Companies - Scheme of Arrangement
[2024]JRC020
Royal Court
(Samedi)
23 January 2024
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Before :
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R. J. MacRae, Esq., Deputy Bailiff, and
Jurats Averty and Entwistle
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IN THE MATTER OF THE REPRESENTATION OF
WENTWORTH RESOURCES PLC
AND IN THE MATTER OF ARTICLES 125 &
126 OF THE COMPANIES (JERSEY) LAW 1991
Advocate J. D. Kelleher for the Representor.
Advocate R. Spencer-Tucker for Etablissements
Maurel & Prom SA.
judgment
the deputy bailiff:
1.
On 19
December 2023, we sanctioned the Scheme of Arrangement in this case upon the
undertaking of counsel for the purchasing entity to be bound by the terms of
the scheme.
2.
Wentworth
Resources Plc (“Wentworth”) continued into Jersey on 26 October
2018, having previously been registered as a Canadian company. Wentworth’s principal asset is an
interest in a gas field in Tanzania.
Wentworth has grown in value significantly in recent years.
3.
The
purchasing company is a listed French company focused on exploration and
production in Africa and Latin America, with its principal assets in countries
including Tanzania. The purchasing
company, Etablissements Maurel & Prom SA was referred to in the letter from
the chairman of Wentworth dated 11 January 2023 as “M&P”.
4.
That
letter referred to an announcement on 5 December 2022 by the Wentworth board
and the M&P board that they had reached agreement on the terms of a
recommended offer by M&P for the entire issued and to be issued share
capital of Wentworth, the acquisition to be implemented by a Royal Court
sanctioned Scheme of Arrangement under Article 125 of the Companies (Jersey)
Law 1991 (“the Law”).
Under the terms of the acquisition, the Scheme Shareholders at Record
Time, as defined in the Scheme document, were to receive 32.5 pence in cash,
valuing the entire issued and to be issued ordinary share capital of Wentworth
at approximately £61.7 million.
This was a premium of 30% to the closing price of 25 pence per Wentworth
share on 2 December 2022, the last business day prior to the commencement of
the Offer Period, as defined in the Scheme document.
5.
The Scheme
was subject to the City Code on Takeover and Mergers and the Announcement on 5
December 2022 was in compliance with the Code.
6.
M&P is
already the majority owner and operator of Wentworth’s significant
non-cash asset, the Mnazi Bay Gas Project in Tanzania. M&P owns 48.1% of the project and
Wentworth owned a substantial but smaller holding in the project. Accordingly, M&P and Wentworth had
an existing relationship extending over a number of years.
7.
M&P
had a market capitalisation of approximately €806 million as at 30
September 2022. Once the scheme
becomes effective, all the Scheme Shares will be transferred to M&P and the
Scheme Shareholders will receive cash from M&P.
8.
Implementation
of the Scheme and acquisition by M&P was conditional upon certain
conditions to which we will return.
The Scheme could only become effective in accordance with its terms if
all the conditions were satisfied or, where relevant, waived. As will be made clear below, there was a
very significant delay in seeking the Court’s sanction by reason of
certain of these conditions.
9.
As to the
matters that the Court need to consider, in Vallar Plc [2011] JRC 125,
Sir Philip Bailhache, Commissioner, giving judgment of the Court in a similar
application said, having set out the terms of Article 125:
“5. In exercising its
discretion under Article 125 the Court has followed the settled approach of
English courts. We have to ask ourselves:-
(i)
Whether
the provisions of the 1991 Law have been faithfully observed;
(ii)
Whether
the shareholders or class of shareholders or creditors have been fairly
represented by those who attended the meeting and that the statutory majority
approving the scheme was acting in good faith in the interests of the class it
professed to represent and was not coercing the minority in order to promote
interests adverse to those of the class whom they purported to represent;
(iii)
Whether
the arrangement was such as an intelligent and honest man, a member of the
class concerned and acting in respect of his interest might reasonably approve;
and
(iv)
Whether
viewing matters in the round there was no blot on the scheme which might
indicate that the Court's discretion should not be exercised in favour of
sanctioning the scheme of arrangement.”
10. Subsequent cases have noted that the first
matter, namely whether or not the provisions of the 1991 Law have been
faithfully observed, is not in fact a matter of discretion. It is simply a matter of whether or not
the evidence shows that the statutory provisions have been complied with. The Court does not exercise a discretion
unless there has been observance with the statutory conditions. Subsequently, in the case of The
Representation of Cazenove Capital Holdings Limited [2013] JLR (2) N-18,
Commissioner Clyde-Smith, giving the judgment of the Court, suggested that the
final consideration, namely whether or not there was a blot on the scheme which
might indicate that the Court’s discretion should not be exercised in
favour of sanctioning the scheme, should be treated as part and parcel of the
previous question, namely whether or not the arrangement was such that an
intelligent and honest man, a member of the class concerned and acting in
respect of its interests might reasonably approve.
11. This approach was considered by the Guernsey
Court of Appeal in Puma Brandenburg Limited v Aralon Resources and
Investment Company Limited [Judgment 18 May 2017], the Court consisting of
Nigel Pleming QC, George Bompas QC and Sir Michael Birt. The judgment of the Court was given by
Bompas JA and at paragraph 80, having considered the Court’s jurisdiction
to sanction the scheme, went on to deal with the issue of the Court’s
discretion. Bompas JA said:
“81 At paragraphs 34 and 35
of his judgment the Bailiff set out the principles which guide the exercise of
the discretion given by section 110 of the Companies Law when the Court is
considering whether or not to sanction a scheme. These he explained in the
following terms:
"34.
By virtue of section 110(1) of CGL, [the relevant Guernsey legislation] when
deciding whether to approve a scheme of arrangement, the Court has an
unfettered discretion but, as always, the discretion must be exercised
judicially. The factors to be considered in the exercise of discretion include,
but are not limited to, those set out in section 110(2) of CGL. In Re
Montenegro Investments Limited (In Administration) [2013-14] GLR345 and in Re
Assura Group Limited (unreported 27th January 2015), the Royal Court has set
out the following criteria as matters which must be established by the
applicant Company to the satisfaction of the court:
(1)
Whether the class of members was fairly represented by those who attended the
court meetings and that the statutory majority are acting bona fide and are not
coercing the minority in order to promote interest adverse to those of the
class whom they purport to represent;
(2)
The scheme is such that an intelligent and honest man, a member of the class
concerned and acting in respect of his interests, might reasonably approve; and
(3)
There is no 'blot' on the scheme, which it is submitted is simply another way
of saying that the court may take any other factor into account in exercising
its discretion."”
12. The Guernsey Court of Appeal considered the
Jersey decision in Cazenove, and the appropriate test in the light of
that decision as follows:
“85 Nevertheless, before us
Advocate Greenfield made two submissions about the last of the principles
referred to by the Bailiff in his judgment. His first submission was based on a
judgment given in a case in the Royal Court in Jersey, namely Re the
Representation of Cazenove Capital Holdings Ltd [2013] JLR(2) N-18
(Commissioner Clyde-Smith sitting with Jurats Clapham and Blampied). In that
case the Court said it preferred to regard that third principle as falling
within the second. What was said at paragraph [9] of the judgment was as
follows:
"In
Re Vallar PLC [201 1] JLR N25 the Court suggested that there was a fourth issue
to consider, namely whether, viewing matters in the round, there was any blot
on the scheme which might indicate that the Court's discretion should not be
exercised in favour of sanctioning the scheme. We entirely agree that, if there
were such a blot, that would be a highly material factor; but we think that
this topic falls naturally for consideration under heading (iii) above. If
there is such a blot, it would suggest that the arrangement is not such that an
intelligent and honest man might reasonably approve. Accordingly, we would
prefer to see the test on such applications continue to be expressed in its
traditional three pronged form, but always accepting of course that the matter
is ultimately one for the discretion of the Court having regard to all the
circumstances of the scheme, including whether there is a blot of some sort
which would suggest that (iii) is not satisfied. "
86 Based on this, Advocate
Greenfield submitted that in the present case all that matters was the voting
at the scheme meetings looked at in the light of the first principle, and the
fairness of the scheme measured by the test set out in the second principle.
87 In the Re Assura case referred
to in the Bailiff's judgment the Deputy Bailiff had considered and rejected
just this submission. He said, "I am satisfied that because the provisions
on the face of the 2008 Law reflect those of the 2006 Act ... we can properly
take guidance from England and Wales and treat the blot aspect as being a
fourth consideration". In referring to "the blot aspect as being a
fourth consideration", the Deputy Bailiff was concluding that one of the
principles guiding the exercise of the discretion is that "there must be
no blot on the scheme". In our judgment the Deputy Bailiff's conclusion
was correct, and amply supported by English authority concerned with the
Court's jurisdiction to sanction schemes of arrangement. The reason he referred
to it as a "fourth consideration" is because there is a threshold,
first, consideration which is not part of the exercise of any discretion: this
is, rather, that the occasion for the exercise of the discretion must have
arisen because the statutory requirements have been complied with.
88 Advocate Greenfield's second
submission was that the Bailiff's exposition of the principles concerning the
absence of any blot on the scheme was mistaken. According to Advocate
Greenfield, the Bailiff was wrong to direct himself that the Court's being
satisfied that there was no blot on the scheme was another way of saying that "the
court may take any other factor into account in exercising its
discretion".
89 We reject this second
submission. In our judgment the third of the principles is that in exercising
the discretion the Court needs to be satisfied that the scheme is appropriate
to be sanctioned: the Court must be satisfied that there is nothing about the
scheme which makes it oppressive of, or unfairly prejudicial, to persons who
may be bound or affected by it. This, in modern terms, is what is encapsulated
by saying that there must be no "blot" on the scheme.”
13. We agree with this approach. We agree with the Guernsey Court of
Appeal that the first matter for consideration is a threshold consideration
which does not form part of the exercise of any discretion – the occasion
for the exercise of discretion will only arise if the statutory requirements
have been complied with. At that
stage, the second, third and fourth matters referred to by Sir Philip Bailhache
in the Vallar case fall to be considered in the exercise of the
Court’s discretion so that the Court is satisfied that the scheme is
appropriate to be sanctioned. We
were not referred to authorities on what may amount to a “blot”,
but having regard to the generality of the language used by the Royal Court in Vallar,
in our view the Court has a wide discretion which must extend beyond
considering the matters referred to at paragraph 5(ii) and 5(iii) in Vallar
when considering whether there is a “blot” on the scheme
which indicates that the Court should not sanction it.
14. Having set out the appropriate test, we now
consider whether or not the statutory requirements were met in this case.
15. Takeovers by way of Scheme of Arrangement have
become common in the United Kingdom and Jersey, and Schemes have also been used
to effect mergers.
16. A directions hearing took place before the
Deputy Bailiff on 24 January 2023 whereupon the Court approved various orders,
subject to minor amendments to the Scheme Document which the Court directed and
which were subsequently made, whereby the holders of the Scheme Shares would be
convened to a meeting (“the Court Meeting”) to decide whether or
not to approve the Scheme. The
Scheme Shareholders were convened to a Court Meeting on 23 February 2023 at
2.15pm at the offices of Wentworth’s English solicitors in London.
17. The Skeleton Argument filed on behalf of
Wentworth for the hearing in January 2023 considered all the matters which the
Court ought to consider at that stage, including whether it was necessary to
identify separate classes of Scheme Shareholders (it was not), the irrevocable
undertakings to vote in favour of the Scheme given by each of the Wentworth
directors who were interested in shares representing at that stage 0.26% of the
Wentworth issued share capital and 464,556 shares, and details of the
directors’ interests in shares in Wentworth. The Scheme Document that was sent out
was amended, as is often the case, in respect of matters that were not
ventilated before the Court in January.
However, in respect of the irrevocable undertakings to vote in favour of
the Scheme, when the Scheme Document was issued the number of shares affected
was approximately 1.75 million representing approximately 0.98% of the share
capital of Wentworth. This was
because, as recorded by the circulated Scheme Document, on 13 January 2023 just
under 1.3 million Wentworth shares vested in one of the Wentworth directors,
Katherine Roe, by virtue of an outstanding LTIP (long-term incentive plan)
award, meaning that she alone held 0.78% of the issued share capital in
Wentworth.
18. This must have been known of at the hearing on
24 January 2023 but was not, it appears, disclosed to the Court at that time
and ought to have been.
Nevertheless it was a matter which was before shareholders in the form
of the finalised Scheme Document at the time of the Court Meeting.
19. The orders made by the Court on 24 January 2023
included orders specifying those shareholders who were entitled to vote their
Scheme Shares and the date after which changes to the Register of Members should
be disregarded, and specified that forms of proxy for the Court Meeting must be
submitted to Wentworth’s registrars no later than 2pm on 21 February
2023. The discretion of the Chair
of the Court Meeting to accept form of proxies not completed in proper form did
not extend to a discretion to, it appears, allow the chair to accept forms of
proxy submitted late. These
provisions were relevant to certain matters considered below.
20. The Court Meeting on 23 February 2023 was
attended by sixty-five Scheme Shareholders by proxy and two physically. The number of Scheme Shareholders
attending the Court Meeting either in person or by proxy was 7.55% of the
Scheme Shareholders entitled to attend, representing approximately 58.19% of
the shares in Wentworth.
21. One proxy form in respect of a million Scheme
Shares was cast against the Scheme by Merrill Lynch. However, this proxy was submitted
eighteen minutes late – at 2.18pm on 21 February. Wentworth sought legal advice from its
English and Jersey counsel as to how to address the question of validity of
this proxy vote and both counsel advised that the proxy could not be accepted
as it was not received in time.
Wentworth’s registrars, Link Group, informed Merrill Lynch by
email on 22 February at 11.45am that the proxy was invalid and drew their
attention to the relevant sections of the Scheme Document that set out the
procedure for serving proxy forms for the Court Meeting after the specified
proxy cut-off time. The Scheme
Document specified that if a form of proxy for the Court Meeting was not
returned by the proxy cut-off time it could be handed to representatives of the
Link Group for the chair of the Court Meeting before the start of the meeting
or emailed to shareholder enquiries at Linkgroup.co.uk at any time before the
Court Meeting was due to commence and that in each case it would be valid. In these circumstances, Merrill Lynch
should or could have emailed a copy of their completed proxy form to the email
address specified in the Scheme Document at any time prior to the commencement
of the Court Meeting. No such
action was taken and no further correspondence was received and, accordingly,
the proxy vote was disregarded.
22. There were also two other proxy forms –
one in favour and one against – in respect of an undetermined number of
votes purportedly cast by persons who did not match the details on the Register
of members of Wentworth.
23. Pursuant to the Law, there were two majorities
that were required to be met:
“38. Article 125(1) of the
Companies Law provides as follows:
"(1) Where a compromise or
arrangement is proposed between ... the company and its members, or a class of
them, the court may on the application of the company ... order a meeting ...
of the members of the company or class of members (as the case may be), to be
called in a manner as the court directs."
39. Once the meeting has been
ordered, the statutory voting thresholds for approving the "compromise or
arrangement" are set out in Article 125(2) as follows:
"(2) If a majority in number
representing –
(a)
...
(b)
3/4ths of the voting rights of the members or class of members, As the case may
be, present and voting either in person or by proxy at the meeting, agree to a
compromise or arrangement, the compromise or arrangement, if sanctioned by the
court, is binding on –
(i)
...
(ii)
all the members or class of members, as the case may be and also on the
company."”
24. First, a simple majority of those voting either
in person or proxy has to support the Scheme. Forty-two Scheme Shareholders voted in
favour of the resolution and twenty-five against. Accordingly, the resolution was passed
by a majority in number of the Scheme Shareholders present or voting by proxy.
25. The second and often crucial test is the test
which requires a majority in number representing 75% of the voting rights
present and voting either in person or by proxy to support the Scheme. Here, an extremely narrow majority was
secured – 75.26% voted in favour of approving the Scheme with 24.74%
voting against. This was described
as a “narrow margin” and had the Merrill Lynch votes been
counted then the Scheme would not have attracted the support of the required
majority.
26. Mr Bushell, who chaired the Court Meeting and
the subsequent general meeting, swore an affidavit shortly before the
hearing. In respect of the Court
Meeting, he said that 78,157,916 shares were voted for the resolution and
25,687,527 voted against. He went
on to say that the “margin of approval” was “low”
in the context of an approved offer governed by the Takeover Code, but that one
could not speculate as to why shareholders may have voted one way or
another. He went on to say that
certain shareholders expressed the view that the cash consideration was below
their expectations.
27. The Court Meeting was followed by a general
meeting where a special resolution was considered which required a two-thirds
majority of the votes cast by those entitled to vote supporting the same. The principal effect of the special
resolution was to amend certain of Wentworth’s articles of association to
make the Scheme effective.
28. Mr Bushell says little about this in his
affidavit but the scrutineer Mr Cambridge (who also swore an affidavit but did
not comment on this) said that at the general meeting the votes cast in favour
of the special resolution were 78,408,598, amounting to 74.46%, and against
26,889,908, amounting to 25.54% against the total votes cast of 105,298,506.
29. No one in Court (including Ms Roe) could
explain why more shareholders had voted both for and against this special
resolution than had voted either in favour or against the Scheme. It did appear to be curious, and it
would have been helpful had Mr Bushell explained, if he knew, why this was or
may have been.
30. The Court was concerned about the delay between
the Court Meeting and the Court being invited to sanction the Scheme
approximately ten months later and only less than a fortnight before the Scheme
would effectively lapse at midnight on 31 December 2023, unless there was an
agreement to extend the time for sanctioning of the Scheme.
31. That concern was heightened by the fact that
the Court hearing on 19 December was reserved by the parties in August 2023,
but it was only on 6 December 2023 that Wentworth notified the company’s
shareholders of the date planned for the sanction hearing via a Regulated News
Service Announcement - giving them less than two weeks to either obtain Jersey
representation or to write to the Court.
One shareholder who was hostile to the Scheme did contact Jersey counsel
for Wentworth and suggested that he might attend the hearing but ultimately did
not do so. Few, if any, of the
shareholders concerned lived in Jersey.
The shareholder concerned said “As you are aware, most
shareholders are not located in Jersey.
When will a possible postponement of the meeting be shared with
shareholders so they have reasonable time to make re-arrangements? In case of a postponement, I expect
sufficient notice such that Scheme Shareholders have a reasonable time to make
new arrangements to attend if they wish”. The reference to a postponement followed
an email being sent to him by Ms Roe saying that in the event of a postponement
a further announcement would be made, and shareholders notified in the same way
as they had been on 6 December 2023.
32. Had there been no good reason for the late
notification of the shareholders of the Court hearing on 19 December, the Court
could well, in the context of this case, have regarded this as being a “blot”
on the Scheme and declined to sanction it.
33. Wentworth thought it was appropriate, sensibly,
to have a Court date prior to the end of the year which was effectively the
long-stop date for sanction of the Scheme.
The delay in finally confirming the provisional date of 19 December to
shareholders was a consequence of the great difficulty experienced in obtaining
consents in Tanzania which were necessary for the Scheme to be sanctioned.
34. It was not known if the consents would be
obtained and the 6 December 2023 notice giving an update to shareholders on the
offer from M&P said that the conditions to the acquisition included: “(1)
Consent from the Minister responsible for petroleum affairs in Tanzania under
the Petroleum Act 2015; (2) The waiver of any right of first refusal or
pre-emption right which the Tanzania Petroleum Development Corporation is
entitled in respect of the Mnazi Bay asset; and (3) Approval from the Tanzanian
Fair Competition Commission in each case in terms satisfactory to
M&P”. These matters
were only satisfied at the eleventh hour.
Counsel for M&P said that agreement was reached in respect of (2) on
6 December 2023 which unlocked the door to the other approvals – the
consent at (1) was granted on 12 December 2023 and the approval at (3) was
received on 17 December 2023. The
arrangements were described as complex and a change in the identity of the
relevant Minister in Tanzania during the process had caused delay.
35. The dates in relation to the Tanzanian
approvals contained in Wentworth’s counsel’s Skeleton Argument at
paragraph 35 were slightly different but the general picture was of extensive
discussions leading to a delay which was outside the control of Wentworth.
36. The Court should be slow to differ from the
views of the majority, even a majority as thin as in this case. As the Royal Court observed in Vallar,
it is not for the Court to strain to find reasons why a Scheme of Arrangement
should not be sanctioned.
37. The interests of the Scheme Shareholders were
generally aligned in this case, and all received proper notification of the
Court Meeting. Although the turnout
in terms of shares voted was not especially high, it was not especially low
either. The shareholders were, in
our view, fairly represented by those who attended the meeting and,
notwithstanding the disallowance of the shares which Merrill Lynch purported to
wish to vote against the Scheme, there is no evidence that the statutory
majority were not acting in good faith, and there is certainly no evidence of
coercion of the minority.
38. In the circumstances we agreed that the
arrangement was such that an intelligent and honest person, a member of the
class concerned and acting in respect of their interests might reasonably
approve and, in view of the difficulties in obtaining the appropriate consents,
approvals and waivers in Tanzania, we ultimately took the view that the late
notification of the shareholders did not amount to a blot on the Scheme which
would have entitled the Court to decline to exercise its discretion in favour
of sanctioning the Scheme.
Accordingly, we sanctioned the Scheme.
Authorities
Companies (Jersey) Law 1991.
Vallar
Plc [2011] JRC 125.
The
Representation of Cazenove Capital Holdings Limited [2013] JLR (2) Note18.
Puma Brandenburg Limited v Aralon
Resources and Investment Company Limited [Judgment 18 May 2017].