Essential corporate news - week ending 6 April 2012

Publication | 6 April 2012


Welcome to Essential corporate news, our weekly news service covering the latest developments in UK corporate law.

European Commission: Draft Delegated Regulation amending the Prospectus Regulation published

On 30 March 2012, the European Commission published a draft delegated Regulation (the Draft Regulation) amending the Prospectus Regulation (Regulation 809/2004/EC). The Draft Regulation is proposed to have effect from 1 July 2012 with the changes only applying to prospectuses and base prospectuses that have been approved by a competent authority on or after its entry into force.

The main points covered in the Draft Regulation are:

Format and detailed content of key information to be included in summary: The Draft Regulation includes provisions standardising the content and presentation of prospectus summaries. It adopts a modular approach and identifies mandatory key information to be included in the summary based on the relevant annexes to the Prospectus Regulation. It is also a requirement that the sections, and the items within each section, must be included in a fixed order. These requirements are intended to ensure maximum correlation between the summary and the main body of the prospectus and to facilitate comparisons between summaries. The length of the summary should take into account the complexity of the issuer and the securities offered and must not exceed 7 per cent of the length of the prospectus or 15 pages (whichever is the longer). The summary cannot cross-refer to other parts of the prospectus.

Proportionate disclosure regime for rights issues: Where companies have shares admitted to trading on a regulated market or a multilateral trading facility (MTF) they will be able to take advantage of the proportionate regime in respect of 'rights issues' of shares of the same class. The proportionate regime reflects the fact that certain information about such companies will already be available to the market. Companies whose shares of the same class are admitted to an MTF (rather than a regulated market) will only be able to make use of the proportionate regime if the rules of the MTF contain certain provisions (including in relation to disclosure of financial statements, publication of inside information and preventing insider dealing and market manipulation). Under the proportionate disclosure regime, certain information that would otherwise need to be included in a prospectus is omitted from the contents requirements - the items that are omitted have been selected with the intention of avoiding duplication of mandatory disclosures already required by other directives. Where an issuer is admitted to trading on an MTF (i.e. not a regulated market), additional disclosure will be required in relation to remuneration and benefits and board practices. The definition of 'rights issue' contained in the Draft Regulation includes the concept of 'near identical rights' in line with the recommendations of the European Securities and Markets Authority (ESMA) i.e. issues where statutory pre-emption rights are disabled and replaced by an instrument or provision conferring near identical rights provided those rights meet certain conditions (including, amongst other things, that the rights are negotiable and transferable or, if not, the shares arising from the rights are sold at the end of the offer period for the benefit of shareholders who did not take up their entitlements). The concept of 'near identical rights' permits an issuer to impose limits, restrictions or exclusions and make arrangements it considers appropriate to deal with treasury shares, fractional entitlements and requirements laid down by law or by a regulatory authority in any country or territory.

Proportionate disclosure regime for SMEs and issuers with reduced market capitalisation: A proportionate disclosure regime will also apply when securities issued by small and medium-sized entities (SMEs) and companies with reduced market capitalisation (Small Caps) are offered to the public or admitted to trading on a regulated market. SMEs are companies that, according to their last annual or consolidated accounts meet at least two of the following criteria: (i) an average number of employees during the financial year of less than 250; (ii) a total balance sheet not exceeding EUR 43 million; and (iii) an annual net turnover not exceeding EUR 50 million.Small Caps are companies listed on a regulated market that had an average market capitalisation of less than EUR 100 million on the basis of the year end quotes for the previous three calendar years. ESMA had recommended that the proportionate regime in relation to SMEs and Small Caps should not apply to initial public offerings involving admission to a regulated market (as opposed to an MTF) or in circumstances where a company’s shares were first admitted to a regulated market (as opposed to an MTF) and that a full prospectus should therefore be required in these circumstances. This approach has not been adopted in the Draft Regulation, and the explanatory memorandum accompanying it notes that it is essential that the proportionate disclosure regime is applicable to all public offers with requests for admission of securities issued by such companies to the market, regardless of whether it is a regulated market or an MTF. As with the proportionate regime applicable to rights issues, certain information that would otherwise need to be included in a prospectus is omitted from the contents requirements, although the items omitted are different from those under the proportionate regime in relation to rights issues. Where SMEs or Small Caps are admitted to a regulated market or MTF, however, they will also be able to take advantage of the proportionate disclosure regime being introduced in relation to rights issues (as referred to above).

Format of final terms to base prospectus: The Draft Regulation clarifies the content of final terms. Different items of information have been categorised to determine which should be included in the base prospectus and which should be included in the final terms. Certain additional information can be included in the final terms on a voluntary basis, but this is limited to ensure harmonisation. It is also emphasised that final terms must not amend or replace any information in the base prospectus - where this is intended, a supplement or a new prospectus must be approved. The explanatory memorandum accompanying the Draft Regulation acknowledges that this approach will reduce the flexibility of the base prospectus regime, but notes that it will strengthen and harmonise supervisory practices and provide greater clarity and legal certainty to issuers as to what can be included in the final terms. It is also a requirement that a summary of the individual issue, containing key information for investors, is annexed to the final terms.

(European Commission: Draft Delegated Regulation amending the Prospectus Regulation published, 30.03.12)

FSA: Decision Notice - Ian Hannam

On 3 April 2012 the Financial Services Authority (FSA) published a Decision Notice in relation to Ian Hannam (Hannam), Chairman of Capital Markets at JP Morgan Cazenove. The FSA has decided to fine Hannam £450,000 for market abuse.

The decision to fine Hannam relates to two incidents of market abuse (improper disclosure) contrary to section 118(3) Financial Services and Markets Act 2000 (FSMA). The FSA believes that Hannam disclosed inside information to third parties in two emails sent in September and October 2008. The FSA claims that the emails contained inside information he had received from Heritage Oil Plc (Heritage), an existing JP Morgan client for which Hannam was the lead adviser.

The September email disclosed that Heritage’s corporate advisers (JP Morgan) were engaged in ongoing discussions with a potential acquirer of Heritage and that the CEO of Heritage, on the advice of Hannam, had decided to engage in those discussions. The FSA states that Hannam made the disclosures at a time when he knew that the recipient of his email might recommend that the organisation he represented (Organisation C) should enter into a corporate transaction with Heritage, whereby Organisation C would purchase a stake in Heritage. The October 2008 email disclosed that Heritage had just found oil and it was “looking good” and it would have been clear from publicly available information what this discovery related to.

In both cases, the FSA found that the emails satisfied the test for inside information under section 118C FSMA. In both cases, the information in the emails was found to be precise, it was not generally available and it was likely that if generally available, the information would have had a significant effect on price in that it was information of a kind which a reasonable investor would be likely to use as part of the basis of his investment decision. In addition, in both cases, although Hannam had implicit authority to make the disclosure of the information contained in the emails and was acting in his client’s interests, the disclosure of the information was not reasonable and it was not in fulfilment of any legal obligation. As a result, the FSA concluded it was not a disclosure in the proper course of the exercise of his employment, profession or duties for the purposes of section 118(3) FSMA.

The FSA accepted that Hannam’s honesty and integrity were not in question, that there was no evidence that anyone dealt in shares as a result of his disclosures or that he made any personal gain, and the FSA accepted that he did not set out to commit market abuse and that he was acting in Heritage’s interests when making the disclosures. However, the FSA considered that there were serious failures to comply with the legal restrictions on the disclosure of inside information. The FSA comments that full consideration must always be given as to whether information intended to be disclosed is inside information and, if so, whether it is reasonable to disclose it. Simply obtaining client consent before selectively disclosing inside information is insufficient for compliance. In addition, the FSA confirms that information can be disclosed to an individual to whom that information has already been revealed. Even if the information is the same, the fact that another person has stated it may lend credence to its veracity and it may carry more weight depending on by whom it is disclosed.

In determining the level of the fine imposed on Hannam, the FSA took into account his experience, seniority and level of influence at JP Morgan and in the wider market.

Hannam has referred the matter to the Upper Tribunal, which may uphold, vary or cancel the FSA’s decision.

(FSA: Decision Notice - Ian Hannam, 03.04.12)

High Pay Centre: The make up of remuneration committees

On 2 April 2012 the High Pay Centre, an independent non-party think tank which monitors pay, published a report 'The new closed shop: Who’s deciding on pay?'. This looks at the make up of remuneration committees in the FTSE 100 and it notes the following trends:

  • 9 per cent of FTSE 100 companies have a current FTSE 100 lead executive on their remuneration committee;
  • 33 per cent of FTSE 100 companies have a current lead executive on the remuneration committee;
  • 46 per cent of people sitting on remuneration committees are current or former lead executives;
  • of the 366 non-executive directors who sit on remuneration committees, only 10 per cent (37 in number) are not from business or financial intermediation;
  • 45 per cent of the companies surveyed have all male remuneration committees; and
  • women make up only 16 per cent of the total number of directors sitting on remuneration committees of the FTSE 100.

The report concludes that this survey indicates that remuneration committees are made up of individuals from largely similar backgrounds. This lack of diversity could impact on their decision-making and lead to a lack of challenge over decision-making around pay. Although a current chief executive has no direct financial interest in the pay of the chief executive of the company on whose remuneration committee he sits, he may have an indirect financial interest as a result of the benchmarking practice common among companies whereby groups of comparable companies are drawn up. These are then used as a benchmark against which to measure reward and relative performance for the company concerned. As a result, this raises questions as to how effectively the board is able to monitor the company’s management in the interests of shareholders and other stakeholders.

(High Pay Centre, The make up of remuneration committees, 02.04.12)

Financial Reporting Lab: Executive pay - Opportunity to test ‘single figure’ of total remuneration

On 30 March 2012, the Financial Reporting Laboratory (Financial Reporting Lab) announced that it would launch Phase 1 of its project on remuneration reporting. The Financial Reporting Lab was launched in October 2011 by the Financial Reporting Council (FRC) and in November 2011 the FRC announced that one of Financial Reporting Lab’s first 10 projects would be a project on remuneration reporting. In light of the announcement by the Secretary of State, Vince Cable, in January 2012 of a number of measures to provide an effective corporate governance framework for executive pay, the Financial Reporting Lab is to determine how 'one single figure for the total remuneration of each director' might be measured and presented. Phase 2 of the Financial Reporting Lab’s remuneration project will test a wider range of remuneration disclosures to help companies and investors in the transition to the new requirements expected to be put forward by the Department for Business, Innovation and Skills (BIS) in the summer of 2012, as well as to develop best practice.

The Financial Reporting Lab will focus on facilitating the testing of disclosure, and so is seeking a number of listed companies to provide example formats of the disclosure of a single figure, focusing on how the figure would be measured and presented. The disclosures provided will be tested with the investment community through a series of meetings, with each company participating required to provide the proposed disclosure format, making clear how the figure would be measured. While the focus is likely to be on testing of disclosure formats for a single figure contained in published 2011 Annual Reports, testing could also include formats suggested by companies that have not been published.

Examples are requested by early April 2012 in order to allow the Financial Reporting Lab to obtain input from the investment community during April, with a view to publishing output on the FRC’s website and submitting the findings to BIS by mid-May 2012 at the latest.

(FRC, Executive pay - Financial Laboratory to test ‘single figure’ of total remuneration, 30.03.12)

ESMA: Questions and answers in relation to the Transparency Directive

On 2 April 2012, the European Securities and Markets Authority (ESMA) published an update to the Transparency Directive Q&As published by the Committee of European Securities Regulators (CESR). CESR published the first Transparency Directive Q&As in May 2009 and then updated them in October 2009. This document endorses the Q&As previously adopted by CESR, adds one Q&A and updates one answer.

The update relates to Question 1 on the determination of the home member state for third country issuers in the case of de-listing and admission to trading in another member state. The updated answer states that before the deletion of Article 10 of the Prospectus Directive it was acknowledged that Article 2(1)(i) of the Transparency Directive did not allow the change of home member state for third country share issuers. However, ESMA considers this situation to be unsatisfactory and a final solution to the problem would therefore be found in connection with the amendments to Article 2(1)(i) proposed in the Transparency Directive review.

A new Question 15 has been added concerning the designation of an agent for the exercise of financial rights. Articles 17 and 18 of the Transparency Directive require issuers to designate as its agent a financial institution through which shareholders and debt securities holders may exercise their financial rights. The question is whether the issuer has to appoint as its agent a financial institution domiciled in the home member state or whether it is sufficient to appoint a financial institution domiciled in another member state. The answer given is that the issuer must ensure that facilities to exercise the financial rights of holders of shares and debt securities are available in the home member state but the domicile of the agent does not have to be in the home member state. The question and answer also confirms that issuers who are financial institutions may appoint themselves as an agent for these purposes

(ESMA, Questions and answers in relation to the Transparency Directive, 02.04.12)

ESMA: Final report on draft technical standards concerning the Regulation on short selling and certain aspects of credit default swaps

On 30 March 2012, the European Securities and Markets Authority (ESMA) published its final report on draft technical standards concerning the Regulation on short selling and certain aspects of credit default swaps (Regulation (EU) No 236/2012). The Regulation, which will come into force in November 2012 (except for certain provisions such as those relating to the power of the European Commission to adopt delegated acts, implementing or regulatory standards which apply from 25 March 2012), requires ESMA to develop draft technical standards in relation to several provisions. In January 2012, ESMA published a consultation paper seeking views on the proposed draft technical standards. This final report sets out a summary of the responses to that consultation paper and describes any material changes to the proposals in the consultation paper.

The main changes made by ESMA include the following:

  • Article 6 of the implementing technical standards on agreements, arrangements and measures that ensure that a share will be available for settlement has been amended to clarify that a locate confirmation is required in all cases before a short sale of shares can be undertaken. For liquid shares and for intra-day short selling the shares need not be put on hold before the short sale, provided that an additional confirmation is obtained that a share is easy to borrow or to purchase. ESMA confirms that where this confirmation cannot be provided and for all cases where the short sale concerns an illiquid share and the short selling will be for longer than an intra-day period, the shares must at least be put on hold.
  • ESMA has renamed the 'Liquid Shares Locate Arrangements and Measures' in Article 6 of the implementing technical standards 'Easy to borrow or Purchase Arrangements and Measures'. ESMA comments that although it wants to avoid confusion and additional complexity for investors through a new definition of liquid shares based on each individual third party assessment, the definition of liquid shares found in the Markets in Financial Instruments Directive (2004/39/EC) might be too limited. ESMA has therefore widened the scope to include other shares that meet certain conditions (constituent of a main national index and underlying of a derivative contract admitted to trading on a trading venue).
  • ESMA has amended Article 8 of the implementing technical standards by expanding the list of third parties with whom an arrangement under Articles 6 and 7 may be made to clarify the conditions which an entity from a third country must fulfil to be eligible.
  • So far as the disclosure of information on net short positions to the public is concerned, the drafting of Article 2 of the implementing technical standards has been amended in order to avoid misinterpretation of the net short positions of an issuer posted on the central website operated or supervised by the relevant competent authority that is available when accessing that website. ESMA has clarified that the information displayed should cover not only net short positions exceeding the publication thresholds, but also those that reach them.
  • The information that has to be provided to ESMA by a competent authority on a quarterly basis under Article 3 of the implementing technical standards now includes 'End of quarter aggregated net short position on other shares' in addition to the daily aggregated net short position on main national index shares.

The draft technical standards will be submitted to the European Commission, by 31 March 2012. The European Commission has three months to decide whether to endorse ESMAs draft technical standards. A further regulatory technical standard, on the method of calculation of the fall in value of a financial instrument required under Article 24(8) of the Regulation, will be submitted together with technical advice in the course of April 2012.

(ESMA, Final report on draft technical standards concerning the Regulation on short selling and certain aspects of credit default swaps, 30.03.12)

APB: Professional scepticism - Establishing a common understanding and reaffirming its central role in delivering audit quality

On 30 March 2012, the Auditing Practices Board (APB) of the Financial Reporting Council (FRC) issued a paper setting out its views on the nature of professional scepticism and its role in auditing. The paper builds on the APB discussion paper published in 2010, 'Auditor scepticism: Raising the bar' and the subsequent feedback paper published in March 2011 which summarised the comments received and outlined the actions that the APB, and other parts of the FRC, intended to take.

The APB believes that the expression of professional scepticism by the audit team defines the essence of a particular audit. It defines the quality of each audit judgement and through these, the overall effectiveness of the audit in addressing the challenges it faces in meeting the needs of shareholders (and other stakeholders) who rely on it. The paper addresses the lack of consensus as to the nature and role of professional scepticism in the audit and it suggests that in an inappropriately sceptical audit, inter alia:

  • the auditor’s risk assessment process should involve a critical appraisal of management’s assertions, actively looking for risks of material misstatements;
  • the auditor develops a high degree of knowledge of the audited entity’s business and the environment in which it operates so as to enable it to make its risk assessment through its own fresh and independent eyes rather than through the eyes of management;
  • this enables the auditor to make informed challenge of consensus views and to consider the possible incidence of low probability high impact events;
  • the auditor designs audit procedures to consider actively if there is any evidence that would contradict management assertions, not only to consider the extent to which management has identified evidence that is consistent with them; and
  • the auditor approaches and documents audit judgements and audit review processes in a manner that facilitates challenge and demonstrates the rigour of that challenge.

The paper also considers the conditions necessary for auditors to demonstrate the appropriate degree of professional scepticism, and it looks at the position of individual auditors, engagement teams, audit firms, audit committees and management. The APB proposes to take the following steps to promote the conclusions drawn in the paper:

  • it will encourage the auditing profession and audit firms to consider the implications of these conclusions for their business models and culture;
  • it will encourage audit committee members and management to recognise and act on the important contribution that they can make to support the appropriate exercise of professional scepticism in considering the key judgements involved in preparing the financial statements and then responding to the challenges raised in the audit; and
  • in due course, the APB will identify ways in which the International Standards on Auditing might be further developed in response to these conclusions.

(APB, Professional scepticism - Establishing a common understanding and reaffirming its central role in delivering audit quality, 30.04.12)

European Commission: Consultation on the future of European insolvency law

On 30 March 2012, the European Commission launched a public consultation on reforming European insolvency law. The European Commission is seeking respondents’ views on whether existing EU rules governing insolvencies, found in Regulation (EC) No 1346/2000 (the Insolvency Regulation), need to be revised in order to bolster businesses and strengthen the EU’s Single Market. The European Commission comments that the Insolvency Regulation has improved legal certainty and facilitated judicial cooperation in the treatment of cross-border insolvency cases, but that its effectiveness needs to be reviewed in light of changes in the global economy.

The consultation paper seeks respondents' views on the following:

  • Whether the Insolvency Regulation operates effectively and efficiently to coordinate cross-border insolvency proceedings and whether any changes are needed to improve the existing legal framework for cross-border insolvency in the EU?
  • Whether the scope of the Insolvency Regulation should be widened to include over-indebted private individuals and self-employed persons, as well as to accommodate national legal procedures which provide for the restructuring of a company at a pre-insolvency stage or which leave the existing management in place?
  • Whether it is appropriate that the jurisdiction for opening main insolvency proceedings is determined by the location of the debtor's centre of its main interests or whether different criteria should apply?
  • Whether the Insolvency Regulation works efficiently and effectively for the insolvency of a multinational group of companies or could provisions such as the compulsory coordination of the independent insolvency proceedings opened for a parent company and its subsidiaries be introduced?
  • Whether the absence of a duty of cooperation in the Insolvency Regulation between insolvency practitioners and the foreign court or between the relevant courts themselves has created any problems?
  • Whether there should there be simplified insolvency regimes at reduced costs for certain debtors, such as self-employed persons and small and medium-sized enterprises?

The deadline for comments on the consultation is 21 June 2012.

(European Commission, Consultation on the future of European Insolvency Law, 30.03.12)

OPSI: The Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012

The Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012 have been published and come into force on 6 April 2012.

The Regulations amend the main provisions in Part 23 of the Companies Act 2006 which deal with distributions by investment companies out of revenue profits. In order to be able to make distributions, an investment company’s shares will now have to be admitted to trading on a 'regulated market' (as defined in section 1173 Companies Act 2006) rather than be listed on a recognised UK investment exchange. A number of conditions which currently must be met before an investment company can make a distribution out of revenue profits are being removed with effect from 6 April 2012 and a number of the requirements that an investment company has to satisfy have been changed. In future, an investment company’s business will have to consist of investing its funds in shares, land or assets, rather than (as now) mainly in securities. There will no longer be a requirement for an investment company’s articles of association to prohibit it from distributing capital profits and the requirement that an investment company must not have retained, in respect of any accounting reference period since giving notice to the Registrar of Companies more than 15 per cent of its income for that period is being removed. The removal of that requirement will apply only in relation to accounting reference periods of an existing investment company beginning on or after 6 April 2012.

(The Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012, 06.04.12)

High Court sanctions takeover despite accidental failure to give notice and potentially detrimental effect on pension scheme funding position - Re Halcrow Holdings Limited [2011] EWHC 3662 (Ch)


Halcrow Holdings Limited (Halcrow), an employee-owned consulting engineering business, applied to the High Court to sanction a scheme of arrangement (the Arrangement) under sections 895 to 899 Companies Act 2006 (CA 2006). The Arrangement involved the acquisition by a US-owned bidder of Halcrow's entire issued share capital in return for cash, shares or loan notes. Halcrow’s shareholders were its employees and a discretionary trust which held shares on trust for present and former company employees. The proposed Arrangement involved a reduction of capital and was challenged by a representative pensioner on the basis that the transaction failed to secure a legally binding guarantee of an injection of cash into the deficit-ridden Halcrow Pension Scheme (HPS).

The Court also considered whether the failure to give notice of the Arrangement to some shareholders was an accidental omission under section 313 CA 2006 and Halcrow’s articles, and could therefore be waived.

It was held that the risk of a different cultural approach to dealing with the HPS funding deficit as a result of the takeover was insufficient for the Court not to approve the Arrangement. In addition, the accidental omission of some shareholders from the notification process was one which could be waived and it did not prevent the Court from sanctioning the Arrangement.


Halcrow was an employee-owned consulting engineering company and the Halcrow group companies operated several defined benefit pension schemes, including the HPS, which had a substantial funding deficit. The purpose of the proposed Arrangement was to allow a US-owned bidder company to acquire Halcrow’s issued share capital. One representative pensioner opposed the Arrangement on the basis that it failed to secure a legally binding guarantee of a cash injection into the deficit-ridden HPS, and so the Arrangement would leave the HPS less likely to recover its deficit than would otherwise have been the case.

The adoption of the Arrangement and the reduction in share capital, were to be approved at a company meeting, and shareholders were to be provided with the relevant documents at least 14 clear days in advance. However, the company’s solicitors failed to spot a mistake in the printing matrix of document recipients, with the result that 306 shareholders did not receive full notice of the meeting.

The Court meeting was held in October 2011, with 427 of the 435 shareholders participating voting in favour of the Arrangement. The special resolution to approve the reduction in capital was approved. Those 427 shareholders held approximately 18.5 million shares (the total number of 1175 shareholders held approximately 20.76 million shares). However, 740 of the 1175 shareholders were not represented at the meeting (some 63 per cent).

The principal issues for the High Court to consider included:

  • whether the failure to give notice to all shareholders could be treated as an accidental omission or an accidental failure, either under the articles of association of the company, or under section 313 CA 2006, and whether it was appropriate to sanction the proposal and to confirm the reduction of capital involved, notwithstanding that omission or failure; and
  • whether the Arrangement and the reduction in share capital should be approved if the takeover facilitated by the Arrangement would mean that the company was less likely to recover the deficit under its pension scheme than would otherwise have been the case.

The High Court looked at Re TDG plc [2008], where Morgan J described the following four matters that require the Court's attention before a scheme of arrangement may be sanctioned:

  • the Court must be satisfied that the provisions of the statute have been complied with;
  • it must be satisfied that the class of shareholders, the subject of the Court meeting, was fairly represented by those who attended the meeting, and the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class they purport to represent;
  • an intelligent and honest person, a member of the class concerned and acting in respect of his own interest, might reasonably approve the scheme of arrangement; and
  • there must be no blot on the scheme of arrangement; that is, nothing unlawful or inappropriate about it.


The Arrangement was sanctioned and the High Court held:

  • An accidental omission to give notice requires a genuine attempt to serve the shareholders in accordance with their rights, which fails. It was the solicitors’ intention to notify all shareholders and to provide them with copies of the relevant documents, and the failure to do so had been accidental. Halcrow had taken all reasonable steps to inform those shareholders once the error had been realised and the proposal was overwhelmingly supported by shareholders, considered in terms of value. Therefore, the accidental omission could and should be waived, both under the CA 2006 and Halcrow's articles of association.
  • When deciding whether to approve the Arrangement, it was open to the Court to consider the interests of third parties, including the effect on the HPS and the concerns raised by pensioners were not insignificant. However, the Court held that any prejudice to the HPS and pensioners was not financial, but only the risk of a different cultural approach to the HPS by the buyer. The Arrangement was overwhelmingly approved by shareholders and the HPS would not, on paper, be any worse off. There was no blot on the Arrangement in that there was nothing unlawful or inappropriate about it
  • It was appropriate to sanction the Arrangement as it complied with all formal requirements. The class of shareholders was fairly represented by those who attended the meeting. It had been shown that an intelligent and honest person, a member of the shareholder class concerned and acting in respect of his own interest, might reasonably approve the Arrangement and there was no relevant 'blot'.
  • It was appropriate to approve the reduction in Halcrow's share capital. The HPS was no worse off than it would have been before the reduction. The Arrangement itself did not affect the sponsor’s obligations owed to the HPS and there was no evidence that the US company had any malign intentions towards the HPS. The pensioners had failed to show that there was any real likelihood that the reduction in Halcrow’s share capital would result in an inability of the company to discharge its debt under section 646(1)(b) CA 2006.


From the judgment, it seems that the Judge had some sympathy with the pensioners’ position and he thought it would have been far better if the buyer had responded to the requests by the HPS to provide some legally binding assurances as to the new parent's intentions with regard to the HPS and its future funding. However, the lack of such firm assurance was insufficient reason for the Court not to sanction the Arrangement. The Court found that the pensioners could not show that there was 'a real likelihood that the reduction [in Halcrow’s capital] would result in the company being unable to discharge [its] debt when it fell due'. The Pensions Regulator (TPR) had been alerted to the deal by the HPS pensioners and it had noted that clearance (a voluntary process) for the takeover had not been sought. TPR shared the trustees’ concerns and asked the HPS trustees to keep it updated, although TPR gave no indication that it was considering using its 'moral hazard' powers

(High Court sanctions takeover despite accidental failure to give notice and potentially detrimental effect on pension scheme funding position - Re Halcrow Holdings Limited [2011] EWHC 3662 (Ch))



Martin Scott

Martin Scott

Jo Chattle

Jo Chattle