Under section 678(1) of the Companies Act 2006 (CA), it is unlawful for a public company or its subsidiaries to give financial assistance to any person acquiring, or proposing to acquire, shares in that public company, where the financial assistance is for the purpose of the acquisition and where the assistance takes place before or at the time of the acquisition. Section 678(2) of the CA contains an exception to the prohibition, which applies where the primary purpose of the financial assistance is not for the purposes of an acquisition, or where the financial assistance is only incidental to that acquisition. In order for the exception to apply, the assistance must also be provided in good faith and in the interests of the company. Under section 681(2)(e) of the CA the court can also approve financial assistance as part of a scheme of arrangement. A scheme of arrangement is a statutory procedure under the CA whereby a company may make a compromise or arrangement with its members or creditors (or any class of them).
In this case, the High Court had to consider a scheme of arrangement involving financial assistance as part of a restructuring to resolve financial difficulties suffered within a group of companies, and ruled that, whilst some aspects of the scheme of arrangement could be defined as financial assistance under section 678(1) of the CA, they also fell within the principle purpose exception under section 678(2) of the CA. The principle purpose was considered by the High Court to be the attempt to release a subsidiary’s pension scheme liability, with any payments and loans made in good faith and in the interests of the companies involved. The High Court also ruled that the payment of costs and giving of indemnities as part of the scheme of arrangement, which would otherwise be construed as financial assistance, should be approved by the exercise of the High Court’s power under section 681(2)(e) of the CA, as such payments and indemnities were commercially necessary for the restructuring and in the interests of the companies’ creditors and members.
The High Court also ruled that an error in a figure contained in a special resolution, which was being voted on by the company’s members to approve changes in share capital under the scheme of arrangement, could be construed so as to correct that error. Under the CA, a resolution to be passed at a general meeting cannot be considered a special resolution unless the text of the resolution was contained in the notice of general meeting. The courts have previously held that a general meeting cannot amend a special resolution except to correct grammar or spelling, or where all members eligible to vote on the resolution waive their rights to notice. However, in this instance, it was clear that the special resolution, when read with accompanying documentation, contained an error, and the High Court ruled that common sense should prevail – that the special resolution could be read as a matter of construction as if the error had not been made. In addition, the meeting had been informed of the error prior to the vote, and the minutes of the meeting noted the error.
This ruling is important as it is a further insight into how the revamped financial assistance doctrine under the CA is interpreted by the courts. It is also a good to see that the courts are willing to be flexible when considering a special resolution containing an error, allowing that error to be considered corrected – however, it would be interesting to see the court’s ruling if an error contained in a special resolution was a mistaken word rather than a mistaken figure. In this case it was obvious to all that the figure was incorrect, but if mistaken wording was included in the special resolution the mistake might not be so clear-cut and the court not so generous in their ruling.