Blow to C&WJ

Jason Abrahams wins Scheme of Arrangement battle with telecoms company

BY AL EDWARDS

Wednesday, March 20, 2019

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Former managing director of Deutsche Bank Securities and now partner of Stillwater Structured Finance, Jason Abrahams has won a significant legal battle against telecoms giant Cable & Wireless Jamaica (C&WJ) now rebranded as Flow Jamaica.

Abrahams' combined shareholding in C&WJ amounts to 64,661,056 ordinary shares.

The case heard in the Supreme Court of Jamaica on January 7 and 10, and March 15, 2019 was presided by Puisne Judge David Batts, with Conrad George instructed by Hart Muirhead and Fatta for the defendant (Abrahams) and Sandra Minott-Phillips QC, Peter Goldson, Hilary Reid, Gabrielle Grant and Kerri-Anne Mayne instructed by Myers, Fletcher and Gordon for the claimant (C&WJ).

In October of last year, C&WJ convened a meeting of shareholders for the purpose of considering and approving a Scheme of Arrangement, pursuant to Section 206 of the Companies Act. Abrahams filed a Notice of Application seeking to set aside the order granting permission.

A month later, shareholders holding 15,328,273,433 ordinary shares (75.58 per cent of all the shareholders) voted for the Scheme of Arrangement and applied to have it approved and sanctioned.

Abrahams opposed the application and applied to have the court either not approve the scheme or defer consideration of the matter.

To give greater context to this matter, it must be made clear that C&WJ is an indirect subsidiary of Cable & Wireless Communications (CWC), which in turn is a wholly owned indirect subsidiary of Liberty Latin America.

CWC Cala and Kelfenora owned 82 per cent of the existing shares in C&WJ. Both of these entities, by way of a voluntary takeover offer which closed on February 28, acquired a further 10.27 per cent of C&WJ's existing shares.

The Scheme of Arrangement intended to enable them to acquire the remaining shares compulsorily and therefore obtain 100 per cent control of C&WJ. This move, in effect, would cancel all the minority shares and would see a reissue of those shares to CWC's subsidiary.

Abrahams opposed the sanctioning or granting of approval for the Scheme of Arrangement on the following grounds:

a) The scheme does not fall within the power to compromise or come to an arrangement within section 206 of the Companies Act;

b) The scheme amounts to an act of oppression upon the minority shareholders; and

c) There has been material non-disclosure and/or a failure to give fair presentment in relation to pending proceedings in which the defendant, in claim number 2017CD000594, has applied for permission to bring a derivative action.

The significance of the Scheme of Arrangement was:

1. Permission is granted by the court to have a scheme meeting;

2. The company holds a meeting where shareholders vote to approve. The scheme passes if 75 per cent of the shareholders, by number and value, vote in favour of the scheme; and

3. If the scheme passes at the meeting, there is then a court hearing to consider if the scheme is to be sanctioned. Here the court considers issues such as whether proper class meetings were held, and general fairness issues.

Judge Batts came down on the side of Abrahams and refused to sanction the scheme, reasoning that CWC and its affiliates' interests conflict with those of the minority shareholders, and that they should have voted in separate class meetings. This was not done. What transpired was the purchasers of the shares (CWC's subsidiaries which already held over 92 per cent of CWJ) were allowed to vote in favour of a scheme where they were purchasing the minority shares.

The judge was also of the view that the Scheme of Arrangement would in effect neuter the derivative proceedings brought by Abrahams on behalf of C&WJ against CWC and others, in that if the scheme was sanctioned the derivative action would be rendered redundant and impotent. The shareholders required to vote at the meeting were not given sufficient information on the nature of the derivative proceedings and the potential effect of those proceedings.

In January 2018, Abrahams sued CWC to reclaim US$500 million in assets in order to have this sum returned to C&WJ by way of a derivative claim.

Abrahams maintains that the assets were unlawfully transferred out of C&WJ for the exclusive benefit of its parent company CWC, at the expense of the minority shareholders.

According to Abrahams, “this was accomplished through a variety of mechanisms including sophisticated transfer pricing schemes within the C&W Group and the improper conveyance of assets under the guise of a 'merger' with Flow Jamaica”.

Speaking with the Jamaica Observer from Florida, United States, Abrahams said: “Essentially, CWC has been operating the local entity for years, and now that it is doing well it wants to get rid of the minority shareholders. They didn't make it clear to the shareholders that my legal action (to reclaim US$500 million) could fundamentally affect the value of the company.

“They wanted to delist the company and force a Scheme of Arrangement, which was disturbing to many minority shareholders. What they were doing just didn't seem right to me.”

Legal representatives of Flow Jamaica, when contacted, did not venture a comment on Judge Batts' ruling.


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