Schemes of arrangement—the end of the numerosity test?

Schemes of arrangement—the end of the numerosity test?

The High Court held in Re Dee Valley Group PLC that a Chairperson of a shareholder scheme meeting may reject votes cast against a scheme of arrangement in circumstances where the shares were acquired through an artificial share-splitting exercise designed to frustrate the scheme. Catherine Balmond, Craig Montgomery , Priyanka Usmani and Katharina Crinson of Freshfields Bruckhaus Deringer consider the impact of the first English case to consider this issue. While it arose in the context of a shareholder scheme, the impact is also significant for debt restructurings implemented by way of a creditor scheme of arrangement.

Original news

Re Dee Valley Group PLC [2017] EWHC 184 (Ch), [2017] All ER (D) 95 (Feb)

In this case, the High Court considered whether the chairman of a class meeting directed by the court in the context of a scheme of arrangement was right to disallow the votes of 434 individual shareholders who voted against the scheme where there had been share splitting. This is the first case in which a share-splitting exercise was undertaken in order to defeat a scheme of arrangement between a company and its shareholders.

Background

Severn Trent’s takeover offer for Dee Valley was to be effected by means of a court approved scheme of arrangement. A scheme is a statutory mechanism under the Companies Act 2006 which, under the supervision of the English Court, is often used in the UK to achieve a takeover as an alternative to a traditional tender offer (a member scheme) or to restructure a company’s debt (a creditor scheme). A scheme is an arrangement between the company and its creditors or shareholders that, if approved by the requisite majority and sanctioned by the court, is binding on all creditors or shareholders.

The statutory test is two-fold and requires that a majority:

  • in number, and
  • representing 75% in value

of creditors or shareholders present and voting in person or by proxy must approve the scheme at a meeting

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.