England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Claim No: 7127/2012 & 8072/2012 The Rolls Building 7 Rolls Buildings Fetter Lane London, EC4A 1NL
		5th November 2012

MR JUSTICE VOS:
1. This is an application by Mann Group plc, whom I shall call "Mann", under section 899 of the Companies Act 2006 for the sanction of a scheme of arrangement, and under section 648 of the Companies Act 2006 confirming a resolution for the reduction of capital involved in the scheme. There is also before me an application by Mann Strategic Holdings plc, which I shall call "New Mann", under section 648 seeking confirmation of a resolution for the reduction of its capital. That application is not to be dealt with formally today but will come before the court, hopefully before me, on Wednesday of this week after the other orders have taken effect.
2. Mann and its group of companies are an alternative investment management group with funds under management of some US$52.7 billion and having some 1,400 staff worldwide. It is Mann's policy to pay 100 per cent of its adjusted management fee earnings by way of dividend and the object of the scheme is to impose a new holding company, New Mann, above Mann so as to enhance the group's access to distributable reserves.
3. This objective may seem a little obscure to those looking at it at first sight but it is really to allow greater flexibility in relation to the group accessing its distributable reserves, in case of situations involving impairment and other eventualities, really so as to enable Mann to continue to comply with the policy that I have just mentioned without the risks that presently exist.
4. The scheme operates in the following way: the ordinary shares in Mann will be cancelled, the reserve arising will be capitalised and applied in paying up new shares of the same aggregate value to be allotted to New Mann, and New Mann will allot on a one to one basis its ordinary shares to the former members of Mann. Then ultimately if I confirm the reduction of capital on Wednesday, New Mann will reduce the nominal value of the shares it issued to former members of Mann to the same nominal value of Mann's issued shares, which is 3 3/7^th cents so as to create distributable reserves.
5. The chronology of this scheme is briefly as follows. As at 30 June 2012 Mann had distributable reserves of $0.7 billion and undistributable reserves of $0.8 billion. On 24 July 2012 Mann announced its intention to put a new holding company in place and on 12 September 2012 Mann issued its claim form in these proceedings.
6. On 20 September 2012, Mrs Registrar Barber made the order convening the court meeting. On 24 September 2012 Mann's share capital was £50,000 divided into 50,000 fully paid deferred £1 shares and US$62,419,213.12 divided into, I think, 1,820,560,383 fully paid ordinary shares of US cents 3 3/7^th. The sterling shares are not affected by the scheme at all.
7. On 17 October 2012 a court meeting was held at which 95.21 per cent by number and 99.96 per cent by value, approved the scheme with a turnout in excess of 50 per cent by value. A general meeting of Mann was also held on that date.
8. On 18 October 2012 New Mann issued its claim form and on 25 October 2012 Mrs Registrar Derrett made two orders dispensing with the settlement of a list of creditors in each of the cases.
9. On 31 October 2012 New Mann passed a second resolution reducing its capital as a result of the drop in the Mann share price below the aimed for price of 136 cents.
10. Today, 5 November 2012, is the first hearing to sanction the scheme and confirm the reduction in Mann and to consider whether it is likely that the reduction in New Mann will be sanctioned when it comes back on 7 November 2012, which is Wednesday.
11. Tomorrow, 6 November 2012, is the scheme effective date and the admission of dealings of New Mann shares on the London Stock Exchange and, as I have said, on 7 November 2012 there will be a hearing hopefully to confirm the reduction of capital in New Mann. Thursday 8^th November 2012 will be the effective date of the New Mann reduction.
12. As to the law the scheme is a compromise or arrangement between the company and its creditors under section 895 of the Companies Act, as I have said. To sanction the scheme the court has to consider the four tests that are mentioned in an earlier edition of Buckley on the Companies Act and by Morgan J in Re TDG [2009] 1 BCLC 445 and in numerous other cases. Mr Martin Moore QC for Mann today has referred me to the passage in Buckley, which has been repeatedly approved by courts hearing these kinds of applications, as follows:

"Once the meetings have approved the scheme, the sanction of the court must be sought. The sanction of the court is not a formality. The court has an unfettered discretion as to whether or not to sanction the scheme, but it is likely to do so, so long as (1) the provisions of the statute have been complied with, (2) the class is fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and (3) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve ... The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind or some blot is found in the scheme."

13. There are, as I say, effectively four tests in relation to sanction of the scheme. First, that the provisions of the Companies Act 2006 have been properly complied with. I am satisfied in this case that that is the position. The circular, which properly explains the scheme, was brought to the attention of the shareholders and a substantial majority has voted in favour. Even though a significant number of shareholders did not vote it is clear from Re TDG that that should not affect my judgment.
14. Moreover the single class of shareholders was properly composed for the purposes of section 895 and I am satisfied that those persons who were in the class had rights that were not so dissimilar as to make it impossible for them to consult together with a view to their common interest as was held to be the appropriate test by Bowen J in the well known case of Sovereign Life Assurance Co (in Liquidation) v. Dodd [1892] 1 QB 573 at 583.
15. The second test is to show that the classes were fairly represented by those who attended the meeting and that the statutory majority were acting bona fide and were not coercing the minority in order to promote interests adverse to those of the class whom they purported to represent. That test on the evidence before me seems to be amply satisfied.
16. The third test is to show that the arrangement is such that an intelligent and honest man, who is a member of the class concerned and acting in respect of his interest, might reasonably approve the scheme. I have had the benefit of a more detailed explanation already from Mr Moore as to the reasons for the scheme and I am wholly satisfied that the arrangement is indeed such that an intelligent and honest man acting in respect of his own interest would reasonably approve it, which is in fact what the shareholders have done.
17. Finally, there has to be no blot on the scheme and none has been suggested and no shareholders appeared before me to oppose the scheme in any way.
18. As for other matters that have been raised before me, the position of option holders who are dealing in Mann shares has been protected by providing them with an equivalent option to acquire New Mann shares, so they will not be prejudiced. New Mann has undertaken, through Mr Moore, to be bound by the scheme and New Mann intends to rely on the exemption in section 3(a)(10) of the Securities Act 1933 and I am satisfied as to that.
19. In those circumstances it seems to me that it is appropriate for the court to sanction the scheme, having applied the appropriate tests, and I intend to do so.
20. Moving then to the reduction of capital. As I say, section 641 gives the court jurisdiction to confirm the reduction of capital. In this there are five matters which require the court's attention, and I shall deal with these matters in order in relation to each of the reductions, bearing in mind of course that I will not be today confirming the reduction of New Mann's capital. Mr Moore has, however, made it clear to me that the applicants would not wish to go ahead with the scheme if they thought that the court would not be likely on Wednesday to confirm the reduction of New Mann's capital since that would very much put a cat amongst the proverbial chickens. I will, therefore, consider both reductions this morning: the first so as to make an order and the second so as to take a provisional view.
21. The first test is that the resolution reducing capital must be validly passed special resolution. In the case of Mann the resolution was passed on or before 25 October 2012. But in the case of New Mann because of a small glitch caused by some market volatility giving rise to a reduction in the market price it was necessary to pass a second resolution, but that was again a special resolution validly passed on 31 October 2012. So that test is passed.
22. The second test is that the shareholders must be treated equitably in relation to the reduction. They need not all be treated the same provided any inequality is in accordance with the attached rights, the rights attaching to the shares, or has received consent from those affected. In this case I am satisfied that the shareholders are being treated equitably in relation to the reduction in both the case of Mann and in the future case of New Mann.
23. The third test is that the proposals must be properly explained to the shareholders so they can exercise an informed judgment. I have had the opportunity of looking at the circular and at the letter and advice that the shareholders have had access to and I am entirely satisfied in both cases that the proposals have been properly explained.
24. Fourthly, the resolution in each case for reducing capital must be for a discernible purpose. The purpose in the case of Mann is to facilitate the transaction in the usual way in a tax efficient manner, and the purpose in the case of New Mann is to ensure that sufficient distributable reserves are available in the future for New Mann, as I have indicated already. Again I am satisfied that those purposes are indeed discernible.
25. The fifth test is that the creditors of the company must not be prejudiced, which is entirely clear from the facts that I have set out on the evidence I have seen, and that applies in both cases.
26. Therefore, I am prepared to confirm the reduction of capital in the case of Mann. In the case of New Mann, should no further facts emerge or evidence be produced which changes the position significantly, I expect to be able to sanction the reduction of capital in New Mann on Wednesday 7 November 2012 if it comes before me, and I am happy for this judgment to be placed before another judge if for some reason it does not come before me.