Jersey Unreported Judgments

Companies - reasons for sanctioning a scheme of arrangement

[2020]JRC209

Royal Court

(Samedi)

13 October 2020

IN THE MATTER OF DELPHI TECHNOLOGIES PLC

AND IN THE MATTER OF ARTICLES 125 AND 126 OF THE COMPANIES (JERSEY) LAW 1991

Advocate A. Kistler for Representor.

Advocate S. J. Alexander for BorgWarner Inc.

judgment

the deputy bailiff:

1.        On 1^st October 2020, the Court sanctioned a Scheme of Arrangement ("the Scheme") in respect of the Representor, Delphi Technologies Plc ("the Company") pursuant to Article 125 of the Companies (Jersey) Law 1991 ("the Law").  We now give our reasons for this decision.

Relevant statutory provisions

2.        It is convenient at the outset to consider the relevant extract from Article 125 of the Law which empowers the Court to sanction a Scheme of Arrangement:

"Power of company to compromise with creditors and members

(1)       Where a compromise or arrangement is proposed between ... the company and its members, or a class of them, the court may on the application of the company ... or member of it .... order a meeting of ... the members of the company or class of members (as the case may be), to be called in a manner as the court directs.

(2)       If a majority in number representing -

(b)        3/4ths of the voting rights of the members or class of members,

.... Present and voting either in person or by proxy at the meeting, agree to a compromise or arrangement, the compromise or arrangement, if sanctioned by the court, is binding on -

(ii)     all the members or class of members,

... and also on the company...."

3.        The test to be applied by the Court when considering whether or not to sanction a Scheme pursuant to Article 125 is set out at paragraph 4 of the judgment In the Matter of Computer Patent Annuities Holdings [2010] JRC 021 as follows:-

"The Court's duty when considering applications under Article 125 was set out in the case of the Representation of Andsberg Limited [2007] JLR N 53 and has also been repeated in Re CI Traders Limited [2007] JRC 149A, where, although the case heard in 2007, the judgment has apparently only just been transcribed and published.  The test is threefold.  The Court must consider:-

(i)        Whether these 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."

Background to the Scheme

4.        The Company is a holding company of a group that is a global provider of propulsion technologies that aim to improve and make engines more efficient.  Such engines include combustion engines, hybrid and electric engines for passenger cars and commercial vehicles.  The Company operates in twenty-four countries and employs 21,000 people with its principal executive offices in London.  The Company shares are currently listed and traded on the New York Stock Exchange.

5.        Owing to the way in which the Company's shares are traded on the New York Stock Exchange, most of the Company's shares are held by Cede & Co, as nominee for the Depository Trust Company which in turn holds the shares directly or indirectly for the many underlying beneficial owners of the shares.

6.        The share capital of the Company comprises a single class of Ordinary Shares of which there were, as at 5pm on the 21^st May, 2020, (the relevant date for the purposes of finalisation and posting of the Scheme Document), 86,349,731 in issue.  Pursuant to the Scheme the Company shares are to be purchased by BorgWarner Inc. ("BorgWarner"), a company with similar interests, namely clean and efficient technology for combustion, hybrid and electric vehicles.  BorgWarner manufactures and sells its products worldwide, principally to equipment manufacturers of light vehicles and commercial vehicles.  It is a Delaware corporation incorporated in 1987 and is also listed on the New York Stock Exchange, with its principal offices in Michigan.

7.        The Scheme is described, inter alia, in a letter from the Chief Executive Officer of the Company written to the shareholders in the Company entitled to attend and be heard at the hearing before the Court and to vote at the Court Meeting ("the Scheme Shareholders").  The letter explains that on 28^th January, 2020, the Company and BorgWarner entered into an agreement, which was amended on 6^th May, 2020, pursuant to which BorgWarner or a subsidiary of BorgWarner would acquire the Company pursuant to a Scheme of Arrangement under the Law resulting in the Company becoming a wholly owned subsidiary of BorgWarner.  As to the consideration for the acquisition, shareholders in the Company would receive 0.4307 of a share of BorgWarner stock in exchange for each share in the Company, and cash in lieu of any fractional share interest of a BorgWarner share.  The letter stated that the board of directors of the Company were of the view that it was in the best interests of shareholders that the Company enter into the transaction and recommended that they voted for the approval of the Scheme.  Disclosure was made to the shareholders of the extent to which certain directors and executive officers of the Company had interests in the proposed transaction that were additional to or different from any interests that shareholders may have.

8.        Scheme shareholders were provided with the Scheme document and a substantial amount of documentation explaining the Scheme and disclosing advice obtained by the Company in support of the Company entering into the transaction.

9.        The letter also explained to beneficial owners of shares how their shares would be voted on their behalf at the Court Meeting (of which more below) and also of their entitlement to be heard at the Court hearing when the sanctioning of the Scheme would be considered, either in person or by way of video link or through a Jersey advocate, to support or oppose the Scheme.

The Court Meeting

10.      On 20^th May 2020 the Court gave directions, having considered the Representation of the Company ordering inter alia, that the Court Meeting for the purpose of considering and, if the shareholders thought fit, approving the Scheme should take place at 9am Eastern Time (US) on 25^th June 2020.  The Court considered the documentation that was to be sent to shareholders and made various alterations to it which were accepted by the Company, and made other ancillary orders particularly in relation to the holding of the Court Meeting.

11.      The Court Meeting duly occurred and we were assisted by an affidavit by Mr Dauch, Chief Executive Officer of the Company, who presided over the Court Meeting as chairman.  The meeting took place on 25^th June 2020 via live web cast. 

12.      The statutory requirements as set out above were met.  The Court Meeting sought approval of the Scheme by a simple majority of Scheme shareholders voting representing at least three quarters of the voting rights of the holders of such shares present and voting either in person or by proxy. 

13.      All four shareholders of record were present at the meeting either in person or by proxy.  Three voted solely in favour of the Scheme and one shareholder cast split votes.  Accordingly four shareholders in number voted in favour of the Scheme and one against.  As to the number of shares represented by those voting in favour and against respectively, those voting in favour represented shares totalling 68,048,660; shares voting against totalled 31,498.  Accordingly the percentage of shareholders voting in favour of the Scheme by number of shares issued represented 99.95% of the voting of Scheme shareholders present and voting either in person or by proxy.

14.      Subsequently on the same day a General Meeting of the Company was held and various resolutions necessary for the implementation of the Scheme were also passed.  Resolutions authorising the directors to take such actions as they may consider necessary or appropriate for carrying out the Scheme and to approve alterations to the Company's Articles of Association were approved by a special resolution requiring a majority of at least two thirds of the votes of ordinary shareholders present and voting.  A non-binding resolution requiring a simple majority of the votes of ordinary shareholders to approve "golden parachute compensation arrangements" referred to in the Scheme documents was approved much more narrowly - 50.47% in favour and 49.53% against.

15.      Accordingly there has been compliance with the directions of the Court given on 20^th May 2020 and with the statutory requirements of Article 125 of the Law, particularly as regards to the conduct of the Court Meeting.  Further, the thresholds specified in Article 125(2) of the Law had been met.

Court's discretion in relation to sanction of the Scheme

16.      Accordingly it remains for the Court to decide whether or not to sanction the Scheme.  The Court is entitled to and has regard to the fact that the Scheme was approved by a very substantial majority of Scheme shareholders.  No shareholders communicated their opposition to the Scheme to the Court.

17.      In the Representation of Vallar Plc [2011] JLR Note 25 the Court observed:-

"The Court should show reluctance to differ from the views of the majority, and should certainly be slow to differ from the majority, on matters such as what an intelligent, honest person might reasonably think."

18.      Furthermore, the directors of the Company had taken advice on the terms of the Scheme from a reputable firm; the single class of shareholders had been properly notified of material relating to the Scheme; there was no evidence that any of the Scheme shareholders were not acting bona fide or that the majority which had voted in favour of the Scheme were coercing the minority; and the Scheme had been subject to regulatory announcement and coverage in the media.

19.      We received an undertaking from counsel for BorgWarner that all conditions necessary for implementation of the Scheme have been satisfied or will be satisfied or waived to the extent that they were in the power of BorgWarner.  Counsel agreed that all outstanding conditions would be met within hours of the Scheme being sanctioned.

20.      Accordingly the Court sanctioned the Scheme and made the ancillary orders sought.

Authorities

Companies (Jersey) Law 1991. 

In the Matter of Computer Patent Annuities Holdings [2010] JRC 021

Representation of Vallar Plc [2011] JLR Note 25.