Clear, Fair and Sufficient Explanatory Statement of a Scheme of Arrangement
In the recent decision of In the Matter of Inmarsat Plc  EWHC 3470 (Ch), the English High Court considered the requirements for an explanatory statement (ES) to a scheme of arrangement to satisfy section 897(2) of the Companies Act 2006.
In 2017, Inmarsat entered into a cooperation agreement with Ligado to grant Ligado options to use some of Inmarsat’s radio frequencies in return for scheduled payments (CooperationAgreement). Ligado was unable to develop its network because the regulator withheld approval of its licence modification application, which in turn led to Ligado’s inability to make payments pursuant to the Cooperation Agreement.
In the circumstance, Connect Bidco Ltd (Bidco) put forward a £2.6 billion cash offer for Inmarsat to be implemented by way of a scheme of arrangement (Scheme). The Scheme was subsequently approved by statutory majority at the scheme meeting.
During the sanction hearing of the Scheme, the dissenters (being three shareholders) argued that the ES was not sufficiently clear about the Cooperation Agreement.
The ES expressly incorporated Inmarsat’s 2018 Annual Report (the 2018 Accounts) which provided a crisp summary of the Cooperation Agreement. It also noted that the deferred payments from Ligado had certain accounting consequences which were carefully explained in the 2018 Accounts. It further stated:
- that Ligado continues in its effort to obtain its licence but the timing and consequent impact on Inmarsast remains uncertain; and
- that payments not made in 2019 (approximately £132.2 million) and prior deferred payments will be due for payment by no later than 30 June 2021.
The Court noted the requirement under section 897(2) that the ES must “explain the effect of the compromise or arrangement” and applied Re Heron International  1 BCLC 667 that “effect” requires an explanation of how the scheme will affect a shareholder commercially. The dissenters were unable to identify something in particular that ought to be explained about the Cooperation Agreement over and above what was made public in the 2018 Accounts. The Court stated that the Ligado payments are, as has been consistently reported in the Annual Reports since 2014, subject to commercial contingencies and the Court considers that there was not “anything that could have been put in the [ES] which could have illuminated that further”. Accordingly, the Court held that the ES was clear, fair and sufficient and sanctioned the Scheme.