Introduction

In the landmark case of FundLogic Alternatives Plc v. Companies Act (Approved) (Rev 1) ([2020] IEHC 428), the High Court of Ireland addressed the application of a scheme of arrangement under the Companies Act 2014. FundLogic Alternatives Public Limited Company ("FundLogic") sought court sanction to transition its settlement model from the current London Stock Exchange's CREST System to an International Central Securities Depository (ICSD) Model, primarily due to the implications of Brexit. This transition aimed to ensure streamlined and centralized settlement processes within the European Union jurisdiction, thereby safeguarding FundLogic’s operational continuity and enhancing settlement efficiency.

The key issues revolved around the court’s evaluation of the fairness and equitability of the proposed scheme, compliance with statutory requirements, proper constitution of the class of members, absence of coercion, and the overall reasonableness of the scheme from the perspective of the members involved.

Summary of the Judgment

Mr. Justice David Barniville delivered the judgment on August 19, 2020, ultimately ruling in favor of sanctioning FundLogic’s proposed scheme of arrangement under Section 453(2) of the Companies Act 2014. The court concluded that FundLogic had adequately fulfilled all necessary requirements, including identifying and notifying interested parties, complying with statutory mandates and court directions, properly constituting the class of members, ensuring no coercion, and presenting a scheme that an intelligent and honest member might reasonably approve.

The transition to the ICSD Model was deemed fair and equitable, with unanimous approval from the Scheme Shareholders, who represented experienced and sophisticated investors. The court also recognized the operational advantages of the ICSD Model, such as improved settlement performance, reduced inventory requirements, and enhanced foreign exchange functionality.

Analysis

Precedents Cited

The judgment extensively referenced several pivotal cases to establish a robust legal framework for sanctioning the scheme. Key precedents include:

• Re Colonia Insurance (Ireland) Ltd [2005] 1 IR 497 (Colonia): Established the foundational test for sanctioning a scheme of arrangement in relation to a solvent company.
• Re Depfa Bank plc [2007] IEHC 463 (Depfa): Applied the Colonia test to takeover or acquisition schemes.
• Re SCISYS Group plc [2019] IEHC 904 (SCISYS): Further elaborated on the application of the scheme of arrangement tests.
• Re UBS EFTs public limited company [2019] IEHC 860 (UBS), Re Allergan PLC [2020] IEHC 214 (Allergan), and Re Xtrackers (IE) public limited company [2020] IEHC 330 (Xtrackers): Addressed corporate restructuring schemes involving transitions to the ICSD Model.
• Re Ballantyne plc [2019] IEHC 407: Applied the test to schemes involving insolvent companies.

These precedents collectively underscored the necessity of fulfilling the five key requirements for sanctioning a scheme of arrangement and guided the court’s analysis in the FundLogic case.

Legal Reasoning

Justice Barniville methodically applied the established test derived from Colonia and subsequent cases, which comprises five critical criteria:

1. Identification and Notification of Interested Parties: FundLogic demonstrated adequate identification and notification through revised scheme circulars and advertisements, ensuring all Scheme Shareholders were informed.
2. Compliance with Statutory Requirements and Court Directions: The company adhered to Sections 452 and 453 of the Companies Act 2014, fulfilling informational and procedural mandates, including obtaining unanimous support from Scheme Shareholders.
3. Proper Constitution of the Class of Members: The court validated that treating all Scheme Shareholders as a single class was appropriate, given the uniformity in the legal rights and the absence of dissimilar interests that would necessitate segregation.
4. Absence of Coercion: With unanimous approval from Scheme Shareholders, there was no evidence of improper coercion or oppression, satisfying this requirement.
5. Reasonableness of the Scheme: The scheme was deemed reasonable and advantageous, presenting benefits such as streamlined settlement processes and maintaining operational integrity post-Brexit.

Additionally, the court affirmed that the scheme was not ultra vires the company’s powers under its constitution, as it aimed to modify the settlement structure without altering the company’s core activities.

Impact

The sanctioning of FundLogic’s scheme sets a significant precedent for other EU-domiciled ETFs navigating post-Brexit regulatory landscapes. By affirming the robustness of the five-step test for sanctioning schemes of arrangement, the judgment provides a clear framework for companies seeking similar transitions. Furthermore, it underscores the court’s emphasis on fairness, equitability, and the protection of member interests in corporate restructuring activities.

This decision may encourage more transparent and efficient settlement practices within the EU, promoting greater stability and confidence among investors and stakeholders in the financial services sector.

Complex Concepts Simplified

Conclusion

The High Court’s decision in FundLogic Alternatives Plc v. Companies Act (Approved) (Rev 1) serves as a comprehensive affirmation of the procedural and substantive safeguards embedded within the Companies Act 2014 for sanctioning schemes of arrangement. By meticulously applying established legal tests and ensuring the fairness and equitability of the proposed transition to the ICSD Model, the court has reinforced the principles of corporate governance and investor protection.

This judgment not only facilitates FundLogic’s strategic adaptation to post-Brexit regulatory changes but also provides a clear blueprint for similar corporate restructuring efforts within the EU framework. The emphasis on unanimous shareholder approval, transparency in communication, and adherence to statutory requirements underscores the judiciary’s role in fostering a fair and efficient corporate environment.

In the broader legal context, the case exemplifies the judiciary’s commitment to upholding equitable practices in corporate restructuring, ensuring that such transitions are conducted with due diligence and in the best interests of all stakeholders involved.