First of three posts on legal aspects of this innovative scheme of arrangement
On 18 March 2011 the High Court sanctioned a scheme of arrangement (the Scheme) between Uniq plc (Uniq) and its members. The Scheme judgment is here. The result of the Scheme, and the restructuring of which it was a part (the Restructuring), is that 90% of Uniq’s equity will be transferred to a specially-incorporated vehicle and, hopefully, sold for the benefit of the defined benefit part of Uniq’s pension scheme. The shareholders in Uniq will be left with one-tenth of their previous holding in Uniq’s equity, and Uniq and its subsidiaries will be released from their obligations to the defined benefit part of the pension scheme.
This first post looks at the reason for, and the use of the Scheme to achieve, the Restructuring. The second post discusses a narrower point of company law that arose during the Restructuring: whether it is possible to amend a special resolution. The third post in this series sets out the basis on which the court exercised its discretion to approve the Scheme.
The reason for the Restructuring
The Restructuring provided a solution to the financial problems posed by the deficit on Uniq’s pension scheme. Without the Restructuring, as the chairman of Uniq described in the scheme circular to shareholders:
“…several detrimental events are likely to take place, including, most significantly, that the Trustee [of the pension scheme] and the Pensions Regulator would seek at least the minimum level of pension contributions needed to ensure that the pension funding position does not deteriorate further, which [Uniq] is unlikely to be able to afford or, alternatively, the Trustee and the Pensions Regulator would seek to recover the full pension deficit, which is in excess of £400 million on the basis of the valuation assumptions adopted by the Trustee. Each of these events would, in all likelihood, result in [Uniq] becoming insolvent”.
Restructuring shows the flexibility of the statutory scheme of arrangement
The Restructuring was a complex process involving the close interaction of pension law and regulation and company law. The High Court judgment explaining the reasons for the sanctioning of the Scheme (which was at the heart of the Restructuring) concisely summarises the steps involved; the judgment can be read here.
A scheme is a statutory mechanism for achieving a “compromise or arrangement” between a company and (a) its creditors, or any class of them, or (b) its members [i.e. shareholders], or any class of them. Part 26 of the Companies Act 2006 sets out the procedure to be followed for a scheme of arrangement, including the requirement for court sanction and the approval of creditors or shareholders.
The Uniq Scheme seems to have been the first time that a scheme of arrangement has been used to transfer most of the equity of a listed company out of the hands of shareholders and into a special purpose vehicle, so that the equity could then be sold for the benefit of the listed company’s pension scheme. As the judge who sanctioned the Scheme observed:
“the [Scheme] is further evidence of the utility of schemes of arrangement as a means of achieving a wide range of purposes including, as in this case, securing the long-term future of a company or group which would otherwise in due course face insolvency”.
Two further posts (here and here) discuss how a mistake in a special resolution effecting the Scheme was remedied, and how the judge addressed the question of whether the Scheme was of benefit to the Uniq shareholders who were asked to approve the Scheme.
UPDATE 13 July 2011: Greencore Group plc has now made an agreed cash offer to acquire all of the shares in Uniq. Angel Street, the special purpose vehicle that holds 90.2% of Uniq for the benefit of the pension scheme following the Restructuring, has irrevocably agreed to accept the Greencore offer. We discuss the Greencore offer in this post.
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