Third 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 (Newco) 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.
The first post in this series looks at the reason for, and the use of the Scheme to achieve, the Restructuring. The second post discusses how a mistake in a special resolution was corrected at the Scheme meeting. This third post describes the basis on which the court exercised its discretion to approve the Scheme.
The court’s sanction for a scheme of arrangement
Any scheme of arrangement needs to be sanctioned by the court (section 899, Companies Act 2006). Case law has developed three general requirements that must be met for this sanction to be given:
- The requirements of the Companies Acts as to schemes of arrangement must have been complied with.
- The class of shareholders or creditors that will be bound by the scheme must have been fairly represented at the scheme meeting, and the majority of that class must be acting in good faith and not oppressing the minority; and
- The scheme must be one that “an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve”.
The court had no difficulty in concluding that the first two of these requirements were met.
On the third requirement, this Scheme was unusual as shareholders were effectively agreeing to have their interest in Uniq reduced by 90 per cent. Would that meet the third requirement?
Again, the court had no difficulty concluding that it would. The judge stated that:
“…this is a scheme which an intelligent and honest member acting in his interests as such might reasonably approve. The effect of the scheme is to dilute heavily the members’ present interests and to leave them in a position where their shares may be compulsorily acquired if a general offer is made and accepted by Newco in respect of its 90.2% interest [under the "squeeze-out" provisions of Part 29 of the Companies Act 2006]…but the restructuring represents the only viable means of enabling the [Uniq] group to continue in business, free of the pension deficit, and thereby permitting the existing members to retain some value in their shares”.
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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