Use of shares of the minority:
X, Y and Z held 4,500, 4,500 and 1,000 one pound shares respectively, of Company B. They were the only shareholders and X and Y were the directors. X and Y wished to eliminate Z. S.210 however is not available to individuals. So X and Y formed a new company (Company A) in which they were the only two shareholders. Company A then offered to acquire all the shares of Company B. X and Y accepted the offer but Z did not. Company A served notice on Z that it has secured 90 per cent acceptance (the shares of X and Y) and intended to acquire Z's 1,000 shares under s.210. Z applied to court.
Held:
Company A was a sham since (lifting the veil of incorporation) it was merely the majority shareholders (X and Y) in Company B seeking to expropriate the shares of the minority (Z). S.210 could not be used in these circumstances. Z's objections were upheld.
The alternative to acquisition under s.210 (in a take-over bid) is a scheme of arrangement under s.207. The choice may be determined by comparative costs (see paragraphs 8.3.7(c) and 8.3.8). Stamp duty is payable (at the two per cent ad valorem rate) on transfers of shares of Company B in a transaction to which s.210 applies. It can be avoided under s.207. But under s.210 procedure there is usually no expense of court proceeds as few minority shareholders persist in their objections to the point of making application to the court (at some expense to themselves).
On the other hand if there is uncertainty about obtaining 90 per cent acceptance and a scheme of arrangement is not excessive in costs it is an easier route to the intended result. It is particularly useful when Company A is seeking to acquire those shares of a partly-owned subsidiary (Company B) which it does not own. In such cases some minority shareholders of B may be indifferent or passively opposed; Company A cannot count on their acceptances (to achieve 90 per cent) but reckons that they cannot or will not deny it a three quarters majority at a meeting. There is often a delicate balance of conflicting risks and considerations in choosing between s.207 and s.210 in such situations.