Re:Ballantyne RE Plc & The Companies Act 2014

CourtHigh Court
JudgeMr. Justice David Barniville
Judgment Date06 June 2019
Neutral Citation[2019] IEHC 407
Docket Number[2019 No. 190 COS]
Date06 June 2019




[2019] IEHC 407

Barniville J.

[2019 No. 190 COS]



Company and Commercial Law – Companies Act 2014 – Scheme of Arrangement – Applicant seeking order sanctioning proposed scheme of arrangement – Whether the court should sanction proposed scheme of arrangement between company and its creditors pursuant to Section 453(2) of the Companies Act 2014

Facts: The applicant (the “Scheme Company”) applied for an order sanctioning a proposed scheme of arrangement (“the Scheme”) between it and its creditors pursuant to Section 453(2) of the Companies Act 2014. The Scheme Company is an Irish PLC with registered offices in Dublin. The Scheme Company issued a number of notes pursuant to an Indenture which was stated to be governed by the law of the State of New York. The application to sanction the proposed scheme was opposed by one creditor, namely ESM Fund I LP (“ESM”), a limited partnership formed in the United States. All other creditors voted in favour of the Scheme. ESM objected on a number of grounds, arguing that the Scheme was materially deficient, that the court did not have jurisdiction to sanction a scheme which provides for the release of third party claims, and that sanctioning of the Scheme would frustrate litigation that ESM had initiated in federal court in the United States.

Held by Barniville J that the proposed scheme was reasonable, viewed from the perspective of an honest, intelligent and experienced person of business who is familiar with the Scheme. The Scheme creditors, as sophisticated investors, had voted overwhelmingly in favour of the Scheme, which was not determinative, but a starting point for the court to consider. The onus is on the objecting creditor, in this case ESM, to establish that an honest, intelligent and reasonable member of the class could not have voted for the Scheme to the standard of the balance of probabilities.

Barniville J rejected each of ESM’s arguments. He held that the Irish courts clearly had jurisdiction over the matter as the Scheme Company was incorporated in Dublin, its directors are all Irish, and board meetings were all held in Ireland. Barniville J was satisfied that a scheme of arrangement can be interpreted to include a provision for the release of third party claims and found that ESM did not demonstrate any good reason based on the existence of the New York complaint for the Scheme not to be sanctioned.

Barniville J found that the preconditions in Section 453, subsection 2(a) and (b) had been satisfied, that there was no coercion of the minority at the Scheme meeting, and that an honest and intelligent person acting reasonably in his or her own interests could support the Scheme. The Scheme was sanctioned under Section 453(2) of the 2014 Act.

Relief granted.

EX TEMPORE JUDGMENT of Mr. Justice David Barniville delivered on the 6th day of June, 2019

This is my ex tempore judgment in relation to an application heard by me yesterday, 5th June, 2019.


This is an application by Ballantyne Re Plc, an Irish Plc (the ‘Scheme Company’), for an order pursuant to Section 453(2) of the Companies Act 2014 (the ‘2014 Act’), sanctioning a proposed scheme of arrangement between that company and a number of its creditors (the ‘Scheme Creditors’), as defined in the Scheme (the ‘Scheme’).


The application is opposed by one such creditor, namely ESM Fund I LP, a limited partnership formed in the United States. It is holder of some $5,000,000 of class A 3d notes. The application is supported by the overwhelming majority of the noteholders in the two relevant classes. As set out in the grounding affidavit of Mr. Masterson, sworn on behalf of the Scheme Company on 22nd May 2019, the overwhelming majority of the Scheme creditors have supported the Scheme, which provides for a compromise of the Scheme Company's obligations under the relevant notes and for the commutation of certain guarantees provided by the guarantors under those notes.


The Scheme Company and its directors have determined that the Scheme should be proposed. This is as a result of the fact that, due to significant investment losses, there is a net asset deficiency in the Scheme Company and this has led to events of default which are currently outstanding under the relevant provisions of an Indenture dated 2nd May 2006, as amended and supplemented subsequent to that date, under which the relevant notes were issued. The evidence establishes to my satisfaction that were the class A notes, as they are referred to later, to run to maturity, which is 2036, there would be no prospect of a full recovery by the relevant Scheme noteholders from the Scheme Company. Further, there is no prospect of any recovery by the junior noteholders or any subordinated liabilities or equities.


Against that background, Ambac Assurance UK Limited (‘Ambac’), which is one of the two financial guarantors of the notes issued under the Indenture to which I have referred, engaged in certain discussions with certain of the Scheme noteholders to assess options to restructure the Scheme Company. Following those discussions and its assessment of the position, Ambac proposed a restructuring to the Scheme Company. While Ambac did propose the restructuring to the Scheme Company, the Scheme is nevertheless that of the Scheme Company itself and it is not Ambac's scheme.


The evidence establishes that the Board of Directors of the Scheme Company, having considered the proposal in detail and having taken legal and financial advice, formed the view that the restructuring provided for in the Scheme is in the best interest of all parties concerned, including the relevant Scheme noteholders and the Scheme Company itself. In addition, the evidence discloses that the Board of Directors considers that the Scheme is fair and equitable for all of the relevant Scheme noteholders.


Briefly stated, the objective of the Scheme is to restructure the Scheme Company's reinsurance obligations and its outstanding indebtedness under the Scheme notes such that the residual value in the Scheme Company can be distributed to the Scheme noteholders. I am also satisfied that the restructuring is for the benefit of the Scheme noteholders and that is clear from the fact that the Scheme encompasses not only what are called the Ambac Guarantee Notes and the Assured Guarantee Notes but, also, class A 1 notes, which, as we will see, do not have the benefit of any guarantee.


The benefits of the Scheme include:

1) An immediate return of capital as opposed to the status quo scenario, to which I will return.

2) The elimination of risk associated with the future performance and reinsurance cash flows of what is called the defined block of business.

3) The ability to monetise a distressed illiquid debt security.

4) In the case of the Ambac guaranteed noteholders, the elimination of future credit risk in relation to Ambac's ability to meet their claims under the relevant guarantees.


On the 29th April 2019, on the application of the Scheme Company, the court made the following orders and gave the following directions:

1) It entered the proceedings in the Commercial List.

2) It gave directions in relation to the summoning of meetings of two classes of creditors under section 250(3) of the 2014 Act, namely, the Ambac guaranteed creditors/noteholders and the Assured Guarantee/A 1 Scheme creditor/noteholders. They are referred to as the Scheme meetings.

3) The court gave directions in relation to the Scheme meetings, including the placing of advertisements in relation to those meetings.

4) Directions were given in relation to the issuing of an originating Notice of Motion to sanction the Scheme in the event that the requisite majority approved the Scheme at the Scheme meetings.

5) Directions were given that in the event that any person intended appearing at that hearing, it had to give notice of its intention to do so by a specified date, which was the 29th May 2019.

6) That the matter was then to be listed for further directions on the 23rd of May.


In accordance with the court's directions, the scheme meetings took place on the 22nd May 2019, following which this application was brought by originating Notice of Motion issued on 22nd May 2019, which was returnable for 23rd May 2019.


As appears from the report of the chairperson of those Scheme meetings, which is exhibited to Mr. Masterson's grounding affidavit, the Scheme was overwhelmingly approved by the Scheme noteholders, being 98.12% in value of the Ambac guaranteed scheme creditors present and voting and 100% in value of the Assured Guarantee/A 1 Scheme creditors present and voting at that meeting.


It is, perhaps, unsurprising that the Scheme was approved by the vast majority of the Scheme noteholders in circumstances where, on the evidence, I am satisfied that the proposed dividend payable by the company represents a materially better outcome than under what is called the ‘status quo scenario’, and the commutation payment to Ambac Guaranteed Noteholders represents the net present value of the future payments that the holders of those notes would otherwise receive from Ambac.


The fact that such an overwhelming majority of the relevant noteholders/creditors voted in favour of the Scheme is not conclusive or determinative of the court's role in considering whether to sanction the Scheme. It is, obviously, of significance however.


Further directions were given by the court (Mr. Justice Haughton), on 23rd May 2019. On that date, amongst other things, he directed that the matter be listed for hearing on 5th June, 2019, by way of an application for the sanctioning of the Scheme. He directed...

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3 firm's commentaries
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