Jersey & Guernsey Law Review – June 2013
Jersey Company Law: The Developing
Practice of Schemes of Arrangement
Paul J. Omar
outlines the scheme of arrangement provisions in the Companies (Jersey) Law
1991 and deals with recent trends in the jurisprudence with respect to the
operations of the scheme framework as a method of restructuring companies in Jersey.
Companies (Jersey) Law 1991 is now of some vintage,
although the consensus amongst corporate practitioners is that its framework,
updated reasonably frequently by various regulations and amendment laws,
continues to work reasonably well in providing a useful basis for the conduct
of corporate operations in Jersey. The law is based on the Companies Act 1985 (United Kingdom),
which is descended from earlier models going back as far as 1844.
It was in the mid-19th century that scheme of arrangement provisions were first
seen, permitting a compromise or other arrangement with creditors,
although it was not until the early 20th century that schemes were made
available to govern restructurings of members’ interests.
2 In the period since the framework was
first introduced, the flexibility and versatility of the scheme has seen its
use extend from its original scope as a method of compromising or settling
creditors’ claims. Thus, the scheme of arrangements provisions now allow
for the court-directed procedure to produce a plan with a number of possible
outcomes, including the sale or disposal of the business, the merger or
demerger of companies, the restructuring of capital, debt and other
obligations, including the injection of new capital, to effect changes in
management and also to carry out takeovers. In the insurance industry in
particular, schemes have enabled distributions to take place as an alternative
to liquidation as well as the estimation and pay-off of classes of claims. The
cram-down available in scheme procedures also means that schemes offer a better
opportunity than consensual restructurings, particularly where there may be
minority dissenting creditors who may otherwise impede an arrangement.
3 The main advantage of the scheme of
arrangements, apart from its overall outcome-oriented flexibility, is to avoid
the formality of insolvency procedures, even those that might be considered
light-touch, such as the corporate voluntary arrangement (“CVA”) in
the United Kingdom,
which was in fact designed to resemble the scheme.
In fact, in jurisdictions inheriting versions of the United Kingdom Companies
Acts, but where insolvency procedures have not been developed for some time,
the scheme procedure has undergone a renaissance as a method for restructuring
companies, especially in the Commonwealth Caribbean.
In Jersey, given views on the absence of
serious competition from bankruptcy/insolvency procedures,
except perhaps the art 155 framework,
this means that schemes have potentially a strong role to play in restructuring
4 Some disadvantages, though, exist in relation
to schemes. They are really designed to work with solvent companies, although
schemes are also available in Jersey, and
elsewhere, as a possibility within the context of a winding up,
while recent moves in practice have pushed the envelope for schemes to
encompass companies near the insolvency threshold.
Furthermore, schemes require a very elaborate procedure demanding the close
attention of directors and extensive (not to mention expensive) documentation
drafted by legal advisers. A particular difficulty of the process is the
necessity to define the classes of persons who may be affected and the need to
summon them separately to deliberate on the terms of the proposal. The role of
mediated holders, such as trusts or depositaries, representing multiple
beneficiaries with possibly competing interests, may also need to be
There may also be delays in summoning meetings and between all the stages, including
the two court orders required as part of the process, rendering it difficult to
telescope the procedure into anything less than 8–10 weeks.
Lastly, in the absence of a moratorium, this makes it difficult to prevent
rogue creditors from pursuing courses of action that might undermine the
purpose of the scheme.
Scheme framework and procedure
The first (application) phase
18A on “compromises and arrangements” sets out the scheme
framework, which enables the court to order a meeting of the creditors (or
class of creditors) or of the members of the company (or class of members) in
any manner it may direct in order to consider a compromise or arrangement
proposed between a company and its creditors or members. The application is
usually made by the company or by one of its creditors or members, although,
where the company is being wound up, the liquidator may also act.
Schemes may be member-only, creditor-only or involve both members and
creditors. The object of the application hearing is not to consider the merits
or fairness of the scheme, as this will be done at the hearing to sanction the
scheme of arrangement, but simply to determine the procedure by which the
meetings of the relevant classes of creditors and/or shareholders will be held.
The purpose of this phase of the procedure is simply to determine whether the
proposal is, prima facie, a scheme of
arrangement that could be properly put to the meetings that are proposed to be
called and whether the determination of the relevant classes for the purposes
of the meetings is correct.
6 The courts in Jersey have also held that, as
art 125 of the Jersey law was in identical terms to its United Kingdom
counterpart, the court would have the fullest regard to the interpretation
given by the courts in that jurisdiction when dealing with the equivalent
sections to the legislation. The framework set out in art 125 would be broadly
construed to enable a wide variety of schemes to be put forward.
Furthermore, the court approves and applies the principles set out by the United Kingdom
courts in a practice statement,
which requires a number of matters to occur in this phase. First, the applicant
for a scheme should bring to the attention at the earliest possible time
anything affecting the constitution or conduct of creditors’ meetings.
Next, the court should consider the composition and number of meetings and
should also consider giving directions for the resolution of any creditor
issues brought to its attention. Furthermore, unless there is a good reason for
not doing so, the applicant should take all reasonable steps to notify any
person affected by the scheme as to the purpose of the scheme, the creditor
meetings which the application considers will be necessary and their
composition. Notice should normally be given of a proposed scheme before the
initial hearing unless there are good reasons to the contrary. Lastly, where
notice has been given, then creditors will need to manifest any objections,
although allegations of unfair treatment may still be raised in the sanctions
hearing, but will be subject to the court’s view on whether these
objections could have been raised earlier. The Jersey
court also holds that these principles apply equally to members’ meetings
in not all cases will a meeting be necessary. In Re China
Real Estate, where the scheme would affect a class who
had no voting rights, the applicant proposed that the shareholders affected
should simply be sent a copy of the scheme for information as they could not in
any event vote on the proposals. Although the court agreed that a class meeting
of the affected shareholders was not necessary, it did require the information
to be made available to the shareholders concerned and to include mention of
their right to be heard when the court convened to hear the scheme
Second (meeting) phase
formal requirements here relate to the procedure for summoning the requisite
meetings as well as the information that will be necessary to circulate prior
to the meetings taking place. A scheme of arrangement is normally binding on
the creditors and/or members (or any class of these groups) as well as on the
company. It is also binding on the liquidator and contributories of the company
where the company is in the course of being wound up. This is subject to two
conditions, the first being that a majority in number representing three
quarters in value of the creditors (or class of creditors) or three quarters of
the voting rights of the members (or class of members), whichever is the case,
agreeing to the compromise or arrangement at a meeting, where they are present
and voting either in person or by proxy.
Secondly, the scheme must be sanctioned by the court, whose order is deemed not
to have effect until a copy of the relevant Act of the court has been delivered
to the Registrar for registration.
The Act of the court must also be annexed to every copy of the company’s
memorandum issued after the order has been made, in default of which an offence
has been committed.
9 For the purposes of this phase of the procedure, the court
normally determines what may be necessary in order to enable the meetings to
occur, including such aspects of meeting
procedure as the quorum requirements, timings of the various meetings, prior
notices to be issued, the circulation or availability otherwise of scheme
information and the appointment of meeting chairs. The court has held that its role is to direct the manner in which the
meeting(s) is/are to be held, to require that a particular person be appointed
to chair the meeting and that the person should be directed to report
the results of the meeting to the court.
In fact, the court’s ability to select the chairman of the meeting and to
require a report on proceedings to be made is deemed to be an important aspect
of court control over the process.
The court may also determine its own notice periods and is not bound to
align these with those ordinarily stipulated for shareholder meetings in art
90(1). As there are, in any event, no notice periods stipulated in the case of
creditors’ meetings under the law, this matter will require determination
and possible alignment with what is decided in the case of members’
10 As far as the information requirements are concerned, the law requires
information as to a compromise to be circulated prior to the meeting of creditors
There is also a stipulation that the notice calling the meeting given to a
creditor or member must include a statement explaining the effect of the
compromise or arrangement. In particular, it must state any material interests
of the directors of the company (whether as directors or as members or
creditors of the company or otherwise) and the effect on those interests of the
compromise or arrangement where the effect is materially different from the
effect on the interests of other persons.
Where the compromise or arrangement affects the rights of debenture holders of
the company, the statement is required to give the same explanation with
respect to trustees of the deed for securing the issue of the debentures as is
given in respect of the company’s directors. Where the notice calling the meeting
is made by advertisement, it must include either the statement noted above or
information about where and how those creditors or members entitled to attend
the meeting may obtain copies of the statement.
Where an indication is given that copies may be obtained by application, every
creditor or member making the application is entitled to a copy of the
statement free of charge.
particular onus is placed on the directors or debenture deed trustees, who are
required to give notice of any matters having an impact on the making of a
statement for the purposes of this provision, in default of which an offence is
Furthermore, if the company fails to comply with any requirement of this
provision, it and every defaulting officer is liable to conviction for an
offence. For these purposes only, a trustee of a deed for securing the issue of
debentures of the company is also deemed to be an officer of the company.
However, any other person is not liable if she/he can show that their default
was due to another person’s refusal (for example a director or trustee)
to furnish particulars of their interests.
In a recent case, the non-disclosure of matters arising
subsequent to the production of the explanatory statement, on the basis of
which the scheme is to be approved, did not affect the decisions taken at the
meetings if minor in nature. The court held that its role is to decide whether
any reasonable shareholder or creditor would change their decision had the
information been available and, if so satisfied, to sanction the scheme.
However, failure to disclose matters in the explanatory statement, even if not
made in bad faith, that would have affected the shareholder’s or creditor’s
decision would be unlikely to result in the court sanctioning the scheme.
Third (sanction) phase
is in the sanctions phase that the court making the order is effectively
binding dissenting creditors and members of the company.
Therefore, the case-law has imposed additional requirements to ensure the
fairness and equity of the process. The elements are variously termed in the
jurisprudence, but may be fairly described as including compliance with the
procedural requirements of the law and the need to ensure that there is fair
representation of any class summoned to a meeting so that meetings may be
deemed to be truly representative of that particular class. In Jersey,
the court has stated that it has a discretion as to whether or not to sanction
the compromise or arrangement, having regard to what has occurred at the
This echoes the dictum in Re Altitude, where in considering whether or not
to sanction the compromise or arrangement, the court will consider the numbers
attending at the meeting. There must be more than one person present, although
low turnout alone is not a valid reason for refusing to sanction a scheme but
will be considered in the context of other factors which may affect the vote.
procedural compliance, though, is insufficient. A number of substantive
concerns exist, most notably that in casting a vote in any particular class,
the majority must do so in the best interests of the class as a whole. In its
application to shareholders, the principle is of some vintage, being seen in
cases such as Allen
which have stated that shareholders in a majority must vote bona fide in the interests of the
company as a whole, what these interests are being determined by reference to a
“hypothetical shareholder” test, under which the courts essentially
test the fairness of the decision by the impact it has on that shareholder. The
test is not without its difficulties, especially where, as in Peters,
inconsistent drafting in the articles made it possible to determine that
dividends were payable either on the entire value of capital held by the
shareholders or solely in function of the amount of paid up shares. In that
case, the court held that alteration of the articles often involved adjustment
of the rights of shareholders inter se,
so to put forward a test of “bona
fide for the benefit of the company as a whole” in some situations
would be meaningless as there could not be a hypothetical shareholder.
that light, it may be more difficult to apply this test to creditors, who
ordinarily would not be expected to be altruistically concerned with the impact
on creditors other than themselves, but the courts have applied the principle
by analogy with shareholder situations. However, it is here that the idea of
commercial probity or reasonableness has been brought into play, to provide an
objective method for assessing whether the creditors have in fact voted as they
should have. The courts in Jersey have adopted the views expressed in Re English Scottish & Australian
where the court held that the creditors are better judges of what is to their
“commercial advantage”, provided the creditors do so in full
possession of necessary information and with sufficient time to have properly
considered matters. Furthermore, the court should not be free to depart from
the creditors’ decisions unless “some material oversight or
miscarriage” has occurred, which will not be the case where creditors
have been properly convened and have considered matters from the point of view
and interest of the class to which they belong.
the court considered the background and context of the proposed scheme,
including any consequences (also known as the “(no-)blot” test).
The court would have regard to the interests of creditors, even though there
was no formal requirement to do so, although it may be queried how far this
could extend when there may be creditors with diametrically opposed views as in
One way of determining what the position may be is perhaps to use the
“honest and intelligent man” test that appears in the case-law.
However, meeting this test does not mean that the scheme has to be the only
scheme available to the best in all circumstances, merely a fair scheme that
could appeal to such a person.
jurisprudence in Jersey has reiterated a summary of these principles on a
constant basis since at least Re Andsberg, where the court considered whether
the provisions of the statute had been complied with, whether the class was
fairly represented by those attending the meeting, whether the statutory
majorities were acting bona fide and
not coercing the minority in order to promote interests adverse to those of the
class they represented. Furthermore, the arrangement was such as an intelligent
and honest man, a member of the class concerned and acting in his interests,
might reasonably approve.
Some tailoring of the application of these principles depending on the facts
peculiar to each case has also taken place. In Re Rambler Media,
the refinement in this case was in relation to the cause (consideration) at which the company’s shares were to
be transferred to the successful bidder, particularly in light of an objection
received from one of the shareholders. The court was of the view that it was
important to note that the shares to be subject to the scheme were no longer
available for sale on the listed market and that there was therefore a very
limited market indeed in those shares. In light of the fact that share value in
the company had fluctuated in the period preceding the case and submissions to
the effect that a number of shares had in fact been acquired at the offer
price, the court was of the view that the offer price was not unrealistic in
all the circumstances. This was despite the fact that share value was
undoubtedly a matter upon which different shareholders might take a different
the issue of intermediated interests has received some attention in Jersey. In Re CPA,
the court reiterated its duty to consider the same broad points of principle as
in the previous cases. It had also, in an earlier hearing, given directions as
to the counting of votes at the court meeting so as to ensure that it was the
views of the beneficial owners which were counted rather than the views of the
registered shareholders who were simply nominees. In light of full disclosure
to the registered shareholders and, via
them, to the beneficial owners of opinions both for and against, the court was
satisfied that a majority was obtained according to the requirements in the law
and in the articles of association, while the majority that was obtained was
representative of the shareholders concerned, no evidence of coercion by the
majority being forthcoming. However, in Re
Polyus Gold, it is noteworthy that the court was of the
view that a single meeting could be held with the depositary present and that
it would be sufficient for the holders of the global depositary receipts to indicate
to the depositary their wishes in the matter of the proposed scheme and
ancillary reduction of shares under the procedure contained in art 63 of the
Developments in the recent case-law
case-law in 2012–2013 has further refined the application of the
principles, showing the jurisprudence developing to take into account the
specificities in each case, while remaining wedded to the broad base of the
principles outlined in the case-law to date. In Re Investkredit,
the company was of a type essentially
used for raising finance on international capital markets for Austrian
institutions, such as its parent bank. It had issued €50 million’s
worth of bonds, which were supported by an undertaking from its parent, in the
form of a single global note held by a central securities depository. There
were major financial institutions participating in the bonds directly, as
investors in the bonds, but the same institutions could also be holding these
interests for others, either ultimate beneficiaries or for the same via
other intermediaries, of whom there might be many layers before reaching the
ultimate beneficiary. The company expressed its wish to have the ultimate
beneficiaries (and not just the unique bondholder) vote on the scheme proposal,
a request the court was able to agree to. It did so, using the persuasive
precedent set in Re Castle,
which involved a debt restructuring featuring a number of global notes and in
which the court accepted that the ultimate beneficiaries were properly to be
regarded as the company’s contingent creditors and that their votes that
were to count for the purposes of voting on the scheme. In the instant case,
the scheme involved amendments to the terms and conditions under which the bonds
were issued, which had become necessary in light of a merger between its parent
and another financial institution and ancillary changes to the capital
requirements for such institutions owing to new European Union rules.
19 The difficulty in the case was that the company had no
means of knowing the identity of the vast majority of bondholders or the
ultimate beneficiaries. Reciting the principles established in Re
CPA and the
strictures of the Practice Statement
with respect to the need to bring to the court’s attention any issues
with respect to the identification of creditor classes, the court determined
that the bondholders had the same economic interest. Therefore, they could
constitute a single class, there being no other creditors whose interests
needed to be ascertained. As such, the court held that a single meeting would
be held at which the bondholders would be given the chance to vote with the
appropriate notice being provided by means established by the court. This would
include direct notice via the depositary to known bondholders and by
advertisements in newspapers in Austria,
Germany and across Europe as
well as through the communications mechanisms established by the Vienna and Frankfurt Stock
Exchanges. The voting framework for the meeting was also agreed by the court to
enable the bondholders to communicate their intentions to an information agent
with the bonds themselves being frozen (not subject to trading or transferral) until released post-voting.
Although the proposed communication to the bondholders, via the same
information agent, did not contain a summary of the scheme as the court
expected, the information that was provided enabling the bondholders to access
the explanatory statement was deemed sufficient, given the difficulties that
might arise in having a summary agreed and provided within the timeframe that
was to govern the voting process.
20 In Re FRM,
the company concerned was a Jersey
incorporation and parent company of a group specialising
in hedge fund research and investment specialists, managing circa US$8
billion in assets. As the group required greater scale, a broader international
reach and additional platforms for growth, it approached the MAN Group, which
had circa US$59 billion under management. There was a single class of
shares held largely by the company chairman’s family trust (with an
additional golden share to enable the passing of special resolutions), the
Sumitomo Bank, which was also a source for business referrals, and current and
past employees. The company was not listed and the acquisition could have taken
place via a contract for a transfer of the shares in the company.
However, the MAN Group wanted the certainty that all shares would be acquired
and proposed this occur through a scheme. In light of the principles in Re
the court was concerned to determine the appropriate classes. As the Sumitomo
Bank was to transfer its shares on different terms and for different
consideration, receiving preference shares in the purchasing entity, it fell outside
the ordinary shareholder class anyway and did not have to be dealt with
together with members of that group. However, there was also a distinction
between the remainder of the ordinary shareholders, those who had been lent
money, chiefly the employees, to acquire shares and those who had not. The loan
terms required payment out of proceeds of sale. It transpired that from the
first tranche of consideration, all but 31 shareholders would receive
sufficient sums to repay amounts. Nevertheless, the purchaser would only
proceed if the remainder were given a loan waiver by the company. The scheme
was to be put to the fund recipients on the basis of either bearing a
proportion of the cost of the waiver or, the default option, to receive all of
the first tranche moneys but no cost to be borne. The difficulty was that while
the first tranche moneys was certain, the payment of subsequent tranches was
performance-based, hence less certain for the shareholders overall.
21 As it turned out, the non-loanholders
had indicated support for the scheme by giving undertakings to vote in favour of bearing a proportion of the costs. The issue for
the court was, however, whether the divergent interests (within what would
otherwise be a single class) between loanholders and
non-loanholders constituted a sufficient difference
for summoning separate meetings of the two “classes”. The court was
mindful of the observation in Re Vallar
of the test for class identification propounded in Sovereign Life,
where the court applied a plain meaning test to enable it to prevent the
statutory provision “result[ing] in
confiscation and injustice”, while also ensuring that the class is
confined “to those persons whose rights are not so dissimilar as to make
it impossible for them to consult together with a view to their common
The court agreed, holding that separate meetings were required where there were
significant differences in the rights of members that determined their
constitution into separate classes. However, the concern should also be that
“artificial distinctions” should not be made that might perpetuate
the type of confiscation and injustice mentioned in Sovereign Life.
22 A further issue for the court was the distinction being
made in the jurisprudence between rights and interests, with the cases tending
to decide that normally only divergent rights, as opposed to the private
interests of the affected shareholders, could ground the formation of different
classes. However, in determining whether the statutory majority had been
reached, a court could take into account whether the views of those voting
truly represented the views of the class as a whole, thus taking into account
the possibility of divergent interests motivating the decisions to which those
shareholders had arrived. Although the retort might be to permit these groups
to vote separately, it could often be impractical to determine the cleavage
between groups on the basis of interests, thus requiring default to the basic
position of class identification on the basis of rights. A further
consideration is that risk of fragmentation that might allow an artificially
determined class to hold others to ransom by effectively conferring on them a
right of veto. This risk had to be balanced against the concomitant risk of
allowing the majority to oppress the minority if groups with dissimilar
interests were grouped together on the basis of rights.
23 As such, the true test was to see whether the scheme
constituted one arrangement or a number of interlinked arrangements, which in
turn will depend on an analysis of the rights released or varied under the
scheme and of any new rights to be given to those who have agreed to release or
vary their pre-existing ties to the company.
In this case, a careful enumeration by the court of the characteristics of the
shareholders by reference to their existing rights and to their prospective
rights under the scheme, enabled the distinction to be made between two
categories of interests: cost-bearers and non-cost-bearers. Other potential
differences between shareholders in relation to transaction completion bonuses,
new retention and service contracts (for employees taken on) and a consultancy
with the purchaser were not treated as distinct enough an interest to allow for
further classes to be determined. Two meetings were therefore convened, whose
positive result allowed the court to sanction the scheme on the basis of the
principles in Re CPA.
24 The case of Re APIC involved the court having to determine the extent of the territorial
bar on the application of the law.
The facts involved a Jersey company, Longreach, intent on acquiring APIC, a Canadian company, via a scheme. Upon the conclusion of the acquisition, APIC would
amalgamate with Longreach with its undertaking,
property and liabilities becoming those of the latter. A further consequence
would be the dissolution of APIC and its de-listing from the Canadian TSX
Venture Exchange. There was also a complication given the existence of a
financing transaction based on subscription receipts convertible into shares
worth some CN$30 million that was time sensitive and posed certain problems
given the estimated time table likely to require 110–120 days to
complete. The court was concerned that the application invited the court to
exercise its jurisdiction in relation to a company that was a foreign entity.
Although the Canadian company had a Jersey
subsidiary that could arguably be entitled to apply for a meeting to be called,
not of its own shareholders, but those of its parent, the court did not need to
go down this route. The court held that, correctly, it could only sanction a
scheme of arrangement in relation to a “company”, being a company
incorporated under Jersey law. However,
although at the time of the application the company was still Canadian, as part
of the amalgamation process, it was intended that the company effect a
continuance into Jersey under Part 18C of the
25 Once a continuance had taken place, the
company would cease to be a company incorporated under the laws of its original
country of incorporation and instead becomes a company incorporated under the
laws of Jersey. Furthermore, it was intended
that the meeting of its shareholders would only take place when APIC had
continued into Jersey and was therefore a Jersey
company amenable to the court’s scheme jurisdiction under the law. As
such, the court held it was perfectly able to order a meeting of the
shareholders of a foreign company pursuant to a scheme application, but
conditional on the foreign company having been registered as a Jersey company by the time the meeting took place. It
would then be a meeting in relation to a scheme between a Jersey
company and its members. The court was content to say that such a scheme
dependent on a continuance is “but
one example of the wide variety of arrangements that [the law] is intended to
cover and the court should be flexible in its approach”.
However, it was also keen that the order was not viewed as being an exorbitant
extension of the court’s reach over non-Jersey companies, noting that the
company was intent on becoming a Jersey
incorporation over which the court was ordinarily able to exercise
jurisdiction. As such, the prospective application of the order with its
attendant condition was a perfectly proper order for the court to make.
26 Although in the normal case, there would
need to be two separate shareholder meetings: one to approve the continuance of
the foreign company into Jersey and then, once the company had been continued
into Jersey, a separate meeting to approve the scheme, the court was able to
order a single meeting to take place on the prospective basis of the order,
thus saving significant time on the completion of the transaction. A single
shareholder’s meeting would thus be convened at which the shareholders
would be asked to approve the continuance into Jersey, then being adjourned for
a short period of time to enable the completion of the continuance into Jersey
with the reconvened meeting, this time of a Jersey company, being asked to
approve the scheme. On the class
identification point, although there was single class of shareholders, the
court simply noted that Canadian law required the beneficial owners of some of
the shares, held on a “non-registration” basis (i.e. held through intermediaries), to
have the opportunity to vote on the proposals, those dissenting from the
continuance to have their shares cancelled and to receive the fair market value
for those shares on completion of the scheme. As such, it had no need to
further impose the requirement for consultation of the beneficial owners, as
seen in Re Investkredit.
27 At the later sanction hearing, the court
benchmarked the process against the Re
three-fold test and the no-blot requirement. After an examination of compliance
with the law and the bona fide
aspects of the procedure, in relation to the honesty test, the court looked to
the fact of the scheme being recommended by both APIC’s and Longreach’s boards, its being based on the prevailing
market price of the companies’ shares over a “significant”
period of time as well as its compliance with the Canadian Statutory Provision
Multilateral Instrument, essentially on the “Protection of Minority Shareholders
in Certain Transactions”. On the no-blot point, the court looked to the
Jersey Financial Services Commission’s approval of the continuation on
the basis of provision of solvency statement and there being no unfair
prejudice to creditors. Evidence was heard as to the ability to discharge debts
as they fell due and the court also accepted an undertaking to the effect that
the company would use its “commercially reasonable efforts” to
secure payments of trade payables prior to completion of the scheme and would,
at the completion date, withhold sufficient funds to pay any outstanding
amounts. The court sanctioned the scheme that had been approved.
28 Lastly, Re
involved a debate on the issue of creditor protection under art 62 and the
reduction of capital procedure as a prelude to the authorisation
of a scheme to enable the company to change its tax residency. This was
contemplated because changes in the taxation of foreign profits in the United
Kingdom enabled the board to propose the return of WPP’s HQ to that
jurisdiction by means of a scheme following the reduction of capital that would
see the creation of new shares and their allotment to paying up in full par
shares to be issued to NewWPP, a company to be
incorporated in Jersey, but which would then be tax-resident in the United
Kingdom. The Re CPA test
was again applied at the sanction hearing, where the court held that there had
been quite clearly compliance with the law and that there was no suggestion
that the views of the majority at the single meeting which approved the scheme
were not representative of the shareholder body as a whole. The turnout, 10% of
the physical shareholders, but who had 75% in value of the rights in the
shares, was representative in line with the rule in Re Vallar.
On the honesty point, not only had the scheme been approved by directors, but
there was no reason to suggest the shareholders were not acting reasonably. In
that light, the court found no blot to exist.
developments in the jurisprudence in Jersey
may be seen as pragmatic responses to the way in which alterations have taken
place in the corporate environment. These changes include the way in which
shares and other interests are held in companies, with these being held more
and more on an intermediated basis, often in complex and many-layered
arrangements. The consideration of beneficial interests as seen in cases, such
as Re Polyus
Gold, Re Investkredit
and Re APIC
is now a standard feature of the case-law, even though courts are still
required in many instances to define the framework to govern the consultation
process. The consideration of how class identification takes place and the
balance between rights and interests, as seen in Re FRM,
is symptomatic of a more holistic consideration of the relationship between
corporate stakeholders and companies, where rights alone are an insufficient
determinant of the impact of the schemes, with the need to consider the effect
of alterations to those rights as well as occasionally, but only where properly
relevant, the wider interests of these stakeholders. Further, the prospective
approval of scheme procedures and their extension to continuing companies, seen
in Re APIC,
is part of a wider concern to ensure the scheme process remains as flexible as
possible and that the procedure is as efficient as it can be. All the cases, Re WPP
included, adhere to the tests outlined in, inter
alia, Re CPA,
confirming the stability of this line of jurisprudence.
this light, it may be appreciated that the evolution in scheme jurisprudence
taking place in parallel across jurisdictions in which corporate practice is
highly developed, as in Jersey and the United Kingdom, will quite often be used
as templates for further developments in these and other jurisdictions. The
recent cases featured here display elements of creativity and innovation on the
part of the practitioners and courts involved, heralding a willingness to see
the scheme jurisdiction evolve and to adapt it to novel situations. This
appears to be, for many, a more palatable outcome for reconstruction and rescue
attempts, especially as an alternative to other procedures, such as those that
feature in the law of insolvency, which may be ill-adapted to the types of
outcomes that would more usefully benefit from the scheme of arrangements
Paul J Omar, of Gray’s Inn, Barrister,
is a Visiting Professor at the Institute of Law, Jersey
This article is based on a CPD
Lecture given on 5 June
2013 as part of a series organised by the Jersey Institute of Law, St
Helier. The author acknowledges the number of useful
criticisms and feedback provided by members of the audience. Any errors or
omissions remain, however, the author’s own.
References below to articles and parts are to the Companies (Jersey) Law 1991
unless otherwise specified.
In the last few years alone, amendments have been made directly to the text by
the Companies (Amendment No 5)
Regulations 2011 (in force 23 February 2011), the Companies (Amendment No 6)
Regulations 2011 (in force 20 July 2011) and the Companies (Amendment No
7) Regulations 2013 (in force 27 March 2013), not to mention amendments made
consequent to the adoption of the Separate
Limited Partnerships (Jersey) Law 2011 (in force 20 April 2011), the Civil Partnerships (Jersey) Law
2012 (in force 2 April 2012) and the Security Interests (Jersey) Law 2012 (not
yet in force).
The Joint Stock Companies Act 1844 (United Kingdom), introducing the statutory
(or registered) company into law following the recommendations of the Gladstone
Commission 1841. It was inspired in part by the Commercial Code 1808 (France),
which is also at the origins of the Loi (1861) sur les sociétés
à responsabilité limitée
Section 136, Companies Act 1862 (United Kingdom) and s 411, Joint Stock
Companies Arrangement Act 1870 (United Kingdom).
Section 120, Companies (Consolidation) Act 1908 (United Kingdom).
The Report of the Review Committee of Insolvency Law and Practice (Cmnd 8558, 1982) (“Cork Report”), at para 204,
states the intention behind this procedure to be to provide a cheap, quick,
efficient method of dealing with financial difficulties without engaging formal
procedures in a process akin to that contained in s 210, Companies Act
1948 (United Kingdom), subsequently readopted as ss 425–427,
Companies Act 1985 (United Kingdom) and s 895 et seq., Companies Act 2006 (United Kingdom).
See Kawaley, “Cross-Border Insolvency in the
British Atlantic and Caribbean World: Challenges and Opportunities”,
Chapter 14 in Wessels & Omar (eds),
Groups of Companies (2011, INSOL Europe, Nottingham).
See Omar, “Finding Rescue: Creative Alternatives to the Classic
Insolvency Procedures in Jersey”, (2012) 16 JGLR 248.
See Omar, “Insolvency Practice in Jersey: The Novelty of Pre-Packs”,
(2013) 6 CRI (forthcoming), a comment on the recent case of Re Collections Group  JRC 039 (20
With one caveat: the absence of any cross-border impact. In the United Kingdom,
the Companies Act 2006 definition of what companies are eligible for schemes
refers to “companies liable to be wound up under the Insolvency Act
1986”, which includes companies formed in the United Kingdom as well as
“unregistered companies” (defined to mean foreign companies),
giving the provisions an extra-territorial scope, witness the schemes involving
major European companies seen in Re La Seda de Barcelona SA  EWHC 1364 (Ch); Re Rodenstock GmbH  EWHC 1104 (Ch)
and the Cortifiel and NEF Telecom Schemes in 2012.
See Seelinger & Daehnert,
“International Jurisdiction for Schemes of Arrangement”, (2012) 9
Article 167. In the United Kingdom, the equivalent provision is s 110,
Insolvency Act 1986 (United Kingdom), whose advantage is that court approval is
not required, but creditors’ claims must be met in full and it may be
difficult to achieve a cram-down on dissentients.
Re Drax Holdings Ltd; Re Inpower
Ltd  1 BCLC 10 (in part a Jersey case).
See, for example, Re Polyus
Gold International Ltd  JRC 230.
However, in the United Kingdom, the Chancery Court Practice Statement  3
All ER 96 dealing with such applications contains reasonably clear guidelines
enabling proposers of schemes to prepare the application and documentation with
This explains the introduction, by the Insolvency Act 2000 (United Kingdom) of
the CVA with moratorium procedure for small companies now in Schedule A1,
Insolvency Act 1986 (United Kingdom), which was designed to avoid some of the
difficulties experienced in the insolvency context.
Finance (Jersey) Ltd 
Re TSB Bank 1992 JLR 160.
plc  JRC 051.
Re China Real Estate Opportunities  JRC 114; 
Re Royal Bree’s Hotel Ltd 1994 JLR N–6a.
Re Plus 500 Emerging Markets High Yield Fund Ltd (1996) (unreported).
Re George Topco  JRC 059.
Applying Re Jessel
Trust Ltd  BCLC
119; Re MB Group Ltd  BCLC 672.
The orders that may be made in furtherance of the court’s sanction are
enumerated in art 127.
This is a very old principle indeed, dating back to at least the case of Re
Alabama, New Orleans, Texas & Pacific Junction Railway Co  1 Ch 213.
Re Royal Bree’s Hotel, above note 26.
Altitude Scaffolding Ltd  EWHC 1401.
Allen v Gold Reefs of West Africa Ltd  Ch
Greenhalgh v Arderne
Cinemas  Ch 286.
Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457.
Re English Scottish & Australian
Chartered Bank (1893) Ch 385.
Ibid, at 409 (per Lord Lindlay, MR).
 BCC 342, the United Kingdom end of a parallel scheme-based restructuring
of the Jersey company in the case mentioned (above note 18).
Andsberg Ltd 2007 JLR N . The substance of the
formulation was repeated in the same year in Re CI Traders Ltd 
Following Re Telewest, above note 18.
Re Rambler Media Ltd  JRC 034.
Re Computer Patent Annuities Holdings Ltd
2010 JLR N .
Funding Ltd  JRC 121.
Re Castle Holdco 4 Ltd (23 March
2009) (unreported) (coram
The observation is made that these procedures are similar to those used in the
United Kingdom in comparable schemes where the bondholders may be remote from
the original investment vehicle.
Re FRM Holdings Ltd
 JRC 120;  JRC 138A.
Sovereign Life Assurance v Dodd
 2 QB 573.
Ibid, at 583 (per Bowen, LJ).
Citing UDL Argos Engineering & Heavy
Industries Co Ltd v Li Oi Lin  3 HK LRD,
itself citing, inter alia, Re English Scottish & Australian
Chartered Bank (above note 44), Re
Chevron Sydney Ltd  VR 249 and Re
Alabama (above note 38).
Citing Re Hawk Insurance Co Ltd
 BCLC 480.
Petroleum Corp & APIC (Petroleum) Jersey Ltd 
JRC 228;  JRC 034.
Re APIC  JRC 228, at para 9.
Re WPP plc  JRC 031;  JRC 035.