J. A. Clyde-Smith Esq., Commissioner, and Jurats Kerley and Blampied
IN THE MATTER OF THE REPRESENTATION OF HERITAGE OIL PLC
AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 125 OF THE COMPANIES (JERSEY) LAW 1991
Advocate M. H. Temple for the Representor.
In attendance: Advocate N. M. Sanders for Energy Investments Global Ltd ("Bidco" and Al Mirqab Capital SPC ("Al Mirqab").
1. The representor ("Heritage Oil") is engaged in the business of identifying, developing and monetising oil and gas assets internationally under the leadership of Anthony Buckingham, who personally and through his company, Albion Energy Limited ("Albion") has an interest in 34.06% of the share capital. Heritage Oil has a premium listing on the official list of the UK listing authority and is admitted to trading on the main market. It is a constituent of the FTSE 250 Index.
2. On 27th May, 2014, the Court gave Heritage Oil liberty, pursuant to Article 125(1) of the Companies (Jersey) Law 1991 ("the Companies Law"), to convene a meeting of its members, other than Anthony Buckingham and Albion, to consider a scheme of arrangement. We will refer to the members convened as "the scheme shareholders" and their shares as "the scheme shares". The purpose of the scheme was to implement the acquisition of the entire issued and to be issued ordinary share capital of Heritage Oil by Bidco, a company incorporated in the British Virgin Islands, at a price of 320p per share. Bidco is wholly owned by Al Mirqab, a company incorporated in the State of Qatar. The sole director of both Bidco and Al Mirqab is His Excellency Sheikh Hamad Jassim Jabor Al Thani.
3. Anthony Buckingham and Albion were excluded from the class of shareholders entitled to attend and vote on the scheme at the Court meeting because they were deemed to be acting in concert with Al Mirqab, pursuant to certain arrangements entered into between them whereby (assuming the acquisition went ahead) inter alia:-
(i) Albion would retain a 20% interest in the share capital of Heritage Oil for at least five years (Anthony Buckingham and Albion selling their remaining shares under the terms of the acquisition); and
(ii) Anthony Buckingham would agree to serve as an adviser to Heritage Oil on an exclusive basis for a minimum of five years.
The acquisition was subject to the scheme shareholders approving these arrangements, at a meeting to be held following the Court meeting.
4. Article 125(2) of the Companies Law requires the scheme to be approved by a majority number representing 3/4ths of the voting rights of the members present and voting either in person or by proxy. At the Court meeting held on 23rd June, 2014:-
(i) A majority in number (81% or 104 out of 129) of the scheme shareholders present and voting either in person or by proxy
(ii) representing more than 3/4ths of the voting rights (97% or 72,636,336 out of a total of 74,568,475 shares) of the scheme shareholders present and voting
(iii) voted to approve the scheme. The requisite majority was therefore met.
5. The Buckingham arrangements were subsequently approved by the independent shareholders by ordinary resolution. The matter came back before the Court on 27th June, 2014, when the scheme was sanctioned for the reasons which we now give.
6. Sanctioning the scheme is the third and final stage in the process. The Court's duty when considering whether to sanction the scheme was set out in the case of In the matter of Computer Patent Annuities Holdings Limited  JRC 021 following the cases of Re Andsberg Limited ]2007] JLR N 53 and Re CI Traders Limited  JRC 149A:-
"The test is three fold. The Court must consider:-
(i) whether the provisions of the 1991 Law have been complied with;
(ii) whether the class of shareholders to be affected by the proposed scheme was fairly represented by those who attended the meeting and whether the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and
(iii) whether the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve".
7. The above test is based on the following statement in Re National Bank Ltd  1 All ER 1006 at 1012,  1 WLR 819 at 829:-
"In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was 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 thirdly, 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."
8. On 20th June, 2014, the Court received an email from Ken James, who described himself as a shareholder in Heritage Oil, objecting to the scheme. He gave no indication of the size of his holding and he did not disclose his address. In summary, his objections were:-
(i) That the deal had been negotiated in secret.
(ii) That all other bids had been locked out.
(iii) That the deal benefits Mr Buckingham but not the other shareholders.
(iv) That the directors, in approving this deal exclusively, had failed in their duty to the shareholders.
(v) That the deal has been forced through with insufficient consultation or dialogue with the shareholders.
(vi) That the shareholders have been obstructed from voting on the deal.
9. On 24th June, 2014, the Court received a second letter of objection to the scheme from Richard Marcuse, a resident of Canada, which we summarise as follows:-
(i) He had been a shareholder for almost a decade, currently holding 8,790 shares.
(ii) He had a deeply held sense that the scheme was a very bad deal for ordinary shareholders but an excellent "sweetheart" deal for company insiders and for His Excellency Sheikh Hamad Jassim Jabor Al Thani.
(iii) Although this was a critical decision to be made by shareholders barely 40% of eligible shareholders voted.
10. His letter went into detail as to the difficulties he and his broker Odlum Brown Limited had encountered in trying to vote on the scheme but it is fair to say that these were difficulties as between them and the nominee who actually held the shares.
11. Neither objector attended the hearing or was represented.
12. The Court had received an affidavit from Sophie de Freitas, a director of Computershare Investor Services (Jersey) Limited, the duly appointed registrar of Heritage Oil who maintained the register of members, confirming that as directed by the Court on 27th May, 2014, the notice convening the Court meeting and enclosing a copy of the scheme, a copy of the explanatory statement and a form of proxy had been served in accordance with the articles of Heritage Oil on each of the scheme shareholders. In response to the objections, she filed a further affidavit dated 26th June, 2014, in which she provided the Court with the following information:-
(i) Neither Ken James nor Richard Marcuse was a shareholder in Heritage Oil. We assumed therefore that Ken James also held his shares through a nominee.
(ii) She was able to identify a holding 8,790 shares held by Odlum Brown Limited, presumably as nominee for Richard Marcuse, and confirmed that that company had been included in the Canadian mailing. It would seem that Odlum Brown Limited transferred its holding to Lynchwood Nominees Limited on 13th June, 2014, (before the Court meeting), increasing the holding of that company to a total of 8,100,583 shares.
(iii) On 18th June, 2014, Odlum Brown Limited had requested clarity on the voting process, but it was explained that its holding had been transferred to Lynchwood Nominees Limited and therefore anyone with an underlying beneficial interest and a corresponding right to give voting instructions should contact Lynchwood Nominees Limited with those instructions.
(iv) According to their records, there were no complaints received from Lynchwood Nominees Limited in relation to the scheme and that company voted 520,000 shares in favour of the scheme and did not vote any of the other shares held by it.
(v) They had received various communications from Richard Marcuse in relation to the scheme between 16th June, 2014, and 26th June, 2014, but as he was not entered on the register of members of Heritage Oil, he was informed that he should direct any queries to his broker through which he claimed to hold an interest.
(vi) They had not received any complaints from Ken James in relation to the scheme.
13. These objections raised a point of principle. The whole purpose of Article 125 of the Companies Law is to allow the requisite majority of members to bind all members of the company to a scheme, including those who have voted against it. A scheme approved by the requisite majority should not therefore be frustrated or delayed solely because those who voted against it disagree with the views of those who voted in favour. Those objecting must persuade the Court that:-
(i) the provisions of the Companies Law have not been complied with; or
(ii) the class was not fairly represented by those who attended the meeting or that the majority were not acting bona fide or that the majority were coercing the minority in order to promote interests adverse to those of the class whom they purported to represent-in other words there must be evidence of wrong doing; or
(iii) the arrangement was not such as an intelligent and honest man, a member of the class concerned and acting in respect of his interests, might reasonably approve; or
(iv) there is some blot on the scheme.
14. Advocate Temple submitted that where objections are raised before the Court it is analogous to an injunction application where the applicant would be expected to present evidence to make out his allegations and give a cross undertaking in damages. Preventing or delaying the scheme on the basis of such objections prejudices the position of shareholders who have not objected to the scheme and may have an expectation that the scheme will progress within the timeframe set out in the scheme circular.
15. In the short time available Advocate Temple was unable to provide any authority to support that submission and it was not the subject of argument. Nevertheless we would offer the following provisional observations. Scheme shareholders are entitled to attend and be heard at the Court sanction hearing. That right is set out in express terms in the Chairman's letter to the shareholders and in the explanatory statement. A scheme shareholder should not be deterred, we suggest, from attending and being heard at the Court sanction hearing by the fear of financial sanction, provided he conducts himself reasonably and is acting bona fide. Conducting himself reasonably will include giving the company concerned and the Court as much prior written notice of the objections as the circumstances allow. He must understand, however, that there will need to be good reason (as set out above) for the will of the majority to be prevented or delayed and where wrongdoing is alleged it must be supported by evidence; mere assertions of wrongdoing will not suffice. Furthermore the Court will be wary of disaffected shareholders engaging in spoiling tactics.
16. Strictly speaking, neither Ken James nor Richard Marcuse has locus in the matter in that they are not shareholders; their interests being held through nominees. We envisage, however, that the Court will wish to retain a discretion to grant an audience to a beneficial owner of shares who, prima face, has grounds for persuading the Court not to sanction the scheme.
17. An adjournment of the application in order to give further consideration to the two objections could, we were told, have serious repercussions for Heritage Oil, whose shares would have to be suspended. Having considered the two objections carefully, we determined that the scheme should be sanctioned for the following reasons:-
(i) We were satisfied that the provisions of the Companies Law had been complied with; neither objector asserted otherwise.
(ii) Other than bare assertions, we had no evidence of wrongdoing. The evidence we did have showed that:-
(a) This is a listed company and the scheme had received wide coverage in the financial press through the various announcements that had to be made as a listed company.
(b) The acquisition was governed by the City Code on Takeovers and Mergers and was subject to the jurisdiction of the Panel on Takeovers and Mergers which have been structured in a manner consistent with the Takeover Code and directions given by the Panel.
(c) There was only one class of shareholders. The scheme shareholders had the same rights under the scheme in so far as their entitlement to receive consideration due under the terms of the acquisition would be identical for each scheme share held. The interests of all scheme shareholders were therefore aligned and the scheme shareholders who voted to approve the scheme do not stand to benefit in some manner that is not available to those who did not vote. Al Mirqab had no direct or indirect interest in the scheme shares.
(d) We were satisfied that all of the scheme shareholders had been properly notified and there was simply no evidence that any of the scheme shareholders were not acting bona fide or that the majority who voted in favour of the scheme were coercing the minority.
(e) Much of the complaint of Richard Marcuse related to difficulties he had encountered with his own nominee, which appears to have changed following receipt of the notice for reasons beyond the control or knowledge of Heritage Oil. The arrangements between a beneficial owner and his or her nominee are not a matter which can concern Heritage Oil; the Companies Law only requiring notice to be given to members.
(f) The company had an independent chairman and independent directors who had been separately advised by J P Morgan Cazenove and they had unanimously recommended approval of the scheme. We could see no objection to those directors who were shareholders (whose holdings represented 2.3%) undertaking to vote their own shares in favour of the scheme even if a higher competing offer was received. If a higher offer was received the scheme shareholders remained at liberty to vote against the scheme.
(iii) It seemed to us virtually impossible to argue that the scheme was not one which an intelligent and honest man might reasonably approve-after all 104 scheme shareholders had voted in favour of it. It was a question of balancing a certain sum now against the potential for growth in the future with all the risks involved. In his letter of 27th May, 2014, the Chairman explained it in this way:-
"While the Independent Directors believe in the future growth of Heritage in the long term, having considered the proposed terms of the Acquisition in light of the risks, particularly around the operational challenges to achieving targeted production growth, rewards and timescales associated with the realisation of value from Heritage's assets, they consider that the proposed terms of the Acquisition, including the Cash Price, provides Heritage Shareholders with an attractive and certain value."
The objectors feel very strongly that the terms of the acquisition are not in their financial interests; the majority disagree. The objectors are bound by the majority view.
18. It is the case that only 129 out of the total 599 (approximately 22%) registered scheme shareholders (representing 41% of the aggregate issued share capital of Heritage Oil held by the scheme shareholders) entitled to attend and vote at the Court meeting actually attended the Court meeting in person or by proxy and voted. Advocate Temple drew our attention to the observations of Morgan J in the case of Re TDG Plc  1 BCLC 445 where a shareholder who voted against a scheme objected to the arrangement for a number of reasons, drawing attention to what he perceived to be the relatively low turnout of members to approve the scheme, namely 21% of the members representing 46% in terms of value of holders of the scheme shares. Morgan J said at paragraphs 25 and 26:-
"Mr Chalker, in his letter and in the course of oral argument, has addressed me on the attitude I should adopt to the fact that many shareholders expressed no view either way, for or against the scheme. There has been speculation (and it can only be speculation) as to why people do not vote. I will not attempt an exhaustive list of the reasons why people do not vote; there are some obvious explanations. One is that, although the documents are served in accordance with the legal requirements, they do not in fact come to the attention of the shareholder. Another is that the shareholder receives a very substantial bundle of documents and does not feel ready and able to deal with it, and so does not deal with it within the time that is set. Other shareholders might feel able to deal with the matter, but in the end have no very pronounced preference and so they leave the decision to large shareholders in a company who it might be thought will have a very good commercial feel as to the appropriate decision. So such a shareholder leaving it to others to form a majority is not to be equated in any sense with an opponent of the scheme."
And in paragraph 26 in relation to shares held by a nominee:-
"Mr Chalker also referred to another class of shareholders, which is the class of nominee shareholders, where the nominee takes the action and makes the decision, or perhaps remains passive and does not vote. Mr Chalker would have it that in some circumstances, certainly not all, the nominee will not have truly consulted the ultimate beneficial owner of the shares. Mr Chalker may be right. Some nominees do not fully consult. Others plainly do. Indeed, in this case some of the relevant shares, Mr Chalker's mother-in-law's shares (where she is the beneficial owner) are held by a nominee. The nominee does appear to have explained the matter adequately, if not completely fully. Mr Moore reminds me, and I accept his submission, that the shareholder is the nominee. If the documents go to the nominee and the nominee acts in a way the nominee chooses then nothing has gone wrong. In particular, silence from the nominee is not to be equated with opposition to the scheme."
19. For the same reasons, Richard Marcuse's complaint in relation to the perceived low level of the turnout provided no grounds for this Court declining to sanction the scheme.
20. In conclusion, as was stated in Re National Bank Limited, the Court will be slow to differ from the meeting. The scheme shareholders had been properly consulted, there was no evidence of wrong doing and we found no blot in the scheme. It was therefore sanctioned.
Companies (Jersey) Law 1991.
In the matter of Computer Patent Annuities Holdings Limited JRC 021.
Re Andsberg Limited  JLR N 53.
Re TDG Plc  1 BCLC 445.
Re National Bank Ltd  1 All ER 1006 at 1012,  1 WLR 819.