Sanctions Compliance Key Issue in Velocys plc Scheme of Arrangement Case, EWHC Rules

Citation: [2024] EWHC 28 (Ch)
Judgment on


In the case of Velocys plc [2024] EWHC 28 (Ch), a number of significant legal principles were applied. The case concerned an application by Velocys plc (the “Company”) to convene a meeting for the purpose of considering a proposed scheme of arrangement, which is underpinned by the Companies Act 2006. The arrangement entailed the acquisition of the Company by Madison Bidco Limited (“Bidco”), with a cash consideration of 0.25 pence per ordinary share. The spotlight fell on an unusual issue stemming from one shareholder’s designation as a UK assets freeze target under The Russia (Sanctions) (EU Exit) Regulations 2019. This article dissects the key topics and legal principles invoked in the case in question.

Key Facts

The Court needed to address the following facts:

  1. An 8.3% interest in the Company’s shares was indirectly held by Mr. David Davidovich, who had been designated as a UK assets freeze target impacting his ability to vote or receive payment for his shares.
  2. The Company thus needed to ensure that the proposed scheme would not run afoul of the sanctions against Mr. Davidovich.
  3. The Company proffered solutions to circumvent any illegality, requesting that the Court convene a single class meeting of shareholders. It also made an application for a licence from the Office of Financial Sanctions Implementation (OFSI) to lawfully execute the proposed scheme.

Several legal principles and precedents informed the Court’s decision:

Roadblocks and Illegality

The Court initially considered whether there was a “jurisdictional or other roadblock” which would prevent it from sanctioning the Scheme later. The principle established is that such an insurmountable roadblock would exist if the terms of the Scheme required or encouraged unlawful activity. This principle aligns with good governance and the rule of law, ensuring that companies cannot pursue corporate restructuring that contravenes current legislation.

Class Composition and Shareholder Rights

The Court then examined class composition, particularly as it relates to shareholder rights. A key principle cited is from Sovereign Life Assurance Co v Dodd [1892], which states that a class of creditors should consult together with a view to their common interest. The principle here is that members of a class must have rights that are not too dissimilar to prevent them from consulting on a common interest.

Voting Rights and Sanctions

How sanctions affect voting rights brought into question the right to vote. The Court noted that Mr. Davidovich nominally possessed the same voting rights; however, due to external sanctions, the exercise of that right was restricted.

Transfer of Shares

The Court relied on the concept that rights should be compared at the “entry” and “exit” points, as per Re Hawk Insurance Co Limited [2001]. The rights of Mr. Davidovich to receive consideration under the Scheme differed because the special arrangements for him deferred payment until lawful to receive it.


The Court decided as follows:

  1. It acknowledged the potential for illegality concerning the casting of votes and the transfer of Mr. Davidovich’s shares, allowing for conditions in the convening order to prevent this.
  2. The usual class composition was not fractured by the situation concerning Mr. Davidovich, thus allowing for a single meeting of shareholders.
  3. The consideration for Mr. Davidovich’s shares would be payable into a frozen account until sanctions were lifted or a license obtained.
  4. A single class meeting was ordered.


In conclusion, the Court adeptly navigated the interplay between the Company’s restructuring aims and the compliance with sanctions legislation. By acknowledging the potential for illegality and crafting a tailored response to mitigate it, the judgment preserved the integrity of the proposed scheme while ensuring adherence to the sanctions regime. The principles applied ensure that restructuring schemes do not indirectly facilitate the breach of sanction regulations, thereby upholding the rule of law and furthering the fair treatment of affected shareholders within the contours of the existing legal framework.