The first half of 2020 has proven to be very challenging for dealmakers globally in executing transactions, due to a myriad of reasons brought on by the Covid-19 pandemic. This includes challenges to reaching an agreement on price due to the volatility of equity markets and delays in execution brought about by the imposition of social distancing measures. In this article, we explore two recent developments arising from the Covid-19 pandemic and offer our thoughts, drawing on recent practical experience, on how these developments are likely to bear on public offers for Jersey companies during the Covid-19 crisis and beyond.
Court meetings in schemes of arrangement - Zoom all the way?
At a recent directions hearing in connection with an offer for the shares in JSE and SEM listed Atlantic Leaf Properties Limited, on which Appleby are acting for the bidder, the Royal Court in Jersey granted an order convening a meeting of scheme shareholders on an electronic platform.
In doing so, the Royal Court adopted an approach taken in the recent English case of In the matter of Castle Trust Direct plc  EWHC 969. In Castle Trust, at the directions hearing, the High Court was invited to grant an order to convene a meeting of creditors electronically. Due to Covid-19 restrictions it was not possible for the relevant classes of scheme creditors to attend the scheme meetings in person which resulted in the High Court having to grapple with an issue that has not received judicial attention since the beginning of the Covid-19 crisis: do the creditors (and by extension shareholders in a members' scheme) need to come together physically in order for a meeting to take place? This issue has been brought into focus during the Covid-19 crisis in respect of AGMs and so the decision has application beyond schemes of arrangement.
The previous leading English authority on this issue was in Byng v London Life Association Ltd  Ch 170, in which the Court of Appeal upheld the validity of a general meeting in different venues on the basis that there were adequate audio-visual links to enable shareholders in all venues to see and hear what was going on in the other venues. This has since become known as a 'hybrid meeting'. There are differing views on whether shareholder meetings which are only held through an electronic platform (i.e. virtual meetings) are valid on the grounds that a shareholder meeting must be held at a place or physical location and in the context of virtual meetings this characteristic is missing. The alternative view is that so long as the company's articles of association expressly permit shareholder meetings to be held virtually, then any meeting held in such a format would be valid.
The High Court in Castle Trust granted the order for the relevant creditor meetings to be held electronically. The High Court acknowledged, relying on the decision in Byng, that the word "meeting" in Part 26 of the Companies Act 2006 did not require a physical meeting in the same place. The same result could be achieved without all the members coming face to face i.e. without being physically in the same room, they could be electronically in each other's presence so as to hear and be heard and to see and be seen.
Whilst this decision is a step forward for the proponents of virtual meetings, it is important to remember the sui generis jurisdiction of the courts in the UK (and in Jersey) when convening court meetings for creditors or members in schemes of arrangement. In particular, a court meeting convened by order of the court to consider a scheme is not subject to the same procedural or substantive rules as a general meeting of a company which is governed by the company's articles of association and statute. Therefore, a court has more latitude to permit such an arrangement in the context of convening a court meeting to vote on a scheme.
MAC clauses - are they immune to Covid-19?
The recent offer by Brigadier Acquisition Company Limited (the Bidder) for Moss Bros Group plc has attracted much attention after the Bidder sought a ruling from the Takeover Panel (the Panel) to invoke a condition of its recommended cash offer and lapse its offer. The offer was intended to be implemented by a members' scheme of arrangement. In the scheme document, reference was made to Covid-19 and to four general conditions (including a MAC condition) which the Bidder might seek to invoke. The scheme document also made it clear that the Panel's permission would be required if the Bidder wanted to invoke any of these conditions and Rule 13.5 of the City Code on Takeovers and Mergers would apply.
Rule 13.5 states that:
"An offeror should not invoke any condition . so as to cause the offer not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to invoke the condition .are of material significance to the offeror in the context of the offer."
To invoke a condition, the tests in Practice Statement No 5 must be satisfied. Practice Statement No 5 states that in applying Rule 13.5(a) the Panel Executive's practice is as follows:
- as set out in Rule 13.5(a), the appropriate test for the invocation of a condition is whether the relevant circumstances upon which the offeror is seeking to rely are of material significance to it in the context of the offer - which must be judged by reference to the facts of each case at the time the relevant circumstances arise;
- in the case of a MAC, or similar condition, whether the above test is satisfied will depend on the offeror demonstrating that the relevant circumstances are of very considerable significance striking at the heart of the purpose of the transaction; and
- whilst the standard required to invoke such a condition is therefore a high one, the test does not require the offeror to demonstrate frustration in the legal sense.
The Panel's Executive ruled that the Bidder had not demonstrated that circumstances of a material significance existed that would permit the Bidder to invoke a condition under Rule 13.5(a).
This ruling is significant for Jersey as the Panel's jurisdiction extends to all offers for Jersey public companies (i) if any of their securities are admitted to trading on a regulated market or a multilateral trading facility in the UK or any stock exchange in the Channel Islands or the Isle of Man; and (ii) which are considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man.
Furthermore there are often occasions when Jersey public companies are subject to takeover offers (to be implemented by either a scheme of arrangement or by an offer, both under Companies (Jersey) Law 1991) that are not subject to the Panel's jurisdiction. In such instances, it would be quite common for the implementation agreement (or equivalent document) and scheme document to contain a MAC clause that can be invoked by a bidder.
Given Jersey's close alignment with the jurisprudence of the UK, particularly in the area of company law, it is likely that the Royal Court in Jersey would be asked to have regard to the developments in Moss Bros and specifically the test applied should it ever be asked to adjudicate upon the invocation of a MAC clause in a scenario where the Panel (or any equivalent regulatory body) does not have jurisdiction over the proposed offer.
What next for Jersey?
The courts in Jersey have a long record of demonstrating a willingness to be pragmatic in issues arising from the implementation of cross border transactions. The recent order in the directions hearing referred to above is a welcome indication that the courts in Jersey are willing to be flexible in the novel circumstances arising from Covid-19. Given the preferred position of Jersey as a leading international financial centre and its strong presence in cross border M&A, we expect that there will be further innovative developments in the jurisdiction before the pandemic recedes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.