Court sanction of conditional scheme of arrangement

The High Court has confirmed that it is appropriate, in certain circumstances, for a court to sanction a conditional scheme of arrangement. In Re Lombard Medical Technologies Plc [2014] EWHC 2457(Ch), the judgment of which was only recently published, the court held that it could approve a scheme which would not become effective until the conditions of a fundraising had been completed.

Reviewing case law the judge said “I can see no objection in principle to the court sanctioning a scheme which is conditional in one or more respects, provided always that the court considers it appropriate to do so in the exercise of its discretion”. Neither could he see any objection in principle why the court may not “direct that the order should not be delivered to the Registrar… until the condition has been satisfied”.

The judge, considered whether the decision in Re Fiberweb plc [2013] EWHC 4653 (Ch) had laid down a general rule that a court must require the waiver or satisfaction of all outstanding conditions before it will sanction a scheme. The judge read the decision in Fiberweb as directed to “cases of takeovers or similar commercial transactions between parties dealing with each other at arm’s length”. In addition, he noted that in Fiberweb the judge left open the possibility that a scheme may need to be conditional in certain circumstances such as outstanding regulatory approval and that the question in Fiberweb had been dealt with as a matter of considerable urgency.

Impact – the case clarifies that there is no objection in principle to a court sanctioning a scheme which remains conditional. The judge in Lombard Medical noted that “Examples of the kind of condition which the court may be willing to sanction, even if they are unsatisfied at the date of the hearing, are outstanding requirements for foreign regulatory approval which there is no reason to suppose will not be granted. Further, the terms of the scheme itself may provide that it will cease to have effect in certain circumstances, for example if the steps contemplated are not taken before a specified long-stop date. By contrast, the court would be most unlikely to sanction a scheme if the outstanding condition was one which in effect conferred on a third party the right to decide whether, or when, the scheme should come into operation, or which enabled the terms of the scheme to be varied in some material respect. The objection then would be that the court was not truly in a position to consider the merits of the scheme, so it could not properly exercise the jurisdiction conferred on it by Parliament to approve the scheme on behalf of all members of the relevant class or classes of shareholders”.

Background – section 899(1) of the Companies Act 2006 provides that “If a majority in number representing 75% in value of the creditors or members… present and voting either in person or by proxy at the meeting... agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement”. Section 899(4) of the Act provides that “The court’s order has no effect until a copy of it has been delivered to the registrar”.