Unilever Plc, Re [2018] EWHC 2546 (Ch)

[2018] EWHC 2546 (Ch)Case No. ***IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTSOF ENGLAND AND WALESCOMPANIES COURT (Chd)Venue Royal Courts of Justice, Rolls Building, Fetter LaneLondonEC4A 1NLDate Wednesday, 5 September 2018
Before
MR. JUSTICE NUGEEB E T W E E N:
Between
IN THE MATTER OF UNILEVER PLCIN THE MATTER OF THE COMPANIES ACT 2006
MR. M. MOORE QC and MR. B. SHAW (instructed by Linklaters LLP) for Applicant
J U D G M E N T
[1]I have before me an application under s.896 of the Companies Act, 2006 for permission to convene a meeting of its members for the purpose of considering and, if thought fit, approving a scheme of arrangement in relation to Unilever Plc ("the Company").[2]Normally applications such as this would go to an ICC judge but Mr. Martin Moore QC who appears with Mr. Ben Shaw for the company has, quite appropriately, thought it sensible to put it before a High Court judge in order to obtain a decision on one point which arises. Apart from this point, there are no matters which are at all unusual or which require noticing and I have already indicated that I am satisfied it is an appropriate case for permission to convene the meeting to be given and I have approved the order in the form in which Mr. Moore put it before me.[3]The point which has been argued by Mr. Moore, most helpfully, concerns s.641(2A) of the Companies Act, 2006.

(A) -(C) read as follows:

"(2A) A company may not reduce its share capital under subsection (1)(a) or (b) as part of a scheme by virtue of which a person, or a person together with its associates, is to acquire all the shares in the company or (where there is more than one class of shares in a company) all the shares of one or more classes, in each case other than shares that are already held by that person or its associates. (2B) Subsection (2A) does not apply to a scheme under which— (a) the company is to have a new parent undertaking, (b) all or substantially all of the members of the company become members of the parent undertaking, and (c) 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. (2C) In this section— “associate” has the meaning given by s.988 (meaning of “associate”), reading references in that section to an offeror as references to the person acquiring the shares in the company; “scheme” means a compromise or arrangement sanctioned by the court under Part 26 (arrangements and reconstructions)."
[4]In the present case the background to the proposed scheme is that the Unilever Group currently has what is referred to as a dual parent structure in which there are two ultimate parent companies, one being the company, a UK company and the other Unilever NV, a public limited liability company incorporated in the Netherlands. Through a series of arrangements and agreements, in practice the two companies operate as far as they can as a single economic entity but the boards of directors of the two companies have decided that it is appropriate to recommend that the structure be simplified by replacing the current dual parent structure with a new single holding company which has been referred to as, "New NV" which will be incorporated in the Netherlands.[5]The scheme takes the form of a cancellation and re-issue scheme and as I will explain, the effect of that is to insert a new holding company which is going to be New NV as the holding company of the company. That is only part of wider arrangements which are intended to implement the simplification. The wider arrangements are explained in some detail in a letter from the company's solicitors, Linklaters, sent to HMRC taxes in June 2018 and which attached a summary of the steps required to implement simplification. For present purposes, it is only necessary to refer to three of those steps.[6]Step one is the mandatory transfer of legal title to most of the ordinary shares in the company to a nominee which has been referred to by Mr. Moore as the mandatory transfer nominee. That will take place under an amendment to the company's articles by special resolution intended to be passed at a general meeting held on the same day as the court hearing to approve the scheme. It will apply to all the scheme shares other than those held by excluded shareholders and the excluded shareholders will consist of a small number of shareholders in jurisdictions where the mandatory transfer nominee, a Computershare company, does not have license to operate and so cannot be included in the mandatory transfer, and such other shareholders as opt out of the mandatory transfer.[7]It is not anticipated that there will be many people who will opt out in such a fashion, but provision is made for them to do so if they wish. Other than the excluded shareholders, all the shareholders with ordinary shares of the company will have their shares mandatorily transferred to the mandatory transfer nominee. That does not form part of the scheme which the court is to be asked to sanction; it is intended to take place, as I have said, by an amendment to the company's articles. There is provision that if the scheme does not become effective, the mandatory transfers will be reversed.[8]That was step seven in Linklater's step plan. Step eight is the scheme itself; the scheme itself is quite short and relatively simple. It provides in cl.1 for the share capital of the company to be reduced by cancelling and extinguishing the scheme shares, the scheme shares being the ordinary shares in the capital of the company and the reserve in the books of account of the company as a result of the reduction of capital being capitalised and applied and paying up in full at par an equal number of new shares that have been cancelled which are to be allotted and issued as fully paid to New NV or its nominee. Clause two provides that:
"In consideration of the cancellation of the scheme shares and allotment and issue of new shares as provided in cl.1, New NV shall issue New NV ordinary shares to the scheme shareholders on the basis that for each scheme share they receive one New NV ordinary share which will be issued as fully paid."
[9]In that way, the current shareholders of the company will have shares issued to the mandatory transfer nominee or in the case of excluded shareholders, to the excluded shareholders, the mandatory transfer nominee holding those shares for the current shareholders of the company.[10]Step nine which is intended to take place on the next day is a Dutch merger taking place under Dutch law. Under the Dutch merger the existing Dutch holding company, NV, will be merged into a new subsidiary of New NV and cease to exist, New NV allotting ordinary shares to the shareholders of NV pro rata to their holdings of ordinary shares in NV, in what has been referred to as a "triangular merger".[11]The upshot of all the steps, and there are certain subsequent steps to be taken, is that the Unilever Group will all be held by an ultimate parent company in the shape of New NV whose shareholders will consist of the New NV shareholders. There are also some provisions for depository receipts and the like which I need not refer to.[12]The concern which has prompted this application is that if one looks at the terms of s.641(2A), the prohibition on reduction of share capital under sub-s. (2A) would prima facie apply as Mr. Mooree accepted. That is because the reduction is to take place as part of a scheme by virtue of which a person, in this case New NV, is to acquire all the shares in the company. In fact, I have not mentioned, there are some deferred shares in the company, I believe one-hundred-thousand deferred shares. All but two of those shares are to be repaid but two shares are to be left outstanding. Nevertheless, sub-s. (2A) would prima facie apply to the scheme because New NV would acquire all the shares of one class of shares in the company, namely the ordinary shares.[13]As Mr. Moore accepts, it is therefore necessary for him to bring the scheme within sub-s. (2B). On the face of it, sub-s.(2B) is satisfied according to its literal wording. That is because (a) the company is to have a new parent undertaking, that is New NV; (6) all or substantially all the members of the company become members of the parent undertaking - if one looks at the position immediately before the scheme, the members of the company will then be the mandatory transfer nominee and the excluded shareholders; that is not quite all the members of the company because as I have explained, there will be two deferred shares outstanding but it is certainly substantially all the members of the company - and (c) the members of the company are to hold proportions of the equity share capital of the parent undertaking in the same proportions as they hold the equity share capital of the company.[14]For this purpose, the deferred shares do not form part of the equity share capital and since there is under this scheme a one-for-one share allotment, the members of the company, namely the mandatory transfer nominee and the excluded shareholders, will hold exactly the same proportions in the new parent company as they do immediately before the scheme.[15]The concern that has prompted the application to me is that although that is the case if one looks at the scheme in isolation, if one looks at the previous step together with the scheme as forming one composite transaction, it cannot be said that the members of the company before the mandatory transfer become members of the parent undertaking and hence sub-s. (2B) would not be satisfied. At the moment, before the mandatory transfer, the shareholders in the company will consist of a very large number of shareholders but most of those will not, in fact, become members of the new parent undertaking.[16]It is for that reason, indeed, that the mandatory transfer has not been made part of the scheme but has been taken out of the scheme and is proposed to be dealt with outside and prior to the scheme by way of an amendment of the Articles.[17]Mr. Moore has helpfully referred me to the decisions of Newey J in Home Retail Group plc [2016] EWHC 2072 (Ch) and of Snowden J in Old Mutual plc [2018] EWHC 873 (Ch) both of which concern the same provisions. In the Home Retail Group decision, Newey J considered the Ramsay principle and its requirement to give a purposive construction to legislation referring to a passage in the judgment of Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46. "The driving principle in the Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically."[18]The conclusion Newey J came to was that even if the Ramsay principle applied, it could not present any obstacles to what was proposed in that case and he said this at para.14:
"Should the Ramsay principle be capable of applying to s.641(2B) it must nevertheless as I see it be the case that it will not bite on a cancellation scheme which is part of a real world transaction having a clear commercial and business purpose."
He approved the convening of the meeting in that case.[19]That was a case where the cancellation scheme was part of an acquisition. In this case, there is no outside acquirer at all and I was referred by Mr. Moore to various passages from the explanatory memorandum prepared by the Department of Business Innovation and Skills in connection with the regulations which introduced this amendment. They are set out at para.30 of the judgment of Snowden J in the Old Mutual case. Without reading the entire passage, it is apparent that what prompted the amendment was the desire of Government to see that all takeovers should be treated equally in tax terms, it being the case that cancellation schemes did not involve payment of some taxes whereas transfer schemes or transfers without a scheme would involve payment of stamp duty. At para.7.4 of that memorandum this was said:
"The Government recognises that there are other situations where a scheme of arrangement and/or a reduction of capital may be appropriate such as intra-group restructuring, rescheduling debt or returns of capital. This instrument therefore includes a specific exemption for circumstances where the acquisition amounts to a restructuring that inserts the new holding company into the group structure and the shareholders of the new holding company have not changed substantially from the shareholders of the company undertaking the scheme of arrangement."
[20]I am entirely satisfied that the present scheme falls within the spirit of the exemption that the Government there referred to. This is not a case of a cancellation being used as part of the means of a takeover of the company but it is being used as a part of integral restructuring.[21]In terms of the mandatory transfer, I am also satisfied that the mandatory transfer was inserted for genuine commercial reasons, those being explained in the evidence. Namely that it will make it much more convenient and easier for shareholders to trade their shares once they become the owners of shares in a Dutch company than if the mandatory transfer had not taken place.[22]The question, nevertheless, is whether the mandatory transfer step is to be treated as part of a scheme for the purposes of applying s.641(2B). As a matter of technicality, it seems to me plain that it is not part of a scheme. Sub-section (2B) refers to a scheme under which various things are to happen and "scheme" is defined by sub-s.(2C) as "a compromise or arrangement sanctioned by the court under Part 26". The mandatory transfer step as I have sought to explain does not form part of the scheme in those terms at all. It is no part of the compromise or arrangement sanctioned by the court under Part 26 that the mandatory transfer should take place. Rather, the mandatory transfer will have, it is proposed, have already taken place outside and prior to the scheme. It does not seem to me, therefore, that on the literal meaning of the statutory language the mandatory transfer forms any part of the scheme and hence, it cannot be said that the scheme is one under which the members of the company do not become members of the parent undertaking, because at the time when the scheme applies, the members of the company are the mandatory transfer nominee and the excluded shareholders and as I have explained, they will become the members of the parent undertaking.[23]The only question therefore is whether the Ramsay principle, which as Mr. Moore correctly identified is not a principle limited to statutes dealing with taxation but is a principle of general statutory interpretation, requires the word "scheme" in sub-s.(2B) to be given an expanded meaning such as to catch in addition the mandatory transfer or indeed the Dutch merger which takes place on the next day.[24]I do not see, in the circumstances of this case, any reason to give the word "scheme" in sub-s.(2B) such an expanded meaning. I am made more confident in that by a part of the judgment of Snowden J in Old Mutual. In that case he was dealing with arrangements under which there were two separate schemes proposed. The first thing he decided was that the two schemes should be looked at separately: see para.34 where he identified the issue as whether it might be said that the court should treat the two schemes as one composite scheme and para.47 where he concludes that he sees no reason in the legislative policy or in any appeal to "realism" to treat the separate Schemes in any other way than they have been presented to the court.[25]In that case, one of the purposes of the first scheme was to achieve a demerger of part of Old Mutual's business and that was something that would go ahead, regardless of whether the second scheme took place or not. However, the first scheme also contained provisions for transfer to nominees. That is referred to by Snowden J in para.45 of his judgment as follows:
"Moreover, although the First Scheme contains provisions for the transfer to nominees and reclassification of the shares in the Company so as to set the scene for the operation of the Second Scheme, the First Scheme also contains the "unwind" provisions which would reverse the transfer to nominees and reclassification of shares in the event that the Second Scheme does not become effective."
[26]He treated that as being part of the reasoning on which he relied in reaching the conclusion that there was no reason to treat the separate schemes as anything other than separate. It can be seen that that aspect of the first scheme in the Old Mutual case, the transfer to nominees and reclassification of the shares in the company so as to set the scene for the operation of a second scheme has some similarity with the mandatory transfer taking place prior to the scheme in the present case. However, Snowden J did not regard that as a reason to treat that aspect as being part of the second scheme.[27]As I say, I am satisfied that the simplification sought in the present case does not fall within the mischief at which s.641(2A) was directed, that being as I have explained the use of cancellation schemes to avoid paying stamp duty which would be leviable in the case of a takeover being done by way of a transfer. As to whether it falls within the Government's intention that the use of cancellation schemes for group restructuring should not be prohibited, I have already said that on the literal wording of sub-s.(2B), this scheme seems to me to fall within the exemption in sub-s.(2B) and I do not see any reason, using the Ramsay principle, to give the extra provisions the effect that they would strike down what is here proposed on the footing that the mandatory transfer was to be treated as really part of a scheme. It does seem to me that in the circumstances of this case, the mandatory transfer is not part of a “scheme” and that there is no reason to hold that it should be treated as anything other than it is presented to the court, as being, namely a separate preliminary step which does not form part of a scheme.[28]In those circumstances, I am willing to make the order which I have been asked to make, which includes a paragraph as follows: "And the court being of the opinion that the scheme of arrangement proposed to be made between the company and the scheme shareholders as defined in the scheme of arrangement and the reduction capital provided for by the scheme of arrangement fall within the exemption set out in s.641(2B) of the Companies Act, 2006." __________ CERTIFICATE Transcribed by Opus 2 International Ltd. (Incorporating Beverley F. Nunnery & Co.) Official Court Reporters and Audio Transcribers 5 New Street Square, London EC4A 3BFTel: 020 7831 5627 Fax: 020 7831 7737 civil@opus2.digital __________ This transcript has been approved by the Judge.