Introduction

The case of Allergan PLC v. The Companies Act 2014 (Approved) ([2020] IEHC 214) was adjudicated by the High Court of Ireland on May 11, 2020. This landmark judgment addressed the sanctioning of a complex scheme of arrangement involving a vast majority of shareholding concentrated through the Depository Trust Corporation (DTC) system in the United States. The primary parties involved were Allergan plc (the "Company"), seeking approval under the Companies Act 2014 ("2014 Act"), and its subsidiary, AbbVie Inc., aiming to acquire Allergan's entire share capital through a €63 billion transaction.

Summary of the Judgment

Mr. Justice David Barniville delivered an ex tempore judgment sanctioning the proposed scheme of arrangement and confirming a special resolution reducing the Company's capital. The court navigated complex issues related to the Company's shareholding structure, where over 99% of shares were held beneficially through the DTC by Cede & Co, the nominee. Despite the absence of a written judgment on such structures prior to this case, the High Court found that the Company's application met all legal requirements. Consequently, the court sanctioned the scheme under section 453(2) of the 2014 Act and confirmed the capital reduction approved by the special resolution.

Analysis

Precedents Cited

The judgment extensively referenced several precedents to establish the appropriate legal framework for sanctioning the scheme:

• Re Colonia Insurance (Ireland) Ltd [2005] 1 IR 497: Established the foundational test for sanctioning schemes of arrangement in solvent companies.
• Re Depfa Bank plc [2007] IEHC 463 and Re SCISYS Group plc [2019] IEHC 904: Applied the Colonia test to acquisition schemes, reinforcing the criteria for court sanction.
• Re UBS EFTs public limited company [2019] IEHC 860 and Re Ballantyne plc [2019] IEHC 407: Addressed schemes involving corporate restructuring and insolvency, respectively, illustrating versatility in applying the Colonia test.
• Sovereign Life Assurance Company v Dodd [1892] 1 QB 405: Defined the concept of "class" within company meetings to prevent unfair practices.
• Re UDL Argos Engineering Ltd [2001] HKCFA 54 and Re BTR plc [2000] 1 BCLC 740: Provided further elucidation on class composition and fairness in schemes.
• Re Equitable Life Assurance Society [2002] EWHC 140: Highlighted the balance between majority and minority interests within classes.

These precedents collectively informed the Court’s approach to assessing the fairness, structure, and compliance of the proposed scheme.

Legal Reasoning

The Court employed the five-part test derived from Re Colonia Insurance to evaluate the scheme:

1. Sufficient steps to identify and notify all interested parties.
2. Compliance with statutory requirements and court directions.
3. Proper constitution of the class of members.
4. No improper coercion of any members.
5. The scheme is reasonably approved by an intelligent and honest person acting in their interest.

Additionally, the court ensured that the scheme was not ultra vires the Company, meaning it did not exceed the powers granted by the Company's constitution. A notable aspect of the reasoning involved addressing the unique shareholding structure mediated through the DTC, ensuring that the benefits and fairness extended adequately to all beneficial owners despite legal ownership being with Cede & Co.

The Court meticulously examined the procedural compliance, including notices, advertisements, and communication with stakeholders, to confirm that all legal requirements under the 2014 Act and the Irish Takeover Panel Act 1997 were met.

Impact

The judgment has significant implications for future schemes of arrangement, especially those involving complex shareholding structures similar to the DTC system. It establishes a clear precedent that even when the majority of shares are held legally by a nominee, courts can sanction schemes provided that adequate steps are taken to identify and communicate with beneficial owners. Moreover, it underscores the importance of adhering to statutory requirements and maintaining fairness and transparency in corporate restructuring transactions.

For practitioners, this case provides a valuable framework for navigating schemes of arrangement in multinational contexts, ensuring compliance with both domestic and international regulations. Companies may reference this judgment when structuring similar transactions, bolstering confidence in the enforceability of such arrangements under Irish law.

Complex Concepts Simplified

Scheme of Arrangement

A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors that restructures the company's operations or ownership. It requires approval by a special majority of members and court sanction.

Depository Trust Corporation (DTC)

The Depository Trust Corporation is a U.S.-based organization that facilitates the holding and transfer of securities through electronic book-entry rather than physical certificates. In this case, Cede & Co serves as the nominee holder for the vast majority of Allergan's shares.

Ultra Vires

Ultra vires refers to actions taken by a company that exceed the powers granted to it by its constitution or by law. A scheme being ultra vires would mean it is outside the company's legal authority.

Special Resolution

A special resolution is a decision made by shareholders that requires a higher majority (typically 75%) to pass. It is necessary for significant corporate actions like changing the company's constitution or approving mergers.

Beneficial vs. Legal Ownership

Beneficial owners hold the benefits of ownership, such as dividends, without holding the legal title. The legal owner, in this case, Cede & Co, holds the shares on behalf of beneficial owners and exercises voting rights as instructed by them.

Conclusion

The High Court's decision in Allergan PLC v. The Companies Act 2014 reinforces the robustness of Ireland's legal framework in accommodating intricate corporate arrangements. By meticulously applying established legal tests and acknowledging the complexities introduced by the DTC shareholding structure, the Court ensured that the scheme of arrangement was both fair and compliant. This judgment not only provides clarity on handling nominee-held shares in schemes of arrangement but also fortifies investor confidence in Ireland's judicial approach to corporate restructuring. Companies and legal practitioners can draw from this comprehensive analysis to navigate similar high-stakes transactions with assurance.