Fundlogic Alternatives Plc v Companies Act

CourtHigh Court
JudgeMr. Justice David Barniville
Judgment Date19 August 2020
Neutral Citation[2020] IEHC 428
Docket Number[2020 No. 238 COS.]
Date19 August 2020






[2020] IEHC 428

David Barniville

[2020 No. 238 COS.]



JUDGMENT of Mr. Justice David Barniville delivered on the 19 th day of August, 2020

The applicant company, FundLogic Alternatives Public Limited Company (the “Company”), applied for orders under s. 453 of the Companies Act, 2014 (the “2014 Act”), sanctioning a proposed scheme of arrangement (the “Scheme”) between the company and certain of its members (the “Scheme Shareholders”) and for various related orders.


Having given various directions in respect of the Company's application. I heard the application on 19 th August, 2020. Having had the opportunity of considering the papers in advance, and having heard counsel for the Company and counsel for two other relevant parties, who provided undertakings for the purpose of giving effect to the proposed Scheme, I ruled that the Company had fulfilled all of the requirements in order for the Scheme to be sanctioned by the court under s. 453(2) of the 2014 Act. In light of the relative urgency of the matter, I gave my ruling immediately following the hearing and made an order that the Scheme be sanctioned pursuant to s. 453(2) of the 2014 Act and various related orders. I indicated that I would give my reasons for my decision in this written judgment.

Factual Background

The factual background to the Company's application was mainly set out in an affidavit sworn by Maurice Murphy, a director of the Company, on 24 th July, 2020 (the “grounding affidavit”). There is no dispute in relation to the facts set out in the grounding affidavit.


The Company is an umbrella open-ended investment company with variable capital incorporated under the Companies Acts, 1963-2009 and existing under the 2014 Act, having segregated liability between its various sub-funds. Under clause 2 of the Company's constitution, the sole object for which the company is established is the collective investment in (a) transferable securities and/or (b) other liquid financial assets of capital raised from the public operating on the principle of risk-spreading in accordance with the European Communities (Undertakings for Collective Investment in Transferrable Securities) Regulations ( SI No. 352 of 2011) (as amended) (the “Regulations”).


The Company is authorised and regulated by the Central Bank of Ireland (the “CBI”) as an Undertaking for Collective Investment in Transferrable Securities (“UCITS”) under the Regulations. The Company is further authorised by its constitution to offer separate classes of shares, each representing interests in a fund comprising a distinct portfolio of investments (a “fund”). Each fund may be further divided into a number of different classes within the particular fund.


Certain of the funds are approved by the CBI as exchange traded funds (each an “ETF”). An ETF differs from other types of open-ended funds in that its shares are listed on one or more stock exchanges and only certain financial institutions, known as authorised participants, may, in the normal course of events, subscribe for and redeem on the primary market for shares in an ETF. Such subscriptions will typically be in large blocks of shares. Those shares, which have no par value, are then sold by the authorised participants on the secondary market (including on one or more stock exchanges), with investors acquiring interests in the ETF on the secondary market. The Company has appointed one authorised participant, being Morgan Stanley & Co. International plc (the “Authorised Participant”).


The Company has eight separate funds approved as ETFs. each of which is approved and regulated by the CBI (the “Relevant Funds”). Accordingly, members holding shares in the MS Scientific Beta Global Equity Factors UCITS ETF, the MS Scientific Beta US Equity Factors UCITS ETF. the SciBeta HFE EM Equity 6F EW UCITS ETF, the SciBeta HFE Europe Equity 6F EW UCITS ETF, the SciBeta HFE US Equity 6F EW UCITS ETF, the SciBeta HFE Japan Equity 6F EW UCITS ETF, the SciBeta HFE Pacific ex-Jap Equity 6F EW UCITS ETF and the SciBeta HFI US Equity 6F EW (USD) UCITS ETF comprise the Scheme Shareholders.


The authorised share capital of the Company is €300,002.00 represented by 300,002 subscriber shares issued at €1.00 each (of which 2 such shares are issued) and 1.000,000.000.000 (one trillion) shares of no par value, initially designated as unclassified shares. As at 14 May 2020, 5,028,103 Participating Shares in the Relevant Funds had been issued and credited as fully paid up.


The Company's shareholder base, as recorded on the register of members (the “Register of Members”) for the Relevant Funds, comprises a mix of (1) nominee accounts of the Authorised Participant (a market maker or broker entity registered with the Company), and (2) other account holders in the CREST system owned and operated by Euroclear UK & Ireland (mostly nominee companies and custodian banks and very few individuals) (the “CREST System”). Consequently, a majority of investors, who do not have accounts in Euroclear UK & Ireland (CREST System), already hold their shares in the Relevant Funds through nominees and other intermediaries, with the result that most investors in the Relevant Funds are beneficial owners who/which do not hold legal title to their shares.

The Proposed Scheme

The shares of each of the Relevant Funds are currently listed on the London Stock Exchange (the “LSE”). The LSE operates its own CSD. being the CREST System for post-trade functions (the “Current Model”). However, as a result of Brexit, the Company, in common with all EU-domiciled ETFs, will not be able to continue to access the Current Model following the completion of a transition period in March 2021. Considering this, the Company believes that it is necessary to transition the settlement of the Scheme Shares to another model, which is domiciled within the EU and so remains available to the Company, and which it is expected will provide for more streamlined, centralised settlement.


Therefore, the Company is proposing to adopt, in place of the Current Model, an international centralised securities depositary model of settlement (the “ICSD Model”) (described more fully below) for all the Relevant Funds. In order to do so. it is proposed that the Company will have one shareholder, Citivic Nominees Limited, which will be a nominee of the common depositary. Citibank Europe plc (the “Common Depositary”) which will hold all shares (evidenced by a Global Share Certificate) on behalf of Euroclear Bank S.A./N.V. (“Euroclear”) and/or Clearstream Banking S.A., Luxembourg (“Clearstream” and referred to together as the “ICSDs”).


The proposed Scheme provides for the transfer of the legal (but not beneficial) interest in the Scheme Shares (as defined in the Scheme) to Citivic Nominess Limited (“Citivic Nominees”), as nominee of the Common Depositary, in consideration for Citivic Nominees agreeing to hold the Scheme Shares as nominee of the Common Depositary and on behalf of the ICSDs.

The Reasons for Choosing the ICSD Model

As noted above, in light of the United Kingdom's departure from the European Union, the Company, in common with all EU-domiciled ETFs, will not be able to continue to access the Current Model following the completion of a transition period in March 2021. Therefore, the Company has decided that it is necessary to transition the settlement of the Scheme Shares to the ICSD Model which is domiciled within the EU and so remains available to the Company, and which it is expected will provide for more streamlined, centralised settlement.


The evidence on behalf of the Company is that the ICSD Model will provide a more streamlined, centralised settlement structure, which is expected to result in a reduction in inventory requirements, improved foreign exchange functionality and reduced risk in the settlement process. Converting the Relevant Funds to the ICSD Model will also bring all of the Relevant Funds onto one consistent settlement structure which is expected to make navigating the settlement structures for the Relevant Funds more straightforward.


Under the ICSD Model, shares will be evidenced by a Global Share Certificate and registered in the Register of Members in the name of a single shareholder, namely Citivic Nominees, as the nominee of the Common Depositary. While Citivic Nominees will benefit from the rights of a registered shareholder, it will, as nominee, pass on the benefit of such rights to the Common Depositary. Consequently, Citivic Nominees will pass any notices of shareholder meetings, circulars and any distributions received to the Common Depositary and will vote the shares it holds in accordance with voting instructions from the Common Depositary. In turn, the Common Depositary will pass the benefit of such rights to the relevant ICSD. The relevant ICSD will, in turn, pass the benefit of such rights to its participants under the terms of the ICSD's agreements with its participants, as outlined further below. Investors who are not participants in the ICSD will need to use a broker. nominee, custodian bank or other intermediary which is a participant in the ICSD. This is similar to the way investors in the Current Model use a broker or other intermediary which is a participant in the local CSD for the market in which the investor intends to trade and settle. The chain of beneficial holding in the ICSD Model will, therefore, be similar to existing nominee arrangements under the Current Model.


For the existing limited number of individual investors who are on the Register of Members, their ownership of shares will change from legal and beneficial ownership to ownership of a beneficial...

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    ...[2020] IEHC 214 (“ Allergan”), In Re Xtrackers (IE) public limited Company [2020] IEHC 330 (“trackers”) and FundLogic Alternatives PLC [2020] IEHC 428, (“ FundLogic”) (all Barniville J.) and to schemes of arrangement concerning insolvent companies (In Re Ballantyne plc [2019] IEHC 407 (Barn......

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