The High Court has recently rejected an attempt by shareholders
to block a takeover, by scheme of arrangement, of Dee Valley Group
plc by Severn Trent Water Limited.
The proposed takeover was opposed by (among others) an
individual shareholder called Mr Cashmore. Before the court-ordered
meeting to approve the takeover, Mr Cashmore bought more Dee Valley
shares, and then transferred a single share to each of 443 new
shareholders. Proxy forms for many of these new shareholders to
vote against the takeover scheme were then delivered to the
company's registrars. As a result of this share-splitting
exercise, the scheme was not approved by a majority in number of
the shareholders voting at the meeting, although more than 75% of
the class of voting shareholders did approve the scheme. However,
the chairman of the meeting exercised his discretion to reject the
votes of any shareholder who derived their shares from Mr Cashmore.
On that basis, the simple majority needed to approve the scheme was
The court confirmed that shareholders voting at a meeting of a
class of shareholders to approve a scheme must vote in the
interests of the class as a whole and not in their own specific
interests if they are different from the interests of the class.
However, as the chairman of the meeting had no evidence available
to him at the meeting as to the motives of the individual
shareholders, he could not justify a decision to reject their votes
on the ground that they were motivated to benefit themselves only.
In any event, the thought processes of the shareholders are likely
to be complex and intertwined, and in most cases it will be hard to
reject votes by looking into their minds.
But, in this case, the chairman had rejected the votes on the
ground that the individual shareholders had each acquired a single
share from Mr Cashmore in circumstances where the objective can
only have been to manipulate the voting at the meeting to defeat
the scheme. The court concluded this gave the chairman sufficient
evidence to conclude that those shareholders were not casting their
votes for the purpose of benefitting the class as a whole. The only
possible explanation for their conduct was to further a share
manipulation strategy to defeat the takeover scheme. Having
confirmed that the legal requirements relating to shareholder
approval of the scheme at the meeting had been met, the court went
on to exercise its discretion to sanction the scheme.
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An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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