO had given irrevocable undertakings to the bidder either to vote in favour of resolutions to approve the transactions including the scheme at any general or class meeting or court-convened meeting to be held in connection with the scheme or, if for the purposes of the scheme court meeting they did not form part of a class within the general body of SABMiller shareholders, to provide their individual written consent to the terms and implementation of the scheme.

Some of the other shareholders expressed concern about the terms of the deal and maintained that Altria and BEVCO could not vote in the same class as the other shareholders. The terms of the offer were revised and SABMiller announced that it would be proposing to the court that Altria and BEVCO be treated as a different class of shareholder from the other shareholders.

One of the shareholders, Soroban, – which in fact supported the scheme – argued that the Court had no jurisdiction to do what SABMiller was proposing. It submitted that there should only be one class meeting to which all scheme shareholders were summoned and at which they should be entitled to vote, as the rights of the persons to be bound by the scheme were not sufficiently dissimilar that they could not consult together as to their common interest.

The applicable legislation is set out in Part 26 of the Companies Act 2006 (the Act).  Under section 896, the court may, upon an application, order a meeting of the creditors, or class of creditors, or of the members, or class of members, of the company, to be summoned in such manner as the court thinks fit.  Section 899 provides that if a majority in number representing 75 per cent in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy, agree the scheme, the court may, on application, sanction the scheme.

The issue for determination by the Court, in essence, was whether the relevant provisions of the Act permitted the court to make an order summoning a meeting of some of the shareholders with whom a scheme was proposed, on the basis that the other shareholders were prepared to give undertakings to the court to be bound by the scheme.

The Court answered that question in the affirmative. It reasoned as follows:

  • it was not for Soroban to enforce the irrevocable undertakings to be bound by the scheme. Soroban’s rights related only to its own participation in the scheme and its right not to be placed into a class with persons with whom it could not discuss the scheme with a view to their common interest
  • there was nothing in the literal wording of section 896 to suggest that a member or creditor could not voluntarily agree to waive or forgo their right to participate in the meeting, in the same way that they could decide simply not to attend and vote
  • the purpose of the scheme jurisdiction is to facilitate compromises or arrangements, by supplying a statutory alternative to an agreement between the company and its relevant creditors and members, in cases where it is not possible to obtain the consent of all the creditors and members
  • the legislation should be interpreted flexibly and purposively to reflect the legislative intention of promoting compromise and arrangements, so as to permit the court, where appropriate, to accept undertakings from creditors or members to be bound by the scheme
  • where a creditor or member was not acting under compulsion, and was willing to consent voluntarily by agreeing to give an undertaking to be bound by a proposal, there was no confiscation of his property or rights, and no injustice if he was not summoned to the scheme meeting
  • the crucial factor was not SABMiller’s decision to exclude certain shareholders from the scheme meeting, but the agreement of Altria and BEVCO to be bound by it while agreeing to forgo their right to participate in the process for approving the scheme.

WM comment

The decision is a welcome one reflecting the flexibility that the legislator intended to afford to schemes of arrangement. In cases of uncertainty whether a particular shareholder forms part of a class, or is in a separate class of shareholder, it will be possible to exclude those shareholders from the scheme, in order to reduce the risk of a subsequent legal challenge, if they enter into irrevocable undertakings to abide by the terms of the scheme.

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