Mallinckrodt PLC v Companies Act, 2014 (Approved)

Factual and Procedural Background

The case concerns an application by the Examiner pursuant to section 541(3) of the Companies Act 2014 for confirmation of proposals for a scheme of arrangement between Company A and its members and creditors. The directors of Company A petitioned for the appointment of an Examiner, who was appointed and confirmed by the Court in early 2022. The background involves extensive insolvency proceedings commenced in the Delaware Bankruptcy Court under Chapter 11 since October 2020, relating to Company A and approximately 60 of its subsidiaries operating in multiple jurisdictions.

In February 2022, the US Bankruptcy Court confirmed a Fourth Amended Plan of Reorganisation (the "Plan") for Company A and its subsidiaries, with multiple conditions precedent to its effective date, including a confirmation order from this Court in respect of a scheme of arrangement consistent with the Plan. The Examiner’s proposals for the scheme are intended to take effect concurrently with the effective date of the Plan.

The Court heard submissions and evidence regarding the fairness, equity, and legal compliance of the proposed scheme, as well as the procedural and substantive aspects linking the Irish scheme with the US Chapter 11 Plan.

Legal Issues Presented

1. Whether the Court has jurisdiction to confirm the Examiner’s proposals for a scheme of arrangement under section 541 of the Companies Act 2014.
2. Whether the proposals are fair and equitable to the classes of members and creditors affected, particularly those who have not accepted the proposals.
3. Whether the proposals are unfairly prejudicial to the interests of any interested party.
4. The appropriateness of confirming a scheme that is largely referential to a foreign insolvency plan (the US Chapter 11 Plan) rather than setting out standalone terms.
5. The impact of pending appeals and unresolved conditions precedent on the confirmation of the scheme.
6. The validity of creditor classification and alleged discrimination between creditor classes.

Arguments of the Parties

Acthar Claimants' Arguments

• The Acthar Claimants, representing related companies owed nearly $3 billion, opposed confirmation of the scheme.
• They objected to the scheme’s referential nature, arguing it does not independently provide for creditor treatment but merely references the US Plan.
• They contend the Plan is unfair and inequitable, which is why they voted against it and the scheme.
• They raised concerns about creditor classification, asserting that unsecured creditors are split into multiple classes receiving different dividend percentages, amounting to unfair discrimination.
• They did not provide affidavit evidence or legal submissions as directed by the Court, limiting their opposition to legal argument only.
• They acknowledged their appeals against certain US Bankruptcy Court rulings but did not ask this Court to revisit those rulings.

Examiner's and Supporting Parties' Arguments

• The Examiner submitted that the scheme’s referential nature to the US Chapter 11 Plan is appropriate given the restructuring’s complexity and multinational scope.
• The Examiner argued that creditor classification and treatment were examined extensively by the US Bankruptcy Court, which found no unfair discrimination.
• The Examiner emphasized that the Court should not replicate the US Court’s 16-day hearing but may take judicial notice of its findings.
• The Examiner presented evidence that the scheme and Plan offer a better outcome than liquidation, preserving employment and providing returns to creditors.
• Other parties, including the Company, Revenue Commissioners, various creditor committees, and governmental entities, supported confirmation.
• The Governmental Plaintiff Ad Hoc Committee raised concerns about unresolved conditions precedent but did not oppose confirmation.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by confirming its jurisdiction under the Companies Act 2014 to approve a scheme of arrangement where at least one class of impaired creditors accepts the proposals and the scheme is fair and equitable to dissenting classes and not unfairly prejudicial to any party. The Court noted no party challenged jurisdiction or the appointment of the Examiner.

Regarding the Acthar Claimants’ objections, the Court acknowledged their concerns about the scheme’s referential nature and creditor classification but emphasized the extensive examination of these issues by the US Bankruptcy Court, including a 16-day hearing with evidence and expert testimony. The Court found it inappropriate to re-litigate those matters, especially given the absence of evidence or submissions from the Acthar Claimants before it.

The Court accepted the Examiner’s view that the scheme’s reliance on the US Plan was justified by the complex multinational corporate structure and the need for consistency. It also found that the Plan’s creditor classification and treatment were rational and had a sound basis, including consideration of claims’ origins and pre-bankruptcy expectations.

In assessing fairness and equity, the Court applied established Irish case law principles, including the importance of comparing scheme outcomes to likely liquidation scenarios. Evidence showed that liquidation would yield no dividends for unsecured or preferential creditors, whereas the scheme and Plan provide for distributions and preserve employment.

The Court considered the pending conditions precedent to the Plan’s effective date, noting their materiality and the Governmental Plaintiff Ad Hoc Committee’s concerns. However, the Court accepted that delaying confirmation until all conditions were satisfied risked jeopardizing the restructuring’s success and incurring additional costs. It found that confirmation with conditions outstanding was appropriate given the complexity and the risk of delay.

The Court also noted correspondence from shareholders objecting to the process but observed no participation or submissions from them in Court.

Finally, the Court concluded that the proposals meet the statutory tests, are fair and equitable, and that confirmation would facilitate the restructuring and survival of Company A and its undertaking.

Holding and Implications

The Court GRANTED the application to confirm the Examiner’s proposals for a scheme of arrangement under Part 10 of the Companies Act 2014.

The scheme is confirmed subject to conditions precedent, with the effective date tied to the satisfaction or waiver of all conditions in the US Chapter 11 Plan. The Court recognized the scheme’s referential nature to the US Plan as appropriate and did not find the objections sufficient to withhold confirmation.

This decision enables the restructuring to proceed in Ireland in tandem with the US proceedings, providing legal certainty and recognition of the Plan’s terms within the Irish and EU jurisdictions. The Court scheduled a further mention to monitor progress after the anticipated effective date, allowing for liberty to apply if difficulties arise.

No new legal precedent was established; the ruling applies established principles to a complex multinational restructuring context, emphasizing judicial deference to foreign insolvency court findings and commercial creditor judgment, while ensuring statutory fairness and equity requirements are met.