In the matter of a Representation by Computer Patent Annuities Holdings Limited and in the matter of Part 18A of the Companies (Jersey) Law 1991 JRC021
This case, heard by the Royal Court in Jersey, involved the approval of a scheme of arrangement pursuant to Article 125 of the Companies (Jersey) Law 1991 (the "Companies Law"), together with the confirmation of a reduction of share capital.
The scheme of arrangement related to the proposed acquisition of the whole of the issued share capital of the company by another company. The consideration for the acquisition was to consist of a mixture of cash and various preferred shares, and also ordinary shares, in the purchasing company.
Article 125 of the Companies Law
The court's duty, when considering applications under Article 125 of the Companies Law, is as set out in the earlier case of the Representation of Andsberg Limited 2007 JLR N (and repeated in Re CI Traders Limited JRC149A) and requires the application of a three-fold test, to consider whether:
- the provisions of the Companies Law have been complied with;
- the class of shareholders to be affected by the proposed scheme was fairly represented by those who attended the meeting and whether the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and
- the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.
Application of the test
In relation to the first element of the test, the court considered that the statutory provisions had been complied with. Turning to the second element, the court considered that those who were represented at the meeting fairly represented the shareholders as a whole, that there was no reason to think that anyone was acting other than in good faith, and that there was no evidence of any coercion of the minority. Similarly, with regard to the third element of the test, the court was satisfied that the proposed arrangement was one which a shareholder could reasonably approve (as, indeed, the vast majority of shareholders had done).
In view of the above, the court approved the scheme of arrangement.
Reduction of share capital
It was noted that what was proposed was a technical reduction, as all of the existing ordinary shares in the company would be cancelled, but would immediately be replaced by new shares and that there would not be any consequential reduction in the assets of the company. Noting that the position had been fully explained to the shareholders, and that there was no prejudice to the creditors, the court was prepared to waive the requirement (under the Article 62(6) of the Companies Law) to convene creditors, and approved the reduction.