4.3.2.2 Part 26 of CA 2006

Although the dissenter's rights granted by s. 111 cannot be disregarded in the company's constitution, controlling shareholders of the company can avoid appraisal rights by adopting other forms of arrangement which can produce a similar result, such as through a merger or a takeover offer. In these cases, dissenting shareholders in the UK do not have appraisal rights.1 Part 26 of CA 2006 applies when a company effects mergers or other schemes of arrangement,2 like division. Under s.896 and 899 of Part 26, a three-fourth majority vote and court approval are required for the arrangement to be binding on all members. According to Part 26, a merger takes place "when the assets and undertakings of more than one company are brought under the ownership and control of a single company, which may be one of the companies involved or a new one. The result is that the shareholders who were members of the several amalgamating companies now together own and control the same enterprises as one aggregated venture."3 It is not difficult to see that circumstances for utilizing mergers and other schemes of arrangement in Part 26 of the CA 2006 can to a certain degree overlap with circumstances for reconstruction in ss. 110-111, but as two different procedures, there are certainly some differences between them.

Firstly, schemes in s. 110 do not need approval by the court whereas this is required for those in Part 26 where the court must form its own judgement of the merits of the scheme, not simply confirming the view of the majority voters.4 When evaluating s. 110, the CLR observed that "merits of a procedure not involving court sanction are that it could be quicker and more flexible".5

Secondly, to carry out a s.110 reorganization, the company must be in the process of a voluntary winding up. In contrast, there is no liquidation of the company or companies involved in Part 26.

The third and most important difference is the availability of appraisal rights. To safeguard the interests of the minority, as noted above, s.111 allows dissenters to invoke appraisal rights. In contrast, in Part 26, dissenting members are required to accept the terras of a scheme if it is sanctioned by the court. It is clear from the above that both jurisdictions (the UK and US) try to protect the minorities in case of business combinations, but through different means. In the USA, the appraisal remedy is employed to ensure that the minorities can leave with the fair value of their interests; in the UK, though no exit rights are available, court sanction is required to ensure fairness.