Re Northern Engineering Industries plc [1994] 2 BCLC 704

Facts

• Northern Engineering Industries plc (NEI) applied for court approval, under section 164(1) of the Companies Act 1985, to proceed with a proposed purchase of its own shares.
• The proposed share purchase formed part of a broader corporate restructuring involving Rolls-Royce plc, with the aim of simplifying the group structure and enhancing shareholder value.
• The transaction involved NEI buying back its own shares held by a wholly owned subsidiary of Rolls-Royce.

Issues

1. Whether the proposed share purchase complied with the legal procedures and requirements under the Companies Act 1985.
2. Whether the share purchase would adversely affect the interests of NEI’s shareholders or creditors.
3. Whether the purpose and financial impact of the purchase justified the court’s approval.

Decision

• The court, presided over by Mr Justice Hoffmann in the Chancery Division, thoroughly examined the proposed share purchase.
• Consideration was given to compliance with the Companies Act 1985, the financial position of NEI, the purpose of the transaction, and its impact on stakeholders.
• The court determined that the share purchase aligned with the statutory requirements and objectives of the corporate restructuring plan, without harming creditors or shareholders.
• Court approval for the share purchase was granted.

Legal Principles

• Share purchases by a company must comply with all procedural and substantive requirements set out in the Companies Act 1985.
• The court plays a critical role in protecting the interests of shareholders and creditors when considering applications for approval.
• The financial position of the company, the purpose of the transaction, and the effects on share value and corporate structure are key factors in the court’s assessment.
• Court approval is likely where the transaction is part of a legitimate restructuring and does not prejudice the company’s obligations or stakeholder interests.

Conclusion

Re Northern Engineering Industries plc [1994] 2 BCLC 704 confirms that court approval for share purchases will be granted where statutory procedures are met and the transaction is clearly justified as part of a bona fide restructuring, with the interests of shareholders and creditors protected. The decision remains a relevant guide for structuring share buybacks and corporate reorganisations within the bounds of company law.