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Samira Afrasiabi, corporate senior associate in the global transactions group at Freshfields Bruckhaus Deringer in London, explains that Re Steris plc is an example of how cancellation schemes of arrangement can still be used in certain contexts without falling foul of the prohibition in section 641(2A) of the Companies Act 2006 (CA 2006).
Re Steris plc  EWHC 751 (Ch)
Steris plc is an example of how cancellation schemes of arrangement
(cancellation schemes) can still be used in certain contexts without falling
foul of the prohibition in CA 2006, s 641(2A) by satisfying the exception in CA
2006, s 641(2B). It also illustrates that, in limited circumstances, a company
with more than one class of shares may still be able to meet the requirements
of the exception in CA 2006, s 641(2B) to effect a cancellation scheme even
where not all classes of shares form part of the scheme.
a few cases have now considered the scope of the exception in CA 2006, s
641(2B), its limits remain unclear. Companies proposing to undertake a
cancellation scheme will need to be comfortable that the structure of the
transaction clearly falls within the scope of CA 2006, s 641(2B).
Steris plc (Steris) was the parent company of a multinational group that conducts a business of providing healthcare products and services. Steris had two classes of shares in issue, ordinary shares (listed on the New York Stock Exchange) and redeemable preference shares (the preference shares). The preference shares carried a fixed cumulative preferential dividend but had no voting rights attached to them and did not constitute ‘equity share capital’ for the purposes of CA 2006.
Steris proposed to complete a cancellation scheme (the scheme) under CA 2006, Pt 26 in respect of its ordinary shares only (the scheme shares). The purpose of the scheme was to insert a new holding company incorporated in the Republic of Ireland (Irish TopCo) above Steris in order to redomicile the parent company of the group from the UK to the Republic of Ireland. According to Steris’ scheme document, the commercial drivers for the redomiciliation (and the scheme) were, among others, to:
mitigate the uncertainty and risks associated with the unknown economic and regulatory environment that could prevail in the UK following Brexit
ensure that the Steris group can continue to enjoy the benefits of certain tax and other treaty arrangements between EU Member States and the US, which provides greater certainty around the Steris group’s ability to make certain interest payments and access its global cash flows without being subject to additional taxes
The scheme involved cancelling all of Steris’ ordinary shares by way of a reduction of capital and applying the reserve created to pay up in full new ordinary shares that were allotted and issued by Steris to Irish TopCo. In consideration for this, Irish TopCo issued an equivalent number of ordinary shares to each Steris shareholder in proportion to the number of scheme shares such shareholder held. The preference shares did not form part of the scheme.
The court sanctioned the scheme under CA 2006, Pt 26.
In reaching its decision, the court considered
whether Steris’ proposed scheme fell afoul of the prohibition on cancellation
schemes in the context of company acquisitions in CA 2006, s 641(2A), which is
subject to a limited exception for corporate reorganisations set out in CA
2006, s 641(2B). CA 2006, s 641(2B) allows cancellation schemes where:
the company is to have a new parent undertaking
all or substantially all of the members of the company become members of the parent undertaking
the members of the company are to hold proportions of the equity share capital of the parent undertaking in the same or substantially the same proportions as they hold the equity share capital of the company
The court considered whether the requirement in CA 2006, s 641(2B)(b) could be satisfied in Steris plc given the preference shares were not part of the scheme and therefore the holders of the preference shares would not become members of Irish TopCo. It found that CA 2006, s 641(2B)(b) was satisfied here because the preference shares represented a very small proportion of both the members of Steris (approximately 1% as at the date of the court meeting) and its issued share capital (approximately 0.1%). Snowden J concluded that it was clear from the inclusion of the words ‘substantially all’ in CA 2006, s 641(2B)(b) and the Bank for International Settlements explanatory memorandum that Parliament intended that cancellation schemes could still be permitted even where there might be a small difference between the identity of the members of the scheme company and of the parent undertaking before and after the scheme. The court did not make any general observations on the likely limits of CA 2006, s 641(2B)(b) and at what point the proportion of members not participating in a cancellation scheme would likely mean that this requirement is no longer satisfied.
The court was also comfortable that CA 2006, s 641(2B)(c) was satisfied because the members of Steris who would hold the equity share capital of Irish TopCo, would do so in the same proportions as they held the equity share capital of Steris before the scheme (as the preference shares did not form part of Steris’ equity share capital). Snowden J noted that the focus should be on the effect a scheme has on the equity share capital and it should not matter that the holdings of shares that do not form part of the equity share capital (such as the preference shares) are not replicated in the new parent undertaking.
This case provides a useful example of how the redomiciliation of a UK parent company to another jurisdiction (whether motivated by Brexit or otherwise) can be effected by way of a cancellation scheme provided it is structured within the boundaries of CA 2006, s 641(2B).
Samira Afrasiabi has advised a broad mix of multinational corporates on cross-border M&A, joint ventures and other corporate transactions.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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