Schemes of Arrangement
Schemes of Arrangement
Section 449 is new and contains a comprehensive list of the defined terms for the purposes of this Part. Many of the defined terms in this section are concepts recognisable under company law prior to the introduction of the Act and others are newly created terms.
This section defines a number of terms for the purposes of this Part.
“Debenture trustees” is defined in place of “trustee for debenture holders” as meaning the trustees of a deed securing the issue of debentures by the company;
“Scheme circular” means the circular that shall be sent with every notice convening or summoning the meeting which is sent to a creditor or member of the company concerned. This is in place of the term “statement” under the pre-existing law.
“Scheme order” means an order of the court sanctioning a compromise or arrangement referred to in section 450.
“Special majority” means a majority in number representing at least 75 per cent in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting either in person or by proxy at the scheme meeting.
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Subsection (2) clarifies that references in this Chapter to a compromise or arrangement between a company and its creditors (or any class of them) or members (or any class of them) will include a reference to a compromise or arrangement between a company and its creditors (or any class of them) and members (or any class of them).
Section 450 deals with the convening of scheme meetings by directors and the power of the court to summon such meetings. It is drawn in part from section 201(1) of the Companies Act 1963 and changes have been introduced so that court approval is no longer required to convene scheme meetings of members or creditors, where the proposed meetings are convened by the directors of the company. Prior to the introduction of the Companies Act 2014, the court would not give pre-approval at this meeting – the court reserved its discretion for the third court hearing to disapprove a scheme. Therefore, it was not considered appropriate to retain the courts involvement at this stage. This amendment removed one of the two sets of legal proceedings as well as one of the court hearings. However, subsection (3) retains the court involvement where the directors have not convened the scheme meeting and the court is given discretion to order scheme meetings to be summoned. The subsection provides that the court may, on application and at any time, order a scheme of meetings of the creditors or members to be summoned in such a manner as the court directs.
Section 451 provides that, in circumstances where one or more scheme meetings is convened or where an application is made for an order that a scheme meeting be convened, the court may order a stay on all proceedings or restrain further proceedings against the company as it sees fit. Such an order can be granted on application of the company, the directors, any creditor or member of the company or the liquidator of the company (if it is being wound up). This section re-enacts section 201(2) of the Companies Act 1963.
Section 452 details the information which must be sent to members and creditors of the company where a scheme meeting has been convened. This section is drawn from section 202 of the Companies Act 1963. Amendments have been made in accordance with the recommendations of the Company Law Review Group in its First Report. References to “a meeting of creditors or any class of creditors or members or any class of members” has been replaced by a reference to “a scheme meeting”. The word “statement” is replaced by “scheme circular” where necessary and “debenture trustee” replaces “trustee for debenture holders of the company”. Subsection (7) is new and includes shadow directors and de facto directors as directors for the purpose of this section.
Section 453 explains the circumstances in which the compromise or arrangement becomes binding on the creditors or members concerned. This derives from section 201 of the Companies Act 1963 and section 23(5) of the Companies (Amendment) Act 1990.
Subsection 2(a) is an amended expression of the requirement for the resolution to be passed by “…a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, vote in favour of a resolution agreeing to any compromise or arrangement…”. The new wording is simpler and no change is effected in substance.
Subsection 2(b) has been newly inserted in accordance with the views of the CLRG in its First Report. It was recommended that the second court hearing, namely to advertise the passing of the scheme
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resolution and presentation of the scheme petition to the participants in the scheme, should be removed in most cases. This requirement to advertise is now satisfied by advertising in two daily newspapers circulated in the district where the registered office or principal place of business is located. The CLRG further noted that as the participants in the scheme will have been notified of the scheme meetings, there ought to be no requirement to re-notify them of the passing of the scheme resolutions.
Section 454 expands on section 453 above. Subsections (1) and (2) are taken from section 201(5) of the Companies Act 1963 which deals with the requirement to deliver a copy of the scheme order to the Registrar and the requirement to attach a copy of the scheme order to the constitution of the company. The requirement for the company to deliver a copy of the scheme order to the Registrar must now be effected within 21 days after the making of the order. Subsection (3) provides a category 3 offence for failure to comply with the preceding subsections.
Section 455 aims to facilitate the reconstruction and amalgamation of companies. It allows the court to make provision for a number of matters, listed at subsection (2), where an application has been made to the court for the sanctioning of a compromise or arrangement. It derives from section 203 of the Companies Act 1963 with the phrase “proposed between a company and any person mentioned in that section” (referring to a compromise or arrangement proposed under section 201 CA 1963) being deleted. In addition, references to the “transferor company” and “transferee company” have been replaced by references to the “old company” and “new company” respectively. Section 203(5) CA 1963 has been deleted as it is no longer relevant.
Chapter 2
Acquisitions
Section 456 contains definitions for the purposes of this Part. Many of the defined terms in this section are concepts recognisable under company law as it stood prior to the introduction of the Act. There are also some newly created terms.
Section 457 gives a right to buy out shareholders who dissent from a scheme, contract or offer approved by the majority and also lays down the right of those shareholders to be bought out. It is taken from section 204 of the Companies Act 1963 and amendments have been introduced in line with the recommendations of the Company Law Review Group in its First Report. The CLRG noted the complexity of descriptions applying to the entities involved in acquisitions and takeovers. In section 204 CA 1963 they are referred to as “transferor” and “transferee”. In view of the use of these terms by the Takeover Bids Directive (2004/25/EC), the Irish Takeover Panel Act 1997 and the Rules under that Act, the CLRG recommended that “offeree” and “offeror” replace “transferor” and “transferee” respectively. Furthermore, the scope of these terms has also been amended in accordance with the recommendation of the CLRG. It was recommended that an offeror (previously a transferee), which must be a company under section 204 CA 1963 to obtain rights, should be capable of being an individual. Hence, all references to an offeror include persons and companies, whereas references to an offeree apply to companies only. For this reason references are to “offerors” and “offeree companies”.
This overall purpose of this section is to enable the acquisition by an offeror of all the shares of an offeree (i.e. target) company, where the offeror has obtained acceptances of its offer in respect of 80% or more of the shares of the offeree company (or where the offeror and/or its subsidiaries already own shares in the target company, 80% of the shares in the target company not owned by the offeror). Additional requirements are laid down in section 458 of the Act which are discussed below.
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Subsection (2) is derived from the first part of section 204(4) CA 1963. The structure of the section has been changed as this subsection sets out the conditions which must be met for the rest of the section to apply. The reference to “four fifths in value of the shares” has been replaced by “80% in value of the shares”. Accordingly, the section will apply where the scheme, contract or offer has been accepted in respect of 80 per cent or more in value of the relevant shares and where such acceptance has occurred within 4 months after the date of publication of the scheme, offer or contract to the holders of the shares affected.
Subsections (3) and (4) are taken from section 204(1) and (2) CA 1963. They set out the conditions necessary for the offeror company to acquire the beneficial ownership of the remaining shares on the same terms as those earlier acquired shares or, in cases where an application is made under section 459(4)(a), on any different terms that the court specifies. An application under section 459(4)(a) is one where a dissenting shareholder may apply to the court for an order permitting him or her to retain his or her shares or varying the terms of the scheme, contract or offer as they apply to that shareholder.
In order to acquire the shares of a dissenting shareholder, the offeror must, within 6 months of the publication of the terms of the scheme, contract or offer, give notice in the prescribed form to the dissenting shareholder that the offeror wishes to acquire beneficial ownership of that shareholder’s shares. The notice referred to in this subsection 4(a) has been renamed the “call notice” for ease of reference throughout this Part. Subsection 4(b) makes no substantive change to the law. In the absence of the dissenting shareholders making an application to the court within the specified 30 day period or where the dissenting shareholders make such application and the court approves the acquisition, the offeror company acquires the shares.
Subsection (5) deals with a situation where the terms of the scheme, contract or offer, allow the shareholder to choose between 2 or more sets of terms for the acquisition by the offeror of the beneficial ownership of the shares. In such cases, the call notice must include or be accompanied by a statement of the alternative sets of terms and must specify which of those sets of terms will apply to the dissenting shareholder where he or she does not choose one of those sets of terms (by way of a written notice to the offeror) within 14 days of the giving of the notice. This section re-enacts section 204(10) CA 1963 with the term “notice” being replaced by “call notice”.
Subsection (6) requires an offeror, within 30 days of a scheme, contract or offer becoming binding, to give notice of that fact to each of the dissenting shareholders. In a situation where the offeror has already given a call notice to the particular dissenting shareholder, the offeror is absolved from this requirement. This derives from section 204(4) CA 1963. The style of the subsection has been changed and the term “information notice” has been introduced for ease of reference. Otherwise, no substantive changes have been made.
Under subsection (7), the offeror is bound to acquire the beneficial ownership of the remaining shares where that offeror becomes entitled to acquire the shares under subsection (3) or where the dissenting shareholder, within 3 months of receiving the information notice, requires the offeror to acquire his or her shares. This also derives from section 204(4) CA 1963.
Subsection (8) is newly inserted and requires that payment of cash consideration by way of cheque must be by way of cheque drawn on an Irish clearing bank.
Section 458, which should be read in conjunction with section 457, lays down an additional requirement for the right to buy out to apply, but only in circumstances where an offeror wishes to serve a call notice or to acquire the shares of a dissenting shareholder. The additional requirement in this section does not have to be satisfied where a dissenting shareholder wishes to be bought out.
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This section is taken from section 204(2) and (3) of the Companies Act 1963. It applies where shares in the offeree company are already in the beneficial ownership of the offeror. The value of the beneficial ownership of the shares must be greater than 20 per cent of the aggregate value of those shares and the shares affected. Where this is the case, the assenting shareholders must hold not less than 80 per cent in value of the shares affected and must be not less than 50 per cent in number of the holders of those shares. Prior to the Act, the requirement was that the assenting shareholder must be not less than 75 per cent in number of the holders of those shares.
Section 459 contains provisions supplemental to sections 457 and 458 including provision for applications to the court.
Subsections (1) to (4) are new. They import Article 7 of the Companies (Forms) Order, S.I. No. 45 of 1964, which stipulates how notices under these sections are to be served.
Provision is made for electronic communications. The actual form of the notices will continue to be prescribed by the Statutory Instrument. The notices necessitated by section 204 of the Companies Act 1963 are now referred to as “call notice” and “information notice” in accordance with this Part. The requirement for directors to sign the call notice is now expressly stated in subsection (3). Any references to a “share warrant to bearer” have been omitted as share warrants no longer apply in the case of private companies.
Subsection (4)(c) recognises the situation where it is not lawful to post the call notice or information notice into jurisdictions outside the State whose laws regulate the communication of notices in their own jurisdiction (in practice meaning Australia and the U.S.). In such circumstances notice is effected through the Iris Oifigiúil.
Subsection (5) is also new. Where a call notice has been issued, the dissenting shareholder may apply to the court to retain his or her shares or to vary the terms of the scheme, contract or offer as they apply to that shareholder. The dissenting shareholder may also apply to court for an order varying the terms of the scheme, contract or offer in cases where the offeror is bound to acquire the shares by virtue of section 457(7(a)).
Subsection (6) is taken from section 204(5) CA 1963 and has been split up into separate paragraphs to enhance clarity. The original time limit of 30 days is maintained which brings the provision in line with the law prior to the Act. The requirement on the offeror to deliver to the offeree company a list of persons served with any call notice or information notice and the number of affected shares held by them has been added in accordance with the recommendations of the CLRG.
Subsection (7) is a new subsection but is drawn in part from section 204 CA 1963. Subsection (7)(a) imposes a requirement on the offeree company to effect registration of shares in the name of the offeror. Subsection (7)(b) comes from section 204(6) CA 1963 and the wording has been amended slightly in order to integrate it into this subsection. The time period for holding such money or other consideration on trust has been increased from 6 to 7 years.
Subsection (7)(c) is new and has been inserted in accordance with the recommendation of the CLRG that unclaimed consideration in respect of shares compulsorily acquired should be held for 7 years at the longest and then given to the Minister for Public Expenditure and Reform who should indemnify the company against any future claims.
Subsection (7)(d) derives from section 204(7) CA 1963 and deals with the situation where shares in the offeror are issued instead of money to the offeree company to hold in trust for the dissenting shareholders. This subsection prevents the offeree company from exercising the voting rights in relation to those shares except on the instructions of the shareholders who are entitled to the shares.
Subsection (8) re-enacts section 204(9) CA 1963. Where a scheme, contract or offer becomes binding on a shareholder in respect of only part of the shares held by him or her, he or she shall be treated as an assenting shareholder only as regards that part of the shares and will be a dissenting shareholder for the remainder of his or her shareholding.
Section 460 is new and contains provisions to clarify the application of this Chapter. Subsection (1) is drawn from section 204(11) of the Companies Act 1963 and brings within the terms of the section offers for a certain class, or classes, of shares only. Subsection (2) is taken from section 204(3) CA 1963. It provides that shares in the offeree company that are in the beneficial ownership of a subsidiary of the offeror will be regarded as being in the beneficial ownership of the offeror. It also makes it clear that a subsidiary of the offeror may acquire shares in the offeree company and this shall be deemed to be the acquisition of the beneficial ownership of those shares by the offeror.
Subsection (3) is new. Inserted in accordance with the recommendation of the CLRG, it reverses the effect of the Supreme Court decision in Tempany -v- Hynes [1976] I.R. 101, which, in practice, has impeded the operation of section 204 CA 1963. The effect of this judgment is to suggest that where the entire purchase money for an asset agreed to be acquired has not been paid, the unpaid seller retains a beneficial interest in the asset, as opposed to a non-possessory lien, which had been the situation prior to that judgment. This subsection now provides that the person who agrees to acquire the shares is deemed to acquire the beneficial interest in those shares.
Subsection (4) further clarifies the position in respect of shares being treated as not being in the beneficial ownership of the offeror.