England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Claim No: 3288/2013 Royal Courts of Justice The Rolls Building Fetter Lane London EC4A 1NL
		3 July 2013

MR JUSTICE HENDERSON:

1. At this hearing the claimant, Randall & Quilter Investment Holdings Plc, seeks the sanction of the court to a proposed scheme of arrangement pursuant to sections 895 and following of the Companies Act 2006. The scheme also involves a reduction of the share capital of the company, for which the court's confirmation is sought.
2. The general purpose of the scheme is explained by Mr Thomas Booth, a director of the company, in his evidence in support of the claim. The company is the ultimate holding company in a group of companies, the R & Q Group, whose main activity is carrying on business in the UK, continental Europe, the United States, Canada and Bermuda as owners, managers and buyers of insurance companies, together with various other forms of insurance-related business. The purpose of the scheme, shortly stated, is to effect a redomicile of the Group to Bermuda, and under the scheme it is proposed that a new company will be incorporated in that jurisdiction, Randall & Quilter Investment Holdings Limited, which I will call "New R & Q". Under the scheme that company will acquire the entire issued ordinary share capital of the company in consideration for the issue of one new ordinary share of 2 pence in New R & Q for each ordinary share held by scheme shareholders at the scheme record time.
3. The purpose of the redomiciling is said to be a combination of regulatory, operational and commercial factors. It is hoped that the introduction of the new parent company in Bermuda will enable the Group to develop what Mr Booth calls an improved regulatory and operational platform to support its continued growth and development. Over the next few years the Group will work towards securing a positive determination from the Bermuda Monetary Authority to become group worldwide supervisor for the R & Q Group. It is also hoped that the new domicile will provide the Group with a strong base to carry out various of its other referrals-related activities. That, I think, is all I need say about the general purpose of the scheme and the simple form which it is proposed to take. As one would expect, the background and the purpose were fully explained in the scheme circular sent to shareholders, including the letter from the Chairman, Mr Ken Randall.
4. In the usual way, a court meeting was convened to consider and vote on the scheme. The meeting took place on 12 June and was chaired by Mr Randall, who later produced a report in which he set out the resolutions which were passed. I should add that the court meeting was in fact interposed in the course of the Annual General Meeting of the company, which took place on the same day. According to the Chairman's report overwhelming majorities, both in number and in value, of the shareholders present and voting at the meeting were obtained. The statutory test in section 899(1) requires the proposal to be passed by a majority in number comprising at least 75 per cent in value of the creditors present and voting at the meeting. The table in the Chairman's report shows that a total of 80 shareholders were present and voting, of whom 76 voted in favour and only four voted against. In terms of value the figures are even more striking. The total number of shares represented was 35,074,781 and the whole of that number of shares, with the exception of 5,878, was voted in favour of the proposal. The total number of scheme shares entitled to vote at the meeting was a little short of 71 million, so the meeting was apparently attended by the holders of 49.4 per cent of the eligible scheme shares.
5. It is also worth noting the evidence of Mr Randall himself in his first witness statement, where he explains that his own personal holding of approximately 17.5 million scheme shares did not in fact form part of the aggregate votes cast at the meeting because of an administrative error of the nominee holding those shares on his behalf. He confirms that he intended to vote those shares in favour of the scheme and, had that been done, the aggregate turnout would have become 74.1 per cent in value of the total shareholding.
6. So far, therefore, the case appears to be a straightforward one, and there would be no reason for the court to withhold its approval to the scheme in accordance with the well established principles upon which the court is accustomed to act. I should add that there is no opposition before me today, although the hearing was advertised in The Independent newspaper a few days ago, in accordance with directions given by the registrar at an earlier stage. There are, however, a few points drawn to my attention, very properly, by Mr Shaw on behalf of the company with which I need to deal.
7. I can take the first point quite quickly. This is a point about the composition of the classes of creditors. As is well known, the test which the court has to apply in determining the composition of classes on a members' scheme of arrangement is that members will constitute a separate class if they have rights which are sufficiently different from those of other members so that it is impossible for them to consult together with a view to their common interests: see Re Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 and Re Hellenic and General Trust Limited [1975] 3 All ER 382. The company submits that it was appropriate to convene a single meeting of scheme shareholders because they were all offered the same deal under the scheme, that is to say, they would obtain the right to acquire shares in New R & Q in return for their existing holdings of scheme shares.
8. The point concerns the ability to deal with shares in New R & Q. As matters now stand, uncertificated shares in the company are settled by Euroclear UK through the CREST system. However, the evidence establishes that Euroclear UK cannot settle shares issued by non-UK companies, which will of course include New R & Q, through the CREST system. The solution which has been devised to deal with this problem is that New R & Q has arranged for depository interests to be issued in respect of New R & Q shares to the relevant non-certificated shareholders. Those depository interests are in a form which can be settled through CREST, and they carry with them the beneficial entitlement to the underlying shares.
9. Counsel submits, and I agree, that this practical arrangement does not lead to the conclusion that there is a difference of interest between the certificated and non-certificated shareholders which requires them to form separate classes. It seems to me this is a matter of pure machinery. There is no suggestion that the depository interests will be in any way less valuable than the new shares. Furthermore, the beneficial interest in the shares will remain in the shareholders, who will at any time be free to withdraw their shares and hold them in certificated form. I am therefore satisfied that a single class was indeed appropriate in the present case.
10. The second point, however, is one of potentially more significance. It relates to the notice of the general meeting and the court meeting given to shareholders. The problem concerns the record time which was selected by the company for the purpose of giving notice of those meetings to members. I have been referred to regulation 41 of the Uncertificated Securities Regulations 2001 (SIV2001 No 3755), which provides that:

"(3) ... a participating issuer may determine that persons entitled to receive notices [of the relevant types] are those persons entered on the relevant register of securities at the close of business on a day determined by him."

11. Paragraph 41(4) then says:

"The day determined by a participating issuer ... may not be more than 21 days before the day that the notices of the meeting ... are sent."

12. Although that regulation is contained in a statutory instrument dealing with uncertificated securities, it appears, if one looks at the relevant definitions, that the provisions which I have referred to are not in fact confined to uncertificated securities but apply across the board to securities held in the usual way in a register, as well as those held in uncertificated form. It is, however, unnecessary for me to determine that point, and I have not heard anything like full argument upon it, because in any event the articles of the company contain a provision in equivalent form which applies as a matter of contract between the members and the company. So I can proceed on the footing that, by one route or another, the machinery laid down in regulation 41 and/or article 129.1 of the company's articles is applicable.
13. The nature of the problem appears from the witness statements which have been filed, firstly, by Miss Danielle Richards, who is a relationship manager of Computer Share Investor Services Plc, the registrar employed by the company. She explains that the register of the company has been kept up to date under her personal supervision, and as at the close of business on 15 May, which she refers to as the record time in her first statement, it contained details of the shareholders who were then known about. She then says that on 15 May, on instructions given on behalf of the company, she caused to be prepared a computer spreadsheet containing the names and addresses of the shareholders named and appearing on the register at that date. There were 434 shareholdings on 15 May and accordingly, if that were the only evidence, one would infer that the relevant mailing was sent to all of those shareholders.
14. There is also a witness statement from Mr Brendan Wilson of Linkway CCP, who are the printers employed by the company, and he states that on 17 May the printers received instructions from Miranda Craig, the deputy company secretary, confirming that they were to be responsible for the printing of the relevant documents, with the exception of the proxy forms, and these documents were to be sent to every holder of ordinary shares of the company who appeared on the register at the close of business on 15 May, that being the same record time to which Miss Richards had alluded.
15. In fact, however, that is not what happened, as appears from a second statement of Miss Richards made by her on 2 July. She says that her earlier evidence was inaccurate and, in the absence of specific instructions from the company to prepare the mailing list at a set date and time, it was actually created on 10 May using the company's register of shareholders at 5pm on that date. She goes on to say that the mailing list was not then updated to reflect shareholders on the register at 5pm on 15 May, even though it was only on that date that the AGM proxy forms were sent to Linkway CCP. The reason she gives for the failure to update is that the AGM proxy forms had been prepared using details on the register of members as at 10 May.
16. In many circumstances a difference of five days would not make much, if any, difference to the number and identity of the shareholders entitled to receive notice. But it so happens in the present case that there was a big difference between the number of shareholders on the register on 15 May, which, as I have already said, was 434, and the number on 10 May, which was only 384, that is to say 50 fewer. The reason for this is that a placing of shares had been entered into by the company at the relevant time, and although on 10 May the placed shares were held in the names of only two nominees, by 15 May the 61 individual placees had had their shareholdings issued to them with the consequence that there was this substantial increase in the number of shareholders on the register at the latter date. According to Miss Richards, the shares issued pursuant to the placing accounted for 29.4 per cent of the issued share capital of the company at the two dates, that is to say 10 and 15 May.
17. Against that factual background, Mr Shaw submits that the two meetings were nevertheless both duly convened. His first argument is that the date of 10 May was in fact selected by the registrars, and the company for its part never gave any instruction that 15 May was to be the relevant date, although it proceeded on the assumption that it would be.
18. As I said in the course of oral argument, it seems to me that this argument faces insuperable difficulties.
19. The first difficulty is that the evidence of Mr Wilson appears to be absolutely clear that he was instructed by Miranda Craig that the relevant shareholdings were to be listed as at the close of business on 15 May. That evidence is not contradicted as it stands, except by the second statement of Miss Richards, who says that there were no specific instructions from the company. However, her evidence to that effect is contradicted by her own initial evidence, and both her statements are in the usual way verified by statements of truth. It seems to me in those circumstances that there is nothing of any substance to displace the clear evidence of Mr Wilson. Equally, I have no evidence before me that the company merely made an assumption that 15 May was to be the relevant date. Nor is there any evidence of the company having delegated authority to choose the date to the registrars, or of any ratification by the company of any action taken to pick the earlier date. It seems to me, in those evidential circumstances, that I should proceed on the footing that the company did indeed give instructions for 15 May to be the relevant date and, as far as the company was concerned, that is what it always not only assumed, but had directed to be the case.
20. That brings me on conveniently to counsel's second argument, which is that the erroneous procedure adopted by the registrars constituted an accidental omission within the meaning of both article 51 of the company's articles and an unnumbered paragraph of the order made by Deputy Registrar Briggs on 9 May 2013 when he ordered:

"That the accidental omission to serve any holder of scheme shares with notice of the said meeting or the non-receipt by any such holder of notice of the said meeting shall not invalidate the proceedings at the said meeting."

[Quotation unchecked.]

21. The relevant provision in the articles of the company is a standard one and is to similar effect. It reads:

"The accidental omission to send the notice of the meeting ... shall not invalidate the proceedings at that meeting." [Quotation unchecked.]

22. The most recent, and now leading authority on these provisions is the decision of the Court of Appeal in Peninsular and Oriental Steam Navigation Company v Eller and Co and Another [2006] EWCA Civ 432, where the leading judgment was given by Lloyd LJ, with whom Moore-Bick LJ and Neuberger LJ agreed. In paragraphs 49 and following of his judgment Lloyd LJ referred to the facts of that case, where an error of a rather similar nature to that in the present case had occurred. The company had decided to set a record date of 18 December, and gave instructions to that effect to its registrars. However, the registrars, without informing the company, in fact drew up the relevant list as at 16 December, and then failed to take any steps to update the information to 18 December. The result was that when the mailing went out on 20 December, it went to those ascertained by reference to the register as it stood on the earlier date rather than the date instructed by the company.
23. Lloyd LJ referred to two authorities which had dealt with similar or comparable questions, although without, as he said, giving much in the way of analysis of the point. He pointed out that in one of those cases the solicitor acting for the company had consciously and deliberately taken the view that notice should not be served. on the erroneous basis that there was no entitlement to receive the notice in question. In the P & O case, by contrast, the instructions from the company and its solicitors had been correct, and it was only the registrars which, unknown to the company, had failed to comply with those instructions. Lloyd LJ considered and rejected a submission that the omission was not accidental for the purposes of the relevant provisions, but was instead the inevitable consequence of a deliberate decision by the registrars about the record date to be taken. He continued at [56]:

"But in the present situation where the company had taken a decision and had given instructions accordingly, and the registrars failed to give effect to that, it seems to me that it would not be correct to attribute that decision and the intention behind that decision to the company. To the contrary, it seems to me that the judge was right to hold that from the point of view of the company, which is the point of view that matters, this was an accident. The company and its solicitors took the decision to proceed in the correct way, they gave instructions accordingly, those instructions were inadvertently not carried out, and in my judgment the error in giving effect to the correct instructions is, on the part of the company, properly to be characterised as an accidental omission."

24. In my judgment this reasoning is applicable by analogy in the present case, where the facts are relevantly very similar to those which the court had to consider in the P & O case. I am therefore satisfied that article 51 and the relevant paragraph in the order of the deputy registrar do apply, with the result that the accidental omission does not in itself invalidate the meetings which took place.
25. That still leaves the question, however, whether it is right for me as a matter of discretion to approve the scheme in circumstances where, on the face of it, there was an increase of no fewer than 50 in the number of shareholders between 10 and 15 May. In relation to that issue, I have been much assisted by a last-minute witness statement prepared by Mr Randall which contains a detailed analysis of how the placees actually voted, insofar as it can now be ascertained, at the court meeting. I need not refer to that evidence in any detail. It is enough to say that it establishes that an aggregate of nearly 61 per cent of the total number of shares issued pursuant to the placing were in fact cast in favour of the scheme at the court meeting, that percentage equating to 17.85 per cent of the total issued ordinary share capital of the company.
26. In addition, I also have an earlier witness statement from Mr Randall in which he gives details of various ways in which details of the scheme were in fact made known to the placees, albeit not in the form of receipt of the scheme documents. I take those factors into account, and also take account of the overwhelming majorities which were in fact achieved at the court meeting. It seems to me I can safely conclude that no prejudice has been caused by the unfortunate failure to give notice to all of the shareholders who were on the register as at 15 May, and it would involve unnecessary expense and complication if I were to require the meeting to be reconvened. In the circumstances, therefore, I am satisfied that, although this was a regrettable error, it is not one which should cause me to withhold my approval from the scheme.
27. There were a number of other relatively minor matters of a technical nature which counsel raised with me and in respect of which I indicated that I was satisfied. It is unnecessary for me to deal with those matters in this judgment, and it is therefore enough for me to say that, having considered the matter and with the benefit of counsel's submissions, I am satisfied that I should give the court's approval to this scheme and to the associated reduction of capital.