Jersey Schemes Of Arrangement: Is It Now Time To Decapitate The Headcount Test?

Practitioners in Jersey and many other jurisdictions who advise on creditors' and members' schemes of arrangement, will be very familiar with the practical challenges presented by the requirement for a majority in number of creditors or members (known as the 'headcount test'), to approve the relevant scheme or compromise at the court convened meetings, in addition to the requirement for approval by a certain number either in value of creditors or voting rights of members.

In the recent Jersey decision In the matter of Atrium European Real Estate Limited [2019] JRC198, on which Appleby advised Atrium European Real Estate Limited (AEREL), the Royal Court in Jersey offered judicial commentary on the headcount test in the context of a members' scheme of arrangement of a listed company.

A scheme of arrangement in Jersey under the Companies (Jersey) Law 1991 (Jersey Company Law) enables a company to enter into a binding compromise or arrangement with its creditors and/or members (as the case may be) without the need to enter into an individual and separate contractual arrangements with each creditor or member and provides creditors, members and companies with a tried and tested mechanism to implement an arrangement, where it is not commercially or practically achievable to obtain engagement or agreement from all creditors or members, such as a global debt restructuring, takeover etc.

This article examines the key elements of the decision referred to above and how other jurisdictions have sought to deal with this legislative requirement in a transactional world, far removed from the 19th century English statute when this concept first appeared. Unlike today, where a majority of traded shares and debt are held by nominees, custodians or trustees, in 19th century England share and debt holders typically held their interests both legally and beneficially, so that there was rarely a distinction between the persons whose names appeared on the relevant register of members or debtholders and those ultimately beneficially entitled to those interests.

In the matter of Atrium European Real Estate Limited [2019] JRC198

AEREL is a Jersey company listed on Euronext Amsterdam and the Vienna Stock Exchange. The decision of the Royal Court is from the convening hearing (often referred to as the 'directions hearing') whereby the Royal Court was asked to convene a meeting of independent shareholders (the Court Meeting) to vote on an offer made by NB (2019) BV being a subsidiary of the majority shareholder Gazit-Globe Limited (Gazit) to be implemented by a...