Re Depfa Bank plc [2007] IEHC 463 (2 October 2007)


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High Court of Ireland Decisions
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URL: http://www.bailii.org/ie/cases/IEHC/2007/H463.html
Cite as: [2007] IEHC 463

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    Neutral Citation No: [2007] IEHC 463

    THE HIGH COURT
    COMMERCIAL
    2007 No. 382 COS

    2007 No. 105 COM

    IN THE MATTER OF DEPFA BANK PLC
    AND IN THE MATTER OF THE COMPANIES ACTS, 1963 TO 2006
    ON THE APPLICATION OF DEPFA BANK PLC
    Note of ex tempore judgment delivered by Mr. Justice Kelly on 2nd October, 2007
  1. In the case of Re Colonia Insurance (Ireland) Limited [2005] 1 IR 497, I had to adjudicate for the first time on a scheme of arrangement in respect of a solvent company. In that case I considered and followed a number of English authorities, in particular the decision in Re Osiris Insurance Limited [1999] 1 B.C.L.C. 182 and Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385.

  2. I considered that I had jurisdiction to approve a scheme of arrangement in respect of a solvent company. I set forth the conditions which have to be fulfilled in an application of that kind, namely:-

    3. (i) the court must be satisfied that sufficient steps have been taken to identify and notify all interested parties;
    (ii) the court must be satisfied that the statutory requirements and all directions of the court have been complied with;
    (iii) the court must be satisfied that the classes of creditors were properly constituted;
    (iv) the issue of coercion must not arise; and
    (v) the scheme of arrangement must be such that an intelligent and honest man, a member of the class concerned, acting in respect of his interest might reasonably approve of it.
  3. The scheme under consideration in the Colonia case was substantially different from that under consideration in the present case. The Colonia case concerned a non-life insurance company that had ceased to write new policies. The scheme of arrangement involved the run off of liabilities of the insurance company where a mechanism had to be put in place to shorten the time for quantifying and paying off liabilities that were considered likely to arise on foot of the policies written by the company.

  4. What I have to consider here can be described in a single sentence – namely that Hypo Real Estate Holdings A.G. (Hypo) proposes to acquire by scheme of arrangement all of the issued share capital in Depfa Bank Plc in payment of a consideration to the shareholders of that bank which is to be made partly in cash and partly in shares in Hypo. While the position can be stated simply, it is clear that the proposed transaction is a great deal more complicated as evidenced by the volume of paper generated in dealing with the large number of regulatory matters to be addressed.

  5. I now turn to each of the five conditions identified in the Colonia case.

  6. As regards the first condition, I have to be satisfied that sufficient steps were taken to identify and notify all relevant parties. There is an abundance of evidence to satisfy me that this condition has been met.

  7. Insofar as the second condition is concerned, these proceedings have been the subject of two orders. I made an order on 30th July, 2007, setting out a series of directions and more recently the vacation judge gave further directions on 25th September, 2007. I am satisfied from the evidence before me that the directions of the court have been complied with. I am also satisfied that all of the statutory requirements have been met. These are not only the requirements of the Companies Acts but also European law requirements (including competition law and the requirements of the regulators, both here and in Germany). I have been provided with evidence that the Financial Regulator here and its equivalent in Germany are not objecting to the scheme. Furthermore, insofar as mergers and competition law are concerned, evidence has been placed before the court which demonstrates that any concern that might arise in that regard has been met. The relevant consent from the EU Commission has been exhibited.

  8. The third condition relates to the constitution of classes of members. In this case, the view was taken that the members comprised a single class. I believe that this is correct, subject only to considering whether the directors (who also beneficially own shares) might have been regarded as a separate class. The directors in question gave undertakings to vote in favour of the scheme.

  9. I am satisfied that the decision to have a single meeting of a single class of members was correct. The giving of undertakings does not constitute the directors as a separate class. The reason for this is identified in Buckley on The Companies Acts (15th Edition, LexisNexis Butterworths, loose leaf issue 12, November, 2006) at para. 425.49A, where it is stated:

    10. "A company may enter into voting agreements with some of the members of a class, whereby those members bind themselves to vote in favour of the scheme. Such agreements can save the loss of time and expenditure which would otherwise arise where members of that class have expressed support for the scheme and subsequently changed their minds. Guidance on the execution of such an agreement in connection with a scheme of arrangement was given in Re Telewest Communications plc (No. 1) [2004] EWHC 924 (Ch). Such an agreement is not open to objection if the member in question would not reasonably have voted differently in the absence of such an agreement, as, for example, where he can withdraw from the agreement in the event that reasonable grounds exist for a change of mind. The existence of such an agreement does not make the member signing it a separate class for the purpose of section 425(1) save where in consideration of entering into the agreement, a party obtains benefits not available to other members of the class. The existence of such an agreement is, however, relevant to the exercise of the discretion to sanction the scheme."
  10. I am satisfied that the same reasoning applies here. The only basis upon which there would be a need to call a separate meeting is where a party obtained a benefit not available to other members of the class in consideration of the undertaking. That clearly does not arise here. I am, therefore, of the view that the decision not to regard the directors as a separate class was correct. That means that, insofar as the third condition is concerned, the class has been properly constituted.

  11. No issue of coercion arises and so I can proceed to a consideration of the fifth condition.

  12. Finally, as I have indicated, the scheme of arrangement must be such that an intelligent and honest man, a member of the class concerned acting in respect of his interest, might reasonably approve of it. 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. In the present case, it is clear from the evidence that such people in the business regard the proposed scheme as a good one. I am, therefore, satisfied that the fifth condition has been met.

  13. There is one other matter which has been very properly brought to my attention. It relates to proceedings which have been instituted in Germany by a shareholder in Hypo. I have been given an opinion dated yesterday from German lawyers. I believe it is fair to characterise the proceedings in Germany as being brought late in the day. They have not been served. No application has been brought for interlocutory relief and, I am advised that as a matter of German law, it is too late now to seek an injunction. It is also clear from the German opinion that while the German lawyers take the view that the claim is legally admissible, it nonetheless has no merit. They say such a claim is "very unlikely" to succeed. Even in the event that the claim were to succeed, the German lawyers take the view that it will not affect the validity of the transaction. While I know very little about those proceedings, one would expect that if the claim had any merits, it would have been brought timeously and that an appropriate order would have been sought to restrain the transaction going ahead.

  14. There is one other matter to be considered. Both Hypo and Morgan Stanley Bank A.G. (who will act as trustee), have given undertakings to the court to be bound by the scheme. There is, therefore, no room for any second thoughts on the matter. The undertaking is as binding as an order made by the court. Accordingly, no issue can arise during the 14-day period between the making of the orders and the implementation of the scheme.

  15. I therefore approve the form of minute and the form of draft order which has been put before the court and I make orders in accordance therewith.

    16. Approved: Kelly J.

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URL: http://www.bailii.org/ie/cases/IEHC/2007/H463.html