Company Law Reform Bill [HL]

moved Amendment No. 482:"Page 442, line 2, at end insert—" ““(1)   Section 425 of the Companies Act 1985 (c. 6) is amended as follows. (2)   In subsection (2) (arrangement or compromise to be binding) for ““majority in number”” substitute ““creditors or members””. (3)   After subsection (2) insert— ““(2A)   The court will have the power to sanction a compromise or arrangement under subsection (2) notwithstanding any defect in the constitution of any class, provided that the court is satisfied that such defect has not affected the fairness of the compromise or arrangement.”””” The noble Lord said: My Lords, we return to a matter that we debated in Grand Committee; namely, the ability of the courts to exercise discretion in terms of sanctioning schemes of arrangements. The purpose of the amendment is to grant that discretion to the court even if the relevant classes have not beeen correctly constituted, provided that the fairness of the scheme is not affected in any way. The amendment also seeks to dispense with the requirement that a majority in number of the creditors or members must agree to a scheme of arrangement for it to be binding. The Law Society advised us that the amendment to Section 425 of the Companies Act on the lines recommended by the Company Law Review would enable the court to sanction a scheme of arrangement notwithstanding a technical defect in the constitution of classes, provided that the defect would not affect the fairness of the arrangement. We took note of the comments made by the noble and learned Lord, Lord Goldsmith, in Grand Committee, and the proposed new arrangement would allow the court to sanction the scheme only where the court was satisfied that the defect did not affect the fairness of the scheme—that is, if it was only a technical defect. In addition, we are pressing for the removal of the requirement for the approval of a scheme by a majority in number of those voting, as well as three-quarters by value. The majority in number test is not, as far as I am aware, contained anywhere else in company law and there is no special reason why such protection should be required for schemes of arrangement, but not for other corporate transactions. Indeed, the majority in number, focusing on a majority of registered holders is an anachronism, now that most retail holders hold through the CREST nominees, where one registered holder may represent many thousands of beneficial owners. It is also open to abuse by shareholders who could subdivide their holding through a number of nominee companies. I beg to move.