Xtrackers (IE) Plc v Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice David Barniville
• Judgment Date: 18 June 2020
• Neutral Citation: [2020] IEHC 330
• Docket Number: Record No. 2020/151 COS
• Court: High Court
• Date: 18 June 2020

IN THE MATTER OF XTRACKERS (IE) PUBLIC LIMITED COMPANY

AND

IN THE MATTER OF THE COMPANIES ACT 2014 (AS AMENDED)

AND

IN THE MATTER OF A PROPOSAL FOR A SCHEME OF ARRANGMENT

PURSUANT TO SECTION 449 TO 455 OF THE COMPANIES ACT 2014 (AS AMENDED)

[2020] IEHC 330

David Barniville J.

Record No. 2020/151 COS

THE HIGH COURT

COMMERCIAL

Scheme of arrangement – Sanction – Modification – Applicant seeking orders sanctioning a proposed scheme of arrangement – Whether sufficient steps had been taken to identify and notify all interested parties

Facts: The applicant company, Xtrackers (IE) Public Limited Company, applied to the High Court for orders under s. 453 of the Companies Act 2014 in Part 9 of that Act, sanctioning a proposed scheme of arrangement between the Company and its shareholders. The purpose of the scheme was to centralise the settlement of trading in participating shares of all sub funds in the International Central Securities Depository settlement model (the ICSD model). The ICSD model provided for centralised settlement in Euroclear Bank SA/NV and in Clearstream Banking SA for shares traded across multiple stock exchanges. The proposed scheme sought to adopt the ICSD model in place of the Central Securities Depository settlement system executing trades in the Company's shares (the CSD model). The scheme would provide for the transfer of the legal, but not the beneficial, interests in the relevant scheme shares to the common depository's nominee, in consideration of the nominee agreeing to hold the scheme shares as nominee for the common depository. In his second affidavit, sworn on the 16th June 2020 in support of the application, Mr Whelan pointed out that the Company proposed that the scheme be modified pursuant to Clause 6 of the scheme, so as to permit the court to set the effective time for the scheme. The specific modification sought by the Company was the addition of the words "as fixed by the High Court in the scheme order" in the definition of "Effective date" in the scheme. The reason for seeking this modification, which was solely directed at the implementation of the scheme, was to ensure that the scheme becomes effective after trading hours on 3rd July 2020.

Held by Barniville J that, applying Re Allergan plc [2020] IEHC 214, the test to be applied by the court in deciding whether to sanction the scheme required the court to be satisfied that the following five requirements had been fulfilled, namely, that: (1) sufficient steps had been taken to identify and notify all interested parties; (2) the statutory requirements and all directions of the court had been complied with; (3) the class of members (in the case of a scheme of arrangement between the Company and its members) had been properly constituted; (4) there was no improper coercion of any of the members concerned; and (5) the scheme was such that an intelligent and honest person, being a member of the class concerned, acting in his or her interest, might reasonably approve of it. Barniville J was satisfied that all of the five requirements had been fulfilled by the Company. He was not satisfied that the modification made a material amendment to the scheme. It seemed to him that the amendment was, beyond question, in the interests of the members. He did not believe, therefore, that it was necessary to reconsult the scheme shareholders at all.

Barniville J held that he was prepared to sanction the scheme as so modified, subject to the inclusion of an appropriate condition dealing with compliance with the outstanding condition referred to in paragraph 44.1.6 in Mr Whelan's first affidavit. It seemed to Barniville J, subject to the final wording being provided by the Company, that he should make lodgement of the scheme order with the Registrar of Companies conditional on compliance with that particular condition.

Application granted.

EX TEMPORE JUDGMENT of Mr. Justice David Barniville delivered on the 18th day of June, 2020.

Introduction

1 This is an application by the Applicant company Xtrackers (IE) Public Limited Company (the “Company”), for orders under Section 453 of the Companies Act 2014 (the “2014 Act”) in Part 9 of that Act, sanctioning a proposed scheme of arrangement between the Company and its shareholders.

2 As is clear from the extensive affidavit evidence before the court, and in particular, from the affidavits sworn by Michael Whelan in support of the application, the Company is an investment company with variable capital, which is authorised by the Central Bank of Ireland under the European Communities ( Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended) as a UCITS.

3 The evidence demonstrates that the Company is structured as an open ended umbrella fund with segregated liability between its sub funds. Shares in the Company representing interests in the different sub funds may be issued from time to time by the directors. The Company currently has 68 sub funds, each such sub fund is differentiated by reference to a specific investment objective policy, currency of denomination and certain other features. A separate pool of assets is maintained for each sub fund and is invested in accordance with the investment objective and policy of that sub fund.

4 The sub funds are exchanged traded funds and certain of the share classes are listed on multiple stock exchanges around the world. Investors trade the Company's shares on those exchanges. The Company currently uses what is called the Central Securities Depository settlement system executing trades in the Company's shares and that is known as the CSD model. In circumstances where shares of a sub fund are listed on multiple stock exchanges around the world, each exchange will operate its own CSD. Where shares are transferred between exchanges and, therefore, between CSDs, this requires a realignment of shares between the relevant CSDs which can give rise to liquidity fragmentation and operational difficulties in settling trades and this is clear, in particular, from the affidavit sworn by Mr. Whelan on 22nd May 2020.

5 The purpose of the scheme the subject of the application before the court is to centralise the settlement of trading in participating shares of all sub funds in the International Central Securities Depository settlement model, known as the ICSD model. The ICSD model provides for centralised settlement in Euroclear Bank SA/NV and in Clearstream Banking SA for shares traded across multiple stock exchanges. The proposed scheme the subject of this application seeks to adopt the ICSD model in place of the existing CSD model. The scheme will provide for the transfer of the legal, but not the beneficial, interests in the relevant scheme shares to the common depository's nominee, in consideration of the nominee agreeing to hold the scheme shares as nominee for the common depository.

6 The scheme the subject of this application is similar to a number of schemes that have previously been sanctioned by the High Court. Similar schemes were considered and dealt with by me in a judgment which I delivered in the case of UBS ETFs plc [2019] IEHC 860 (“UBS”). That judgment was delivered on 26th November 2019.

Procedural Background

7 The application now before the court is for sanction in respect of the scheme of arrangement. At an earlier stage of the statutory procedure, an application was made for the convening of a meeting of the relevant shareholders to consider the scheme. That application was made pursuant to s. 450 of the 2014 Act.

8 I dealt with that application on 27th January 2020. By an order made on that date, I ordered that a meeting of scheme shareholders would be convened and I made certain ancillary orders concerning the advertising and conduct of that meeting. In addition, at the request of the Company, I made an order pursuant to section 450(5) of the 2014 Act, directing that all of the Company's shareholders would comprise one class for the purpose of the scheme meeting. I made that order for the reasons set out in some detail in the affidavit which was before the court for the purpose of that application, which was sworn on behalf of the Company by Tom Murray on 21st January 2020.

9 In that order, I directed that the relevant scheme meeting be convened for 2nd March 2020 and I directed that certain advertisements and notices be provided in respect of that meeting to the members of the Company by 4th February 2020.

10 The scheme meeting and associated Extraordinary General Meeting (“EGM”) were both held to approve the scheme on 2nd March 2020. However, there were certain issues in relation to the notification to scheme shareholders who hold their shares through the CREST system. Those errors were set out and brought to the attention of the court in another affidavit sworn by Tom Murray on 31st March 2020. The directors of the Company believed that, in light of those errors, it would be inappropriate to proceed to ask the court to sanction the scheme based on the votes cast in favour of the scheme at the scheme meeting on 2nd March 2020.

11 The directors of the Company believed that, in the interests of fairness to all shareholders, it would be preferable for a new scheme meeting to be convened and held in order to provide an opportunity for all shareholders, including those who may not have been formally notified of the scheme meeting held on 2nd March 2020, to cast their vote for or against the proposed scheme at a new scheme meeting.

12 A further application was made to me, and by another order made on 1st April 2020, I directed that a new scheme meeting be convened for 21st May 2020. That application was made at the height of the COVID 19 pandemic and, in those circumstances, it was necessary for the Company to obtain additional directions from the court in relation to the holding of the scheme meeting and the new EGM required to...