BREXIT COMMERCIAL DRIVER BEHIND SCHEME OF ARRANGEMENT

Euroclear, one of the world’s largest securities depositories, confirmed earlier this year its plan to move its holding company from the UK to Belgium in preparation for the UK's exit from the EU.  The High Court has now sanctioned a scheme of arrangement transferring all shares in the English clearing services company to Euroclear Holdings SA, a Belgian company, in order to put that plan into effect: In the matter of Euroclear Plc [2018] 11 WLUK 273

A scheme of arrangement is a statutory, court-sanctioned procedure under Part 26 of the Companies Act 2006, which enables a company to make a compromise or arrangement with its members or creditors (or any class of them). A proposed scheme requires the approval at a court-convened meeting of a majority in number representing 75% in value of the members or creditors (or a class of them) present and voting, either in person or by proxy (section 899, Companies Act 2006). The court’s function is not to pass judgment on the commercial merits of the scheme, but to consider its fairness.  Once the court sanctions a scheme, it becomes binding on all affected members or creditors, including dissenters.

In this case the statutory requirements were met.  The scheme was unanimously recommended by the company's directors.  A single meeting of shareholders had been convened which was attended by 54% of shareholders, holding 81% of the shares, at the meeting and the majority had voted in favour of the scheme: 99% by value, and 95% by member number.

The commercial driver behind Euroclear's scheme was to maintain a favourable and stable operating environment in light of the existing Brexit turmoil.   Euroclear's rationale was that a Belgian company would be in a better position to achieve the aim of harmonisation in European financial markets, and aligning its incorporation with its principle places of business in the EU.   The High Court considered this objective coherent, clearly communicated and that an intelligent, honest shareholder would reasonably approve of the scheme.

As the clock ticks down to 29 March 2019, this case is demonstrative of the concrete steps that are actually being taken by businesses in order to respond to Brexit-related risk.  It will also reassure those conducting a business restructuring that the Court is willing recognise Brexit as a fair rationale for such an exercise.

On the impact of Brexit on UK schemes of arrangement more generally, the chief means by which UK schemes might currently be recognised in EU jurisdictions are: (i) pursuant to the recast Brussels regulation regarding jurisdiction and reciprocal enforcement of judgments; and/or at least in relation to schemes compromising English law governed finance documents (ii) pursuant to the Rome I regulation governing choice of law in contracts.  Discussion of the impact of Brexit on the recast Brussels regulation and the Rome I regulation can be found in our Brexit Legal Guide, with regular updates on this blog and our Litigation blog.