Representation of WPP Plc [2013] JRC 035 (13 February 2013)

judgment the commissioner: 1. WPP plc ("WPP") is a world leader in marketing communications services employing some 162,000 people in 3,000 offices in 110 countries and with a market capitalisation (as at May 2012) of £10.8 billion. 2. In November 2008, as a direct result of concerns over the financial impact for the group of the then Labour government's proposals for the taxation of foreign profits, WPP, incorporated in Jersey but tax resident in the Republic of Ireland, was put in place as the new parent company of the group. 3. Following the coalition government's implementation of a new regime for the taxation of foreign profits, which will be effective from 1 st January, 2013, the concerns that the board had in 2008 no longer apply and, as a result, the board proposed to return the headquarters of WPP to the UK by means of a scheme of arrangement ("the scheme") under Article 125 of the Companies (Jersey) Law 1991 ("the Companies Law"). 4. Under the scheme:- (i) The issued share capital of WPP will be reduced by cancelling all the WPP shares in issue at the date of the scheme. (ii) Forthwith and contingent upon the reduction of capital referred to in ( i ) above taking effect:- (a) The authorised share capital of WPP shall be increased to its former amount by the creation of such number of new shares as shall be equal to the aggregate number of scheme shares cancelled and (b) WPP shall apply the credit arising in its books of account as a result of such reduction of capital in paying up, in full at par, the new shares and shall allot and issue the same credited as fully paid up to a new company incorporated in Jersey and tax resident in the UK ("New WPP"). (iii) In consideration of the cancellation of the scheme shares and the issue of new shares to New WPP, New WPP shall allot and issue credited as fully paid New WPP shares to the scheme share owners on the basis of 1 New WPP share for each scheme share held. 5. The effect of the scheme is that New WPP will become the parent of the group. Instead of shares in WPP, the shareholders will have shares in New WPP and their rights will not be materially affected. The intention is that the new parent company of the group will continue to be called "WPP plc". In order to achieve this, New WPP will be re-named "WPP plc" and WPP will be re-named "WPP 2012 Limited". 6. On 9 th November, 2012, the Court gave directions pursuant to Article 125(1) of the Companies Law for the convening of a meeting ("the court meeting") of the shareholders (there being one class of ordinary shares) for the purpose of considering, and if thought fit, approving the scheme. 7. At the court meeting, 96.97% of the shareholders by number (992 out of 1,023) who attended the meeting in person or by proxy voted in favour of the scheme. 31 shareholders by number voted against. Those shareholders voting in favour of the scheme represented 99.47% (by value) of all of the shares voted at the meeting. 8. The Court sat on 18 th December, 2012, to consider whether it should, in the exercise of its discretion, sanction the scheme. The test is three-fold as set out in the case of Representation of Computer Patent Annuities Holdings Limited [2010] JRC 021 . "The test is three fold. The Court must consider:- ( i ) whether the provisions of the 1991 Law have been complied with; (ii) whether the class of shareholders to be affected by the proposed scheme was fairly represented by those who attended the meeting and whether the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and (iii) whether the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve." 9. This test is based on the following statement in Re National Bank Ltd [1966] 1 All ER 1006 at 1012, as cited with approval by the Court on numerous occasions:- "In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but at the same time the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme." 10. We take each of those questions in turn. Were the provisions of the Companies Law complied with? 11. The Court was satisfied that the scheme circular had been properly served on shareholders in accordance with the directions given by the Court and that it contained an explanatory statement prepared in accordance with Article 126(2) providing shareholders with sufficient information in relation to the scheme. 12. The Court was satisfied that the court meeting had been duly convened and held in accordance with the directions given by the Court and that the necessary resolution to approve the scheme was duly passed by the requisite majority. Was the class of shareholders to be affected by the proposed scheme fairly represented by those who attended the meeting and were the statutory majority acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent? 13. The court meeting was a single meeting of all shareholders of the company who are affected equally in so far as the proportionate interests of shareholders in New WPP upon implementation of the scheme will be the same as the proportionate interests of shareholders in WPP immediately prior to the implementation of the scheme. The interests of all shareholders were therefore aligned and the shareholders who voted to approve the scheme did not stand to benefit in some manner that was not available to those who did not vote. 14. Whilst a very small percentage of the shareholders voted against the resolution, no objection had been raised by any of the shareholders and no shareholders attended the hearing on 18 th December, 2012. There was no suggestion that the views of the majority voting at the court meeting did not fairly represent the interest of those shareholders affected by the scheme and there was no evidence to suggest that the majority did not act bona fide or that they achieved the statutory majority by coercing the minority. 15. In relation to overall turnout (being 10.10% out of registered holders by number and 75.24% by value), Commissioner Bailhache in Representation of Vallar plc [2011] JRC 125 , in a judgment delivered following a hearing to sanction a scheme of arrangement, cited the English authority of Re TDG plc [2009] 1 BCLC 445 with approval and noted (at paragraph 6):- "It is true that the number of shareholders attending the Court meeting constituted only some 25% of those entitled to attend and vote but shareholder apathy is not uncommon. None of those absent shareholders has expressed any reservations about the proposed scheme of arrangement and we are accordingly entitled to assume that there are none. The scheme will affect all shareholders equally. In any event it is not for the Court to strain to find reasons why a scheme of arrangement should not be sanctioned." 16. On the facts presented in relation to this representation, the Court drew the same conclusion. Is the scheme an arrangement such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve? 17. We have described the perfectly cogent reason for the scheme above, which was unanimously recommended by the directors (the composition of which includes a majority of independent non-executive directors) and there was nothing to suggest that the statutory majority were not acting intelligently and honestly or that they were not reasonably considering their own interests in coming to their conclusion. No "blot" on the scheme 18. The test in Re National Bank Ltd (cited at paragraph 9 above) as applied by the Jersey Court in Representation of Andsberg Limited [2007] JRC 179 concentrates on the main three-fold test. In Re: TDG Plc , the English Courts separated the latter paragraph quoted in Re National Bank Ltd to find a fourth element that must be considered by the English Court when requested to exercise its discretion to sanction a scheme of arrangement: that there must be no "blot" on the scheme. 19. Palmer's Company Law at paragraph 12.070 indicates that this additional consideration reflects the Court's discretion to consider the overall commercial and factual context of the proposed scheme, including any consequences of it. 20. The Court was satisfied that there was no "blot" on the scheme and that on the basis of both established principle and on the facts, it was appropriate for the Court to sanction the scheme. Reduction of capital 21. Immediately following the court meeting, the shareholders passed a special resolution approving the reduction in capital, which forms an integral part of the scheme. It is a very technical reduction. All the existing ordinary shares in WPP will be cancelled and they will be immediately replaced by an equal number of new shares in WPP; there will be no reduction in the assets of WPP as a result. The matter was fully explained to the shareholders and there is no prejudice to the creditors. As the reduction of capital does not involve any reduction in the assets of the company, any payment of capital to a shareholder or any diminution of unpaid liability on a share, the Court directed on 9 th November, 2012, that Article 62(2) - 62(5) of the Companies Law shall not apply. 22. In the circumstances, the Court confirmed the reduction. American Depository share arrangements 23. Approximately 4% of WPP's issued share capital is held by National City Nominees Limited on behalf of Citibank NA ("the US Depositary"). 24. The US Depositary has issued American Depositary shares ("WPP ADSs"), each of which represents five WPP shares. The WPP ADSs are traded on the NASDAQ stock exchange. Holders of the WPP ADSs are not members of WPP but they have an economic interest in the WPP shares, subject to the rights and restrictions provided for in an agreement between the US Depositary and WPP. Pursuant to the terms of the deposit agreement, WPP ADS shareholders are entitled to be provided by the US Depositary with copies of all documents received by it in connection with the WPP shares (including, in this instance, the scheme circular) and to instruct the US Depositary to vote, or instruct its nominee to vote, in accordance with their directions on WPP's proposals (including, in this instance, in relation to the scheme). 25. We were advised before the hearing that WPP and New WPP intend to rely upon the exemption contained in Section 3(a)(10) of the United States Securities Act 1933 which permits New WPP to issue New WPP shares to holders of the scheme shares in exchange for their shares in WPP without the need to register these shares under that Act. We had received an affidavit dated 11 th December, 2012, from Mr Ralph W Norton, an attorney admitted to practice law in the State of New York, and in his opinion WPP and New WPP are entitled to rely on that exemption for all the reasons set out in his affidavit. It is obviously not a matter for us to make any findings but we do record that on the face of it the relevant conditions appear to have been met. Authorities Companies (Jersey) Law 1991. Representation of Computer Patent Annuities [2010] JRC 021 . Re National Bank Ltd [1966] 1 All ER 1006. Representation of Vallar plc [2011] JRC 125 . Re TDG Plc [2009] 1 BCLC 445 . Representation of Andsberg Limited [2007] JRC 179 . Palmer's Company Law. United States Securities Act 1933. Page Last Updated: 16 Sep 2016 BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII