Barclays Bank Ireland Plc v Barclays Administration Germany Ltd

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Michael Quinn
• Judgment Date: 20 December 2024
• Neutral Citation: [2024] IEHC 738
• Docket Number: [Record No. 2024/247 COS]

In the Matter of Barclays Bank Ireland Plc

and

In the Matter of the Companies Act 2014

and

In the Matter of Sections 450 & 455 of the Companies Act 2014

and

In the Matter of a Proposal for a Scheme of Arrangement by Way of Reconstruction

Between

Barclays Bank Ireland Plc

Applicant

and

Barclays Administration Germany Limited

Respondent

[2024] IEHC 738

[Record No. 2024/247 COS]

THE HIGH COURT

JUDGMENT of Mr. Justice Michael Quinn delivered on the 20 ^th day of December 2024

Table of Contents

PART 1: BACKGROUND	3
4 July 2024 Agreement	4
Employees	7
Other approvals	7
The relevant ECB exemption for BAGL	7
ECB approval of merger	8
Competition law	8
Austrian merger approval process	8
PART 2: THIS APPLICATION	8
Legitimus Contradictor	11
The scheme	12
A members' scheme	13
Deposit Guarantee Schemes	14
PART 3: SANCTION OF THE SCHEME	17
The scheme meeting and resolution	17
Advertisement of the resolution and of this application	18
PART 4: THE APPLICATION FOR SANCTION AND THE ‘COLONIA INSURANCE’ CRITERIA	19
(1) Identification and notification of interested parties	19
Employees	21
(2) Statutory requirements and directions of the court	21
(3) Were classes properly constituted?	21
(4) Absence of improper coercion	22
(5) An intelligent and honest person	22
Discretion	23
Part 5: JURISDICTION	23
Application of Part 9	24
International jurisdiction	24
The Brussels Regulation	24
Chapter 2 of the Brussels Regulation – jurisdiction	25
Article 8.1 and Article 18.2	26
Article 8.1 – co-defendants	28
Conclusion as regards jurisdiction	30
PART 6: RECOGNITION AND ENFORCEMENT	30
Germany	31
The Netherlands	32
Austria	33
Luxembourg	33
Conclusion on recognition and enforcement	34
PART 7: IS THE SCHEME A RECONSTRUCTION SCHEME?	34
Can the scheme be analysed without reference to the later events	37
Patrick W. Keane & Company v The Revenue Commissioners [2008] ITR 57	40
This case	42
Conclusion as regards reconstruction	43
PART 8: TWO OBSERVATIONS	44
Conclusion	44

PART 1: BACKGROUND

1 . The applicant, Barclays Bank Ireland Plc is a subsidiary of Barclays Bank plc, of which Barclays Plc is the ultimate parent. It is an Irish licensed credit institution regulated by the Central Bank of Ireland (“CBI”) and European Central Bank (“ECB”). It conducts business throughout Europe directly from its headquarters in Ireland and through branches in nine jurisdictions within the EU. It is one of the principal operating entities in the Barclays Group and conducts the majority of the group's cross-border banking and investment services in the EU and European economic area. As at 31 December 2023 it reported holding assets worth €143 billion.

2 . Each branch is subject to supervision for the local conduct of business by national supervisory authorities.

3 . The business of the applicant is corporate and investment banking, global market services, private banking and wealth management and retail banking which comprises personal credit card services, loans, deposits, instalment purchase financing, and electric point of sale financing.

4 . One of the branches which conducts retail and consumer business operates from Hamburg, Germany. That branch has 2.3 million customers and €4.6 billion in deposits, including credit balances in current accounts, and €4.3 billion in net loans and advances to customers. It employs 650 persons fulltime. Its operations account for 3% of the business activity of the applicant.

5 . In 2022 a decision was made by Barclays to sell the business of the Hamburg branch. The decision was made for strategic reasons. The group had decided to discontinue consumer services in that region.

6 . A competitive sales process was undertaken and in 2023 a buyer was located, BAWAG PSK. (“BAWAG”). BAWAG is a credit institution registered in Vienna, Austria. It is a wholly owned subsidiary of BAWAG Group AG. The BAWAG Group is a regulated financial institution providing savings, payment, lending, leasing, investment, building society and other such services to retail and business customers in Austria, Germany, Switzerland, The Netherlands and elsewhere in western Europe and the U.S.A. It already has a presence in the German retail banking market through a branch registered in Stuttgart.

4 July 2024 Agreement

7 . On 4 July 2024 the applicant and BAWAG signed an agreement (the “4 July 2024 Agreement”) for the transfer and acquisition by BAWAG of the European consumer bank business of the applicant (“the Target Business”).

8 . The Agreement provides (clause 4) that the Target Business be transferred to BAWAG by two steps as follows:-

• (a) The applicant would first transfer the Target Business to a NewCo, which became the respondent in this application, Barclays Administration Germany Limited (BAGL) pursuant to an Irish law governed scheme of arrangement pursuant to Part 9 of the Companies Act, 2014; and

• (b) By a second step, to occur one minute later, the NewCo would merge into BAWAG by a cross boarder merger by acquisition. BAWAG would acquire by “universal succession” the Target Business pursuant to the provisions of Directive 2019/2121 of 27 November 2019 as regards cross border conversions, mergers and divisions (“the Mobility Directive”), as transposed in the State by S.I. no. 233 of 2023, the European Union (Cross-Border Conversions, Mergers and Divisions) Regulations, 2023 (the “Cross Border Regulations”) and as transposed correspondingly in Austria.

9 . Each of these steps is subject to approvals by this court, by the European Central Bank and by regulators in Germany and Austria. This judgment relates to the applications for orders which are required to implement the first step. Those are an order pursuant to s.453 of the Act for sanction of the scheme of arrangement and an order pursuant to s.455 of the Act providing for the transfer of certain assets, liabilities and contracts of the applicant to BAGL. I have decided to make those orders.

10 . The court was informed that the consideration is a price calculated in accordance with a formula which will yield a small premium over net assets of the Target Business. The principal benefits for the applicant are wider commercial advantages, notably the ability to focus on corporate and investment banking.

11 . The structure of the transaction established by the Agreement is that at 23:59 hrs CET on the day on which the scheme becomes effective the assets, liabilities and contracts, with some exceptions, of the Target Business will transfer to BAGL. One minute later BAGL will merge with BAWAG. In this manner, the Target Business will be separated from the remainder of the applicant's activity. The merger of BAGL with BAWAG will achieve a seamless transfer of the Target Business to BAWAG. The applicant says that the purpose of this structure is to ensure a minimum of disruption or other effects on customers, employees, suppliers, creditors and other contract counterparties.

12 . The grounding affidavits demonstrate that if the applicant were to follow a conventional sale process it would encounter numerous challenges all of which would be disruptive of the business itself and disruptive to customers, employees, creditors and others. The concept of ‘universal succession’ is common in merger transactions. The structure proposed in this case is best described as ‘partial universal succession’, the part being only the assets, liabilities and contracts associated with the Hamburg branch of the applicant. The applicant submits that this route is particularly appropriate having regard to the following:-

• (1) The necessity to transfer customer deposits and other liabilities with clarity and certainty.

• (2) The practical and administrative challenges of obtaining consent from at least 2.3 million customers and other third parties.

• (3) The seamless transfer of a complex contractual framework which supports the information technology infrastructure associated with the Target Business.

• (4) The expectations of regulators that the transfer can be achieved with certainty and finality at a nominated fixed point in time.

13 . A better understanding of the complexities associated with a sale transaction can be gained by describing the assets, liabilities and contracts intended to be transferred. The “Target Assets” are described in para. 4 of the proposed scheme as comprising the following:-

• (a) Financial assets, being receivables due by customers located in Germany and Austria.

• (b) Goodwill.

• (c) Tangible assets comprising equipment, office furniture, fixtures and other operational assets.

• (d) Intellectual property rights.

• (e) Financial models.

• (f) Customer data.

• (g) Books, records, electronic files and documents.

• (h) All rights associated with the assets.

14 . The scheme identifies categories of assets which will be retained by the applicant (“Retained Assets”) and are therefore excluded from the transfer including the following:-

• (a) Cash and cash equivalents.

• (b) Claims for VAT and other tax refunds relating to periods ending prior to the scheme effective date.

• (c) Tax returns and books and records relating thereto.

• (d) Certain retained trademarks and other intellectual property.

• (e) Receivables due from any affiliate of the applicant.

• (f) Receivables due under a securitisation programme.

• (g) Certain other assets which are not used for the operation of the Target Business.

15 . The Target Liabilities are liabilities arising from consumer customer contracts including obligations to depositors, and other creditors providing services to the Hamburg branch.

16 . The Target Agreements are detailed in an...