Jazz Pharmaceuticals Plc v The Companies Act 2014
| Jurisdiction | Ireland |
| Judge | Mr. Justice David Barniville |
| Judgment Date | 01 December 2020 |
| Neutral Citation | [2020] IEHC 620 |
| Court | High Court |
| Docket Number | [2020 No. 349 COS.] |
| Date | 01 December 2020 |
IN THE MATTER OF JAZZ PHARMACEUTICALS PLC
AND
IN THE MATTER OF THE COMPANIES ACT, 2014
AND
IN THE MATTER OF A PROPOSED REDUCTION OF CAPITAL PURSUANT TO SECTIONS 84 TO 86 OF THE COMPANIES ACT, 2014
[2020] IEHC 620
David Barniville
[2020 No. 349 COS.]
THE HIGH COURT
COMMERCIAL
This is an application by Jazz Pharmaceuticals PLC (the “Company”) for orders under the Companies Act, 2014 (the “2014 Act”) confirming a special resolution approving the reduction of the Company's share capital and for various ancillary orders which came on for hearing before me on 26th November, 2020.
Having heard the application, I decided to grant the orders sought by the Company and gave a short ex tempore judgment setting out my reasons for doing so. However, a legal issue arose in the course of the application concerning the jurisdiction of the court to grant an order confirming a special resolution approving the reduction of the share capital of a company in circumstances where the amount of the reduction ultimately sought at the confirmation hearing was greater than the amount of the relevant capital at the date of the resolution. That issue had not previously been considered in this jurisdiction. On that basis I indicated that I would deliver a written judgment addressing the issue.
In my ex tempore judgment, I concluded that there was no jurisdictional bar to the court granting the order sought notwithstanding the increase in the capital since date of the resolution, having regard to the terms of s. 84(1) the 2014 Act and relevant case law from other jurisdictions. I made the orders sought immediately following the hearing and agreed to provide this written judgment as soon as possible thereafter.
The principal order sought by the Company was an order pursuant to s. 85(1) of the 2014 Act confirming a special resolution of the Company passed on 30th July, 2020 approving the reduction of the share capital of the Company by the cancellation of the entire amount standing to the credit of the Company's share premium account as at the effective date of the capital reduction or such lesser amount as the court might determine. If confirmed by the court, the effective date of the capital reduction would be the date on which the registration of the court's order and the minute approved by the court by the Registrar of Companies (s. 86(2)). The Company also sought various ancillary orders including an order that the provisions of s. 85(4) of the 2014 Act did not apply as regards any of the classes of the creditors of the Company as the proposed reduction in the Company's capital did not involve either the diminution of liability in respect of unpaid capital or the repayment to any shareholder of any paid up company capital and that it was not otherwise appropriate for the court to direct that the provisions of that subsection should apply. Alternatively, the Company sought an order pursuant to s. 85(5) directing that the provisions of s. 85(4) should not apply as regards any of the classes of creditors of the Company.
The Company was incorporated in the State in March, 2005 and has its registered office in Ireland. It reregistered as a public limited company in October, 2011. The Company is the parent company of the Jazz Pharmaceuticals Group of Companies (the “Group”). The Group is a global biopharmaceutical group which has a diverse portfolio of pharmaceutical products. The Group has in excess of 1,700 employees worldwide and generated total revenues of over US$2.16 billion in the financial year ended 31st December, 2019. The Company's ordinary shares are listed and traded in the NASDAQ Global Select Market under the symbol “JAZZ”.
At the annual general meeting of the shareholders of the Company held on 30th July, 2020 (the “AGM”), the following special resolution was passed:-
“As a special resolution, that subject to and with the consent of the Irish High Court:
(a) In accordance with the provisions of section 84 of the Companies Act 2014, the share capital of the Company be reduced by the cancellation of the entire amount standing to the credit of the Company's share premium account as at the effective date of the capital reduction (the “Authorised Amount”), or such other lesser amount as one or more of the Company's directors, the Company Secretary or persons designated by the board of directors from time to time as officers of the Company (“Officers”) or the Irish High Court may determine and the reserve resulting from the cancellation of the share premium shall be treated as profits available for distribution as defined by section 117 of the Irish Companies Act 2014 (and/or any corresponding provision of any amended or replacement legislation); and
(b) The board of directors, acting through one or more of the Company's directors, the Company Secretary or Officers, be and are hereby authorized, on behalf of the Company, to proceed to seek the confirmation of the Irish High Court to such reduction of share capital.”
The reduction of share capital of the Company approved by the special resolution was somewhat different to the form of reduction which is typically sought on a confirmation application such as this in that what was sought was the cancellation of the entire amount standing to the credit of the Company's share premium account as at the effective date of the capital reduction (or a lesser amount as provided for in the resolution) as opposed to a reduction of a stated amount standing to the credit of the share premium account. As of the date of the special resolution, the amount standing to the credit of the Company's share premium account was US$894,659,000. As the Company continued to issue shares in the period following the special resolution as share options continued to be exercised, that amount increased between the date of the special resolution and the date of the hearing of the Company's confirmation application. As of the date of the hearing, the amount standing to the credit of the Company's share premium account had increased to US$951,152,875 (an increase of US$56,493,875). Therefore, the amount of the reduction of capital in respect of which confirmation was sought from the court on the Company's application was greater than the amount of that capital at the date of the special resolution. That is what was unusual about this application and that is what gave rise to the particular legal issue which I address later in this judgment.
Notice of the AGM was circulated to the shareholders of the Company in advance of the AGM. The notice explained the background to, and the purpose of, the proposed capital reduction. Copies of the special resolution and of the notice were exhibited to the grounding affidavit in respect of the application sworn on behalf of the Company by Aislinn Doody on 30th October, 2020 (at exhibits “AD2” and “AD3”).
Ms. Doody also exhibited a copy of the Company's articles of association (the “Articles”). Under Article 66.2 of the Articles, the Company has the power to reduce its share premium account by special resolution, in accordance with s. 84 of the 2014 Act.
In her grounding affidavit, Ms. Doody explained that the intention of the Company, in the event that the court was to grant the relief sought by it, was that the reserve to be created by the capital reduction would be treated as profits available for distribution, as defined by s. 177 of the 2014 Act, which would give the Board flexibility to repurchase or redeem shares or to make other distributions to shareholders in the form of dividends. Ms. Doody stated that the Company does not currently plan to pay cash dividends in the foreseeable future although it has an ongoing share repurchase programme.
At the outset of the application, counsel for the Company explained that the terms of the capital reduction in respect of which confirmation was sought by the Company on this application were somewhat different to the terms of a capital reduction typically considered by the court. He explained that the difference was that in this case confirmation was being sought for the reduction of the Company's share capital by the cancellation of the entire amount standing to the credit of the Company's share premium account as at the effective date of the capital reduction as opposed to a reduction of a specified amount set out in the relevant special resolution. He explained that in the period since the special resolution, the amount standing to the credit of the share premium account had increased to the extent mentioned earlier, as a consequence of which the Company was seeking the court's authorisation for the reduction of the Company's capital in an amount which was greater than the amount of the relevant capital as of the date of the special resolution. He explained that a possible argument could be made that this had implications for the court's jurisdiction to make an order under s. 85 of the 2014 Act confirming the special resolution. However, counsel submitted that while such an argument could be made, there were very good answers to it and the argument would be clearly unsustainable. Counsel sought to demolish the possible argument on jurisdiction by reference to the terms of s. 85(1) and case law from other common law jurisdictions.
Counsel contended that there was no jurisdictional bar to the court making the order sought by the Company in this case, notwithstanding that the amount of the capital had increased since the date of the special resolution. In my ex tempore judgment delivered followed the hearing, I agreed with...
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