Jersey Unreported Judgments

Companies - Scheme of Arrangement

[2024]JRC020

Royal Court

(Samedi)

23 January 2024

Before     :

R. J. MacRae, Esq., Deputy Bailiff, and Jurats Averty and Entwistle

 

IN THE MATTER OF THE REPRESENTATION OF WENTWORTH RESOURCES PLC

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

Advocate J. D. Kelleher for the Representor.

Advocate R. Spencer-Tucker for Etablissements Maurel & Prom SA.

judgment

the deputy bailiff:

1.        On 19 December 2023, we sanctioned the Scheme of Arrangement in this case upon the undertaking of counsel for the purchasing entity to be bound by the terms of the scheme. 

2.        Wentworth Resources Plc ("Wentworth") continued into Jersey on 26 October 2018, having previously been registered as a Canadian company.  Wentworth's principal asset is an interest in a gas field in Tanzania.  Wentworth has grown in value significantly in recent years. 

3.        The purchasing company is a listed French company focused on exploration and production in Africa and Latin America, with its principal assets in countries including Tanzania.  The purchasing company, Etablissements Maurel & Prom SA was referred to in the letter from the chairman of Wentworth dated 11 January 2023 as "M&P".

4.        That letter referred to an announcement on 5 December 2022 by the Wentworth board and the M&P board that they had reached agreement on the terms of a recommended offer by M&P for the entire issued and to be issued share capital of Wentworth, the acquisition to be implemented by a Royal Court sanctioned Scheme of Arrangement under Article 125 of the Companies (Jersey) Law 1991 ("the Law").  Under the terms of the acquisition, the Scheme Shareholders at Record Time, as defined in the Scheme document, were to receive 32.5 pence in cash, valuing the entire issued and to be issued ordinary share capital of Wentworth at approximately £61.7 million.  This was a premium of 30% to the closing price of 25 pence per Wentworth share on 2 December 2022, the last business day prior to the commencement of the Offer Period, as defined in the Scheme document. 

5.        The Scheme was subject to the City Code on Takeover and Mergers and the Announcement on 5 December 2022 was in compliance with the Code.

6.        M&P is already the majority owner and operator of Wentworth's significant non-cash asset, the Mnazi Bay Gas Project in Tanzania.  M&P owns 48.1% of the project and Wentworth owned a substantial but smaller holding in the project.  Accordingly, M&P and Wentworth had an existing relationship extending over a number of years. 

7.        M&P had a market capitalisation of approximately €806 million as at 30 September 2022.  Once the scheme becomes effective, all the Scheme Shares will be transferred to M&P and the Scheme Shareholders will receive cash from M&P.

8.        Implementation of the Scheme and acquisition by M&P was conditional upon certain conditions to which we will return.  The Scheme could only become effective in accordance with its terms if all the conditions were satisfied or, where relevant, waived.  As will be made clear below, there was a very significant delay in seeking the Court's sanction by reason of certain of these conditions.

9.        As to the matters that the Court need to consider, in Vallar Plc [2011] JRC 125, Sir Philip Bailhache, Commissioner, giving judgment of the Court in a similar application said, having set out the terms of Article 125:

"5. In exercising its discretion under Article 125 the Court has followed the settled approach of English courts. We have to ask ourselves:-

(i)            Whether the provisions of the 1991 Law have been faithfully observed;

(ii)           Whether the shareholders or class of shareholders or creditors have been fairly represented by those who attended the meeting and that the statutory majority approving the scheme was acting in good faith in the interests of the class it professed to represent and was not coercing the minority in order to promote interests adverse to those of the class whom they purported to represent;

(iii)          Whether the arrangement was such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve; and

(iv)          Whether viewing matters in the round there was no blot on the scheme which might indicate that the Court's discretion should not be exercised in favour of sanctioning the scheme of arrangement."

10.     Subsequent cases have noted that the first matter, namely whether or not the provisions of the 1991 Law have been faithfully observed, is not in fact a matter of discretion.  It is simply a matter of whether or not the evidence shows that the statutory provisions have been complied with.  The Court does not exercise a discretion unless there has been observance with the statutory conditions.  Subsequently, in the case of The Representation of Cazenove Capital Holdings Limited [2013] JLR (2) N-18, Commissioner Clyde-Smith, giving the judgment of the Court, suggested that the final consideration, namely whether or not there was a blot on the scheme which might indicate that the Court's discretion should not be exercised in favour of sanctioning the scheme, should be treated as part and parcel of the previous question, namely whether or not the arrangement was such that an intelligent and honest man, a member of the class concerned and acting in respect of its interests might reasonably approve.

11.     This approach was considered by the Guernsey Court of Appeal in Puma Brandenburg Limited v Aralon Resources and Investment Company Limited [Judgment 18 May 2017], the Court consisting of Nigel Pleming QC, George Bompas QC and Sir Michael Birt.  The judgment of the Court was given by Bompas JA and at paragraph 80, having considered the Court's jurisdiction to sanction the scheme, went on to deal with the issue of the Court's discretion.  Bompas JA said:

"81 At paragraphs 34 and 35 of his judgment the Bailiff set out the principles which guide the exercise of the discretion given by section 110 of the Companies Law when the Court is considering whether or not to sanction a scheme. These he explained in the following terms:

           "34. By virtue of section 110(1) of CGL, [the relevant Guernsey legislation] when deciding whether to approve a scheme of arrangement, the Court has an unfettered discretion but, as always, the discretion must be exercised judicially. The factors to be considered in the exercise of discretion include, but are not limited to, those set out in section 110(2) of CGL. In Re Montenegro Investments Limited (In Administration) [2013-14] GLR345 and in Re Assura Group Limited (unreported 27th January 2015), the Royal Court has set out the following criteria as matters which must be established by the applicant Company to the satisfaction of the court:

           (1) Whether the class of members was fairly represented by those who attended the court meetings and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent;

           (2) The scheme is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interests, might reasonably approve; and

           (3) There is no 'blot' on the scheme, which it is submitted is simply another way of saying that the court may take any other factor into account in exercising its discretion.""

12.     The Guernsey Court of Appeal considered the Jersey decision in Cazenove, and the appropriate test in the light of that decision as follows:

"85 Nevertheless, before us Advocate Greenfield made two submissions about the last of the principles referred to by the Bailiff in his judgment. His first submission was based on a judgment given in a case in the Royal Court in Jersey, namely Re the Representation of Cazenove Capital Holdings Ltd [2013] JLR(2) N-18 (Commissioner Clyde-Smith sitting with Jurats Clapham and Blampied). In that case the Court said it preferred to regard that third principle as falling within the second. What was said at paragraph [9] of the judgment was as follows:

           "In Re Vallar PLC [201 1] JLR N25 the Court suggested that there was a fourth issue to consider, namely whether, viewing matters in the round, there was any blot on the scheme which might indicate that the Court's discretion should not be exercised in favour of sanctioning the scheme. We entirely agree that, if there were such a blot, that would be a highly material factor; but we think that this topic falls naturally for consideration under heading (iii) above. If there is such a blot, it would suggest that the arrangement is not such that an intelligent and honest man might reasonably approve. Accordingly, we would prefer to see the test on such applications continue to be expressed in its traditional three pronged form, but always accepting of course that the matter is ultimately one for the discretion of the Court having regard to all the circumstances of the scheme, including whether there is a blot of some sort which would suggest that (iii) is not satisfied. "

86 Based on this, Advocate Greenfield submitted that in the present case all that matters was the voting at the scheme meetings looked at in the light of the first principle, and the fairness of the scheme measured by the test set out in the second principle.

87 In the Re Assura case referred to in the Bailiff's judgment the Deputy Bailiff had considered and rejected just this submission. He said, "I am satisfied that because the provisions on the face of the 2008 Law reflect those of the 2006 Act ... we can properly take guidance from England and Wales and treat the blot aspect as being a fourth consideration". In referring to "the blot aspect as being a fourth consideration", the Deputy Bailiff was concluding that one of the principles guiding the exercise of the discretion is that "there must be no blot on the scheme". In our judgment the Deputy Bailiff's conclusion was correct, and amply supported by English authority concerned with the Court's jurisdiction to sanction schemes of arrangement. The reason he referred to it as a "fourth consideration" is because there is a threshold, first, consideration which is not part of the exercise of any discretion: this is, rather, that the occasion for the exercise of the discretion must have arisen because the statutory requirements have been complied with.

88 Advocate Greenfield's second submission was that the Bailiff's exposition of the principles concerning the absence of any blot on the scheme was mistaken. According to Advocate Greenfield, the Bailiff was wrong to direct himself that the Court's being satisfied that there was no blot on the scheme was another way of saying that "the court may take any other factor into account in exercising its discretion".

89 We reject this second submission. In our judgment the third of the principles is that in exercising the discretion the Court needs to be satisfied that the scheme is appropriate to be sanctioned: the Court must be satisfied that there is nothing about the scheme which makes it oppressive of, or unfairly prejudicial, to persons who may be bound or affected by it. This, in modern terms, is what is encapsulated by saying that there must be no "blot" on the scheme."

13.     We agree with this approach.  We agree with the Guernsey Court of Appeal that the first matter for consideration is a threshold consideration which does not form part of the exercise of any discretion - the occasion for the exercise of discretion will only arise if the statutory requirements have been complied with.  At that stage, the second, third and fourth matters referred to by Sir Philip Bailhache in the Vallar case fall to be considered in the exercise of the Court's discretion so that the Court is satisfied that the scheme is appropriate to be sanctioned.  We were not referred to authorities on what may amount to a "blot", but having regard to the generality of the language used by the Royal Court in Vallar, in our view the Court has a wide discretion which must extend beyond considering the matters referred to at paragraph 5(ii) and 5(iii) in Vallar when considering whether there is a "blot" on the scheme which indicates that the Court should not sanction it. 

14.     Having set out the appropriate test, we now consider whether or not the statutory requirements were met in this case. 

15.     Takeovers by way of Scheme of Arrangement have become common in the United Kingdom and Jersey, and Schemes have also been used to effect mergers. 

16.     A directions hearing took place before the Deputy Bailiff on 24 January 2023 whereupon the Court approved various orders, subject to minor amendments to the Scheme Document which the Court directed and which were subsequently made, whereby the holders of the Scheme Shares would be convened to a meeting ("the Court Meeting") to decide whether or not to approve the Scheme.  The Scheme Shareholders were convened to a Court Meeting on 23 February 2023 at 2.15pm at the offices of Wentworth's English solicitors in London. 

17.     The Skeleton Argument filed on behalf of Wentworth for the hearing in January 2023 considered all the matters which the Court ought to consider at that stage, including whether it was necessary to identify separate classes of Scheme Shareholders (it was not), the irrevocable undertakings to vote in favour of the Scheme given by each of the Wentworth directors who were interested in shares representing at that stage 0.26% of the Wentworth issued share capital and 464,556 shares, and details of the directors' interests in shares in Wentworth.  The Scheme Document that was sent out was amended, as is often the case, in respect of matters that were not ventilated before the Court in January.  However, in respect of the irrevocable undertakings to vote in favour of the Scheme, when the Scheme Document was issued the number of shares affected was approximately 1.75 million representing approximately 0.98% of the share capital of Wentworth.  This was because, as recorded by the circulated Scheme Document, on 13 January 2023 just under 1.3 million Wentworth shares vested in one of the Wentworth directors, Katherine Roe, by virtue of an outstanding LTIP (long-term incentive plan) award, meaning that she alone held 0.78% of the issued share capital in Wentworth.

18.     This must have been known of at the hearing on 24 January 2023 but was not, it appears, disclosed to the Court at that time and ought to have been.  Nevertheless it was a matter which was before shareholders in the form of the finalised Scheme Document at the time of the Court Meeting.

19.     The orders made by the Court on 24 January 2023 included orders specifying those shareholders who were entitled to vote their Scheme Shares and the date after which changes to the Register of Members should be disregarded, and specified that forms of proxy for the Court Meeting must be submitted to Wentworth's registrars no later than 2pm on 21 February 2023.  The discretion of the Chair of the Court Meeting to accept form of proxies not completed in proper form did not extend to a discretion to, it appears, allow the chair to accept forms of proxy submitted late.  These provisions were relevant to certain matters considered below. 

20.     The Court Meeting on 23 February 2023 was attended by sixty-five Scheme Shareholders by proxy and two physically.  The number of Scheme Shareholders attending the Court Meeting either in person or by proxy was 7.55% of the Scheme Shareholders entitled to attend, representing approximately 58.19% of the shares in Wentworth.

21.     One proxy form in respect of a million Scheme Shares was cast against the Scheme by Merrill Lynch.  However, this proxy was submitted eighteen minutes late - at 2.18pm on 21 February.  Wentworth sought legal advice from its English and Jersey counsel as to how to address the question of validity of this proxy vote and both counsel advised that the proxy could not be accepted as it was not received in time.  Wentworth's registrars, Link Group, informed Merrill Lynch by email on 22 February at 11.45am that the proxy was invalid and drew their attention to the relevant sections of the Scheme Document that set out the procedure for serving proxy forms for the Court Meeting after the specified proxy cut-off time.  The Scheme Document specified that if a form of proxy for the Court Meeting was not returned by the proxy cut-off time it could be handed to representatives of the Link Group for the chair of the Court Meeting before the start of the meeting or emailed to shareholder enquiries at Linkgroup.co.uk at any time before the Court Meeting was due to commence and that in each case it would be valid.  In these circumstances, Merrill Lynch should or could have emailed a copy of their completed proxy form to the email address specified in the Scheme Document at any time prior to the commencement of the Court Meeting.  No such action was taken and no further correspondence was received and, accordingly, the proxy vote was disregarded.

22.     There were also two other proxy forms - one in favour and one against - in respect of an undetermined number of votes purportedly cast by persons who did not match the details on the Register of members of Wentworth.

23.     Pursuant to the Law, there were two majorities that were required to be met:

"38. Article 125(1) of the Companies Law provides as follows:

"(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 ... 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."

39. Once the meeting has been ordered, the statutory voting thresholds for approving the "compromise or arrangement" are set out in Article 125(2) as follows:

"(2) If a majority in number representing -

           (a) ...

           (b) 3/4ths of the voting rights of the members or class of members, As the case may be, 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 -

           (i) ...

           (ii) all the members or class of members, as the case may be and also on the company.""

24.     First, a simple majority of those voting either in person or proxy has to support the Scheme.  Forty-two Scheme Shareholders voted in favour of the resolution and twenty-five against.  Accordingly, the resolution was passed by a majority in number of the Scheme Shareholders present or voting by proxy.

25.     The second and often crucial test is the test which requires a majority in number representing 75% of the voting rights present and voting either in person or by proxy to support the Scheme.  Here, an extremely narrow majority was secured - 75.26% voted in favour of approving the Scheme with 24.74% voting against.  This was described as a "narrow margin" and had the Merrill Lynch votes been counted then the Scheme would not have attracted the support of the required majority.

26.     Mr Bushell, who chaired the Court Meeting and the subsequent general meeting, swore an affidavit shortly before the hearing.  In respect of the Court Meeting, he said that 78,157,916 shares were voted for the resolution and 25,687,527 voted against.  He went on to say that the "margin of approval" was "low" in the context of an approved offer governed by the Takeover Code, but that one could not speculate as to why shareholders may have voted one way or another.  He went on to say that certain shareholders expressed the view that the cash consideration was below their expectations. 

27.     The Court Meeting was followed by a general meeting where a special resolution was considered which required a two-thirds majority of the votes cast by those entitled to vote supporting the same.  The principal effect of the special resolution was to amend certain of Wentworth's articles of association to make the Scheme effective.

28.     Mr Bushell says little about this in his affidavit but the scrutineer Mr Cambridge (who also swore an affidavit but did not comment on this) said that at the general meeting the votes cast in favour of the special resolution were 78,408,598, amounting to 74.46%, and against 26,889,908, amounting to 25.54% against the total votes cast of 105,298,506.

29.     No one in Court (including Ms Roe) could explain why more shareholders had voted both for and against this special resolution than had voted either in favour or against the Scheme.  It did appear to be curious, and it would have been helpful had Mr Bushell explained, if he knew, why this was or may have been.

30.     The Court was concerned about the delay between the Court Meeting and the Court being invited to sanction the Scheme approximately ten months later and only less than a fortnight before the Scheme would effectively lapse at midnight on 31 December 2023, unless there was an agreement to extend the time for sanctioning of the Scheme.

31.     That concern was heightened by the fact that the Court hearing on 19 December was reserved by the parties in August 2023, but it was only on 6 December 2023 that Wentworth notified the company's shareholders of the date planned for the sanction hearing via a Regulated News Service Announcement - giving them less than two weeks to either obtain Jersey representation or to write to the Court.  One shareholder who was hostile to the Scheme did contact Jersey counsel for Wentworth and suggested that he might attend the hearing but ultimately did not do so.  Few, if any, of the shareholders concerned lived in Jersey.  The shareholder concerned said "As you are aware, most shareholders are not located in Jersey.  When will a possible postponement of the meeting be shared with shareholders so they have reasonable time to make re-arrangements?  In case of a postponement, I expect sufficient notice such that Scheme Shareholders have a reasonable time to make new arrangements to attend if they wish".  The reference to a postponement followed an email being sent to him by Ms Roe saying that in the event of a postponement a further announcement would be made, and shareholders notified in the same way as they had been on 6 December 2023.

32.     Had there been no good reason for the late notification of the shareholders of the Court hearing on 19 December, the Court could well, in the context of this case, have regarded this as being a "blot" on the Scheme and declined to sanction it. 

33.     Wentworth thought it was appropriate, sensibly, to have a Court date prior to the end of the year which was effectively the long-stop date for sanction of the Scheme.  The delay in finally confirming the provisional date of 19 December to shareholders was a consequence of the great difficulty experienced in obtaining consents in Tanzania which were necessary for the Scheme to be sanctioned.

34.     It was not known if the consents would be obtained and the 6 December 2023 notice giving an update to shareholders on the offer from M&P said that the conditions to the acquisition included: "(1) Consent from the Minister responsible for petroleum affairs in Tanzania under the Petroleum Act 2015; (2) The waiver of any right of first refusal or pre-emption right which the Tanzania Petroleum Development Corporation is entitled in respect of the Mnazi Bay asset; and (3) Approval from the Tanzanian Fair Competition Commission in each case in terms satisfactory to M&P".  These matters were only satisfied at the eleventh hour.  Counsel for M&P said that agreement was reached in respect of (2) on 6 December 2023 which unlocked the door to the other approvals - the consent at (1) was granted on 12 December 2023 and the approval at (3) was received on 17 December 2023.  The arrangements were described as complex and a change in the identity of the relevant Minister in Tanzania during the process had caused delay.

35.     The dates in relation to the Tanzanian approvals contained in Wentworth's counsel's Skeleton Argument at paragraph 35 were slightly different but the general picture was of extensive discussions leading to a delay which was outside the control of Wentworth. 

36.     The Court should be slow to differ from the views of the majority, even a majority as thin as in this case.  As the Royal Court observed in Vallar, it is not for the Court to strain to find reasons why a Scheme of Arrangement should not be sanctioned. 

37.     The interests of the Scheme Shareholders were generally aligned in this case, and all received proper notification of the Court Meeting.  Although the turnout in terms of shares voted was not especially high, it was not especially low either.  The shareholders were, in our view, fairly represented by those who attended the meeting and, notwithstanding the disallowance of the shares which Merrill Lynch purported to wish to vote against the Scheme, there is no evidence that the statutory majority were not acting in good faith, and there is certainly no evidence of coercion of the minority.

38.     In the circumstances we agreed that the arrangement was such that an intelligent and honest person, a member of the class concerned and acting in respect of their interests might reasonably approve and, in view of the difficulties in obtaining the appropriate consents, approvals and waivers in Tanzania, we ultimately took the view that the late notification of the shareholders did not amount to a blot on the Scheme which would have entitled the Court to decline to exercise its discretion in favour of sanctioning the Scheme.  Accordingly, we sanctioned the Scheme.

Authorities

Companies (Jersey) Law 1991. 

Vallar Plc [2011] JRC 125. 

The Representation of Cazenove Capital Holdings Limited [2013] JLR (2) Note18. 

Puma Brandenburg Limited v Aralon Resources and Investment Company Limited [Judgment 18 May 2017].