UBS v Companies Act 2014 to 2019 [2019] IEHC 860 (26 November 2019)

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EX TEMPORE JUDGMENT of Mr. Justice David Barniville delivered on the 26th

1. This is an application by two Irish companies, UBS ETFs public limited company and UBS

(IRL) ETF public limited company, for orders pursuant to Section 453 of the Companies

Act 2014, (the “2014 Act”), sanctioning certain proposed schemes of arrangement

2. In an order made on 11th November, 2019, I fixed today at 11am for the hearing of the

Companies’ applications. I also gave directions on that occasion in relation to the

advertising of the time and date of the hearing in a number of publications, namely the

Irish Times, the Irish Independent, the International Edition of the Financial Times and

Iris Oifigiúil. That was done on 15th November, 2019 and that is evidenced by the second

affidavit of Karole Cuddihy sworn in respect of each of the Companies on 21st November,

3. I also directed that if any person was to indicate an interest in participating in the

applications, that that had to be done by 22nd November, 2019. No such person has

given notice of any interest to appear. Again that has been evidenced by the further

affidavit of Karole Cuddihy sworn today in the case of each of the two Companies. When

the application was called this morning, there was no interested party present. It is

appropriate, therefore, to proceed to consider the applications in relation to each of the

Companies for orders sanctioning the proposed schemes of arrangement in each case

between the company and the scheme shareholders and to make certain consequential

4. I can deal with both Companies together. Counsel for the Companies have provided very

helpful written submissions that address the common aspects of both Companies and also

the test that I have to apply, and address the basis on which it is contended that the

relevant test has been satisfied. I have concluded that the statutory test is satisfied and

that it is, therefore, appropriate for me to sanction the proposed schemes of

5. The Companies are umbrella investment companies, incorporated in the State, with

variable capital within the meaning of Part 24 of the 2014 Act and they are authorised by

the Central Bank of Ireland under the relevant regulations (the European Communities

(Undertaking for Collective Investments in Transferable Securities) Regulations 2011 S.I.

No. 352/2011 (as amended)). Each of the Companies is an exchange traded fund which

has numerous sub funds under its umbrella. Persons who wish to invest in any of these

sub funds do so by acquiring participating shares in the relevant sub fund.

6. Most of these exchange traded funds, or ETFs, are multi listed and multi settled, so that

the participating shares of the Companies are listed on various exchanges in Europe.

7. Most stock exchanges have their own central counterparty clearing and central security

depository. Clearing ETFs across European borders between national central securities

depositories in order to satisfy investor demand is both complex and costly, so each of

the Companies, the subject of these applications, is proposing to centralise its settlement

process for all of its participating shares into a single international central securities

depositor called the ICSD+ model, which I am satisfied on the evidence is intended to

improve the currently fragmented settlement process, which, as indicated earlier, is

8. This new model, the ICSD+ model, is, on the evidence, designed to provide a streamlined

and centralised settlement structure which will result in improved liquidity for investors,

less liquidity fragmentation and reduced risk in the settlement process.

9. Under this new model, shares will be registered in the register of members in the name of

a single shareholder, Clearstream Banking SA Luxembourg (“Clearstream”). That entity

will benefit from the rights of being a registered shareholder. It will, however, as

nominee, pass on the benefit of those rights. The chain of beneficial holding in this new

model, the ICSD+ model, will be similar to existing nominee arrangements under the

current settlement models. For the existing limited number of individual shareholders who

are on the register of members, their ownership of shares will change from legal

ownership to ownership of a beneficial interest through Clearstream. Both the Companies

and Clearstream are proposing to create a new international settlement structure that will

10. So in essence what is being proposed under the two proposed schemes of arrangement is

that the legal but not the beneficial interest in the participating shares in the Companies

will be transferred from the current registered shareholders into the name of Clearstream

so that it will become the sole registered holder of those shares.

11. I am satisfied that on the evidence put forward by both of the applicant Companies and,

in particular, on the affidavit evidence of Mr. Robert Burke sworn in the case of the UBS

ETFs public limited company on 6th November, 2019 and by Mr. Philip McEnroe on the

same date in respect of the UBS (IRL) ETF public limited company, it would not be

practicable to get the individual agreement of each registered shareholder to transfer the

legal title into the name of Clearstream and, for that reason, the Companies have

reasonably decided that the most effective and appropriate way of achieving the aim is by

means of the two proposed schemes of arrangement under Part 9 of the 2014 Act.

12. Initial directions were made in respect of the schemes of arrangement by the High Court

(Haughton J.) on 14th October, 2019. On that occasion both applications were entered in

the Commercial List. Directions were made in relation to the convening of the meetings of

scheme shareholders and the directions made under Section 450(3) of the 2014 Act were

to the effect that there would be, in the case of each company, a single class of members

meeting rather than a number of different classes. I will come back to that issue in a

13. The evidence establishes that the scheme meetings took place on 6th November, 2019

and that the requisite special majority in support of the proposed schemes was achieved

at each of the two meetings. Consequently, an application is now made to sanction the

14. The statutory requirements in respect of this application for the sanctioning of the

schemes of arrangement are set out in Section 453 of the 2014 Act. Certain conditions

must be satisfied and they are set out in Section 453(2)(a), (b) and (c). In particular

under (a), there must be the relevant special majority; under (b), there must be notice of

the passing of the relevant resolution and of the application to court advertised in at least

two daily newspapers circulating in the district where the registered office or principal

place of business of the company is situated; and under (c), the court must sanction the

15. The test to be applied by the court in determining whether the schemes should be

sanctioned was summarised by reference to five criteria by Kelly J, as he was, in the Re

Colonia Insurance (Ireland) Ltd [2015] 1 I.R 497. To paraphrase what Kelly J. said in that

case, the following five criteria must be satisfied: First, the court must be satisfied that

sufficient steps have been taken to identify and notify all interested parties; second, the

court must be satisfied that the statutory requirements and all directions of the court

have been complied with; third, the court must be satisfied that the class or classes of

creditors have been properly constituted; fourth, the court must be satisfied that there is

no issue of coercion; and fifth, the court must be satisfied that the scheme of

arrangement is such that an intelligent and honest person, who is a member of the class

concerned, acting in respect of his or her interests might reasonably approve the scheme.

It is also the case, clearly, that the court will not sanction a scheme which is ultra vires.

16. Those five criteria were repeated by Kelly J. in the In Re Depfa Bank plc [2007] IEHC 463

case and were recently considered and applied by me in Re Ballantyne plc [2019] IEHC 407.

It is appropriate to consider each of those five criteria in turn based on the evidence

17. I will start with the first criterion, namely that steps must have been taken to identify and

notify all interested parties. I am satisfied, based on the evidence of Mr. Burke and Mr.

McEnroe, in respect of each of the two Companies, that the Companies have complied

with the directions given by Haughton J. on 14th October, 2019 concerning the notice to

be given to all members of the Companies. The interested parties in the context of the

two Companies at issue are the members of the Companies as listed in the Register of

Members. Those directions were complied with by the placing of the advertisements and

by the sending of scheme circulars to all of the members. That is all confirmed in the

various affidavits sworn by Keith Geoghegan of State Street Fund Services (Ireland) Ltd.

and by Barry Saville of Computershare in respect of each of the two Companies.

18. I am satisfied, therefore, that, on the evidence, that all persons affected by the two

schemes have been duly notified of the schemes by the circulation of scheme circulars to

the members i.e. scheme shareholders, which contained the information required by

19. I turn next to the second criterion, namely compliance with the statutory requirements

and court directions. The scheme meetings were convened in accordance with the

directions given by Haughton J. on 14th October, 2019 and those meetings took place on

6th November, 2019. I have already indicated that the directions given by Haughton J.

were complied with on the evidence before the court. It is clear also on the evidence that

the scheme circulars satisfied the requirements of Section 452 of the 2014 Act and

20. The affidavits of Mr. Burke and Mr. McEnroe and the minutes of the scheme meetings

satisfy me that the Companies have complied with the requirement in Section 453(2)(a)

of the 2014 Act, and demonstrate that there was a special majority in favour of the

schemes. That is evident from the fact that, in each case, all of the votes cast were in

21. For the purposes of Section 453(2)(b) of the 2014 Act, the affidavits of Karole Cuddihy

sworn on 7th November, and 21st November, 2019 persuade me that the requirements in

that paragraph have been complied with; notices in relation to the scheme meeting and of

the EGMs at which certain resolutions concerning the schemes were passed were placed

in the Irish Times, the Irish Independent, the International Edition of the Financial Times

22. The final requirement in Section 453(2)(c) of the 2014 Act, is the requirement that the

court sanctions the scheme of arrangement. That is obviously the subject of these

23. As regards the third criterion, class composition, as mentioned earlier, on 14th October,

2019 one of the issues considered by Haughton J. in convening the meetings was whether

or not the holders of participating shares ought to be segregated into different sub classes

by reason of the fact that their participating shares were referable to different sub funds.

Having considered the matter at that stage (on an ex parte basis), Haughton J. directed

that a single meeting of members of each of the applicant Companies should be held. No

person has attended today to indicate that that was an incorrect view and, as the cases

make clear, the court will be slow to reach a contrary view, particularly in circumstances

where no one was or is agitating for a contrary position. Indeed, I think it can be fairly

said that while the court is clearly not a rubber stamp, the Companies might well be

entitled to feel aggrieved if, in circumstances where there was no opposition, the court

were to reach a different view of the appropriateness of the meetings convened and, in

particular of the fact that they were convened as single class meetings rather than

different meetings of different classes. In any event, as the previous determination by

Haughton J. was made on an ex parte basis, it is necessary for the court to reconsider the

24. The leading statement on the question of classes of meetings for present purposes is that

made by Bowen LJ. in the Court of Appeal in Sovereign Life Assurance Company v Dodd

"It seems plain that we must give such meaning to the term 'class' as will prevent

the section being so worked as to result in confiscation and injustice, and that it

must be confined to those persons whose rights are not so dissimilar as to make it

impossible for them to consult together with a view to their common interest." (at

25. So the correct focus is on the rights, in particular, the legal rights, possessed by the

different members. And in this case there is, it is clear on the evidence, no difference

between the rights of the relevant members irrespective of whether their participating

26. The written submissions helpfully provided by the applicant Companies refer to a number

of authorities, in particular, from the Court of Appeal of England and Wales and from a

number of other jurisdictions, including, Ireland, which address the single class/different

classes issue. However, I do not think it is necessary for me to go into those in any detail.

They all apply carefully the test stated by Bowen LJ. in the Sovereign Life case, which test

has also been applied in this jurisdiction by Laffoy J. in the High Court in the case of Re

Millstream Recycling Ltd. [2010] 4 IR 253. The principles were very helpfully

summarised by Lord Millett in the Court of Final Appeal of Hong Kong in Re UDL Argos

Engineering Ltd. [2001] HKCFA 54. For present purposes, I think it is sufficient for me to

say that I approve of the observations of the Court of Appeal in England, in particular

those of Chadwick LJ. in Re BTR Plc [2000] 1 BCLC 740 and in Re Hawk Insurance

Company Ltd. [2001] 2 BCLC 480 as well as those of Laffoy J. in Millstream Recycling,

which all focus on the rights of the members or creditors concerned with a proposed

scheme of arrangement as being the crucial determining factor on the single

class/different classes issue. I am satisfied that they correctly represent the law in this

jurisdiction. I also believe that the helpful summary set out by Lord Millett in UDL Argos

27. It seems to me that two arguments might be put forward to support a contention that

different classes of members should have been found and that the meetings should have

proceeded by way of different classes. They have been addressed in the affidavits and in

the written submissions. They are, first, the argument that some of the sub funds may be

more valuable than others and, therefore, some of the participating shares may be more

valuable than others. That may well be the case, but, in my view, that difference in

economic value is not relevant for present purposes and does not require segregation of

the participating shareholders into different classes, so that it was not necessary on that

basis, in my view, to direct that there be a separate meeting for each sub fund. That is

because it is necessary to focus on the rights attaching to the shares rather than the

economic value of those rights. The schemes do not provide for any alterations to the

rights attaching to the participating shares. Nor do the schemes seek to alter the

economic value of any particular share. The schemes provide for similar treatment in

relation to all classes of participating shares. It is, in my view, irrelevant to the question

under consideration that the underlying economic value of the participating shares

referable to the sub-fund may be greater or lesser than that of the participating shares

referable to another sub-fund. So that is, I think, the first argument that might be made.

However, for the reasons mentioned, I do not believe that it was necessary to segregate

into different classes on the basis of the different sub-funds and any difference in

28. The second argument that might be made is that while most of the participating shares

are held through nominees, some a small minority of the registered shareholders are

also beneficial owners. But again it seems to me that that did not require segregation of

the members into separate classes when one considers, in accordance with the legal

principles and the cases which I have mentioned, that the focus must be on the legal

rights attaching to the relevant shares. In my view, the legal rights attaching to the

participating shares are not so dissimilar that the holders of those shares could not fairly

29. That is, I believe, sufficient to deal with the potential arguments that might be advanced

in support of separate classes of members. In my view, the order made by Haughton J.

directing the convening of meetings on the basis of a single class of members in the case

of each of the Companies was correct. Nobody has argued to the contrary. I am satisfied,

therefore, that the third of the criteria identified by Kelly J. in Colonia has been satisfied

30. The fourth criterion is that the court must be satisfied that there has been no coercion. As

was pointed out by me in Ballantyne, every scheme in a sense involves an element of

coercion. But I think what this criterion is focused on is the question of improper coercion

or pressure in the sense of being almost like the oppression of a minority interest in the

company (see Ballantyne, para 63). Nobody is suggesting that that is the case here and it

is quite clear on the evidence, in particular, on the affidavit evidence that I have

considered, that there is no question of improper coercion or pressure in this case by one

31. The fifth criterion is that the court must be satisfied that a reasonable, intelligent and

honest person could have reasonably supported the particular scheme. There are many

authorities on this aspect of the test and on the approach which the court should take in

considering whether this criterion has been satisfied. It is unnecessary, I think, to set out

all of those. It was perhaps most succinctly put by Kelly J, in the Depfa Bank case, where

"The scheme of arrangement must be such that an intelligent and honest man"

and I would change that to "person" ", member of the class concerned, acting in

"As I pointed out in Colonia, it is not the function of the court to act as a rubber

stamp. However, the court will be slow to differ from experienced persons in the

industry who are familiar with the subject matter of the scheme." (at para 12.)

32. That, I think, describes the approach that the court has to take. It was the approach that

I adopted in the Ballantyne case where I pointed out that it would be extremely rare for a

court to refuse to sanction a scheme where it has been approved by an overwhelming

majority, in particular, where the classes of members are correctly constituted and there

is no suggestion that the majority did not represent the views of the class. While that test

has been considered in many other cases, it is, I believe, unnecessary to discuss or

consider those cases. In my view, the test is concisely put in Depfa and I apply it here.

33. It is quite clear from the affidavits of Mr. Burke and Mr. McEnroe that the overwhelming

majority of members have supported these schemes. The schemes have been carefully

considered by the respective boards of the Companies and they have been recommended

by those boards. There are very good, sound and practical reasons for the objectives

being sought from the schemes. It is, in my view, a reasonable way of proceeding to

achieve those objectives. Finally, it seems to me on the evidence that the schemes are

fair and equitable and are such that a reasonable, intelligent and honest person acting in

respect of his or her own interests might reasonably approve of those schemes.

34. In this regard, I also note from the evidence that there will be no adverse effect for

employees or creditors. The Companies have no employees and there will be no adverse

35. In those circumstances, I will sanction the proposed schemes of arrangement in respect

of the two Companies under s. 453(2) of the 2014 Act and make the consequential orders

sought.

Result:The proposed schemes of arrangement were sanctioned by the court.

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