8.4 Chapter 4 – Shareholders and preventive restructurings: England

Only one case is known in England in which the court, in addition to a preventive restructuring procedure, interfered with the rights of shareholders because of an impending liquidation of the company (par. 4.2). A forced direct or indirect change in shareholder rights is, however, possible (sooner) in the case of a Scheme of Arrangement. A scheme requires the consent of the class(es) of shareholders and creditors affected by the scheme. A judge then decides on its confirmation. A cross class cramdown – whereby the plan becomes binding upon a dissenting class – is not possible under the current legislation. Slightly different from the scheme is the Company Voluntary Arrangement (CVA), the other English preventive restructuring procedure. Shareholders always vote on the arrangement – regardless of whether their rights are amended under the arrangement – but their dissenting vote can be ignored. Furthermore, in principle, the CVA is not subject to the court’s involvement. Both procedures require some form of give-and-take. It is not possible to deprive shareholders of their share interests without a quid pro quo. In my view, the ACPP is right not to contain such a restriction, since it makes preventive restructuring more difficult.

Both procedures remain subject to the decision-making process under company law. Shareholders must vote in the general meeting on resolutions necessary to put a plan into effect, for example resolutions necessary for a debt for equity swap. In literature, limited or no attention is given to the position of shareholders and their rights under both English procedures. There is also little case law on the interference with shareholder rights. This has to do with the fact that amending shareholders rights in the case of a CVA is not common practice and out of the money shareholders usually agree to a transfer scheme – a scheme combined with the transfer of the company’s assets to a Newco – as well as to any necessary resolutions of the general meeting (pars. 4.3.10 and 4.5.4). The Netherlands lacks years of experience with negotiations ‘in the shadow of the law’ comparable to the scheme. In my view, it is correct that under the ACPP, certain resolutions (see pars. 6.5.11.4 and 7.6 below) are not required by the general meeting. Otherwise, although a cross class cramdown of a shareholder class is possible under the ACPP, shareholders can still frustrate the preparation and implementation of a plan by blocking the necessary resolutions.