![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
England and Wales High Court (Chancery Division) Decisions |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd [2012] EWHC 2090 (Ch) (27 July 2012) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2012/2090.html Cite as: [2013] Bus LR 266, [2012] WLR(D) 243, [2012] EWHC 2090 (Ch) |
[New search] [View without highlighting] [Printable RTF version] [Buy ICLR report: [2013] Bus LR 266] [View ICLR summary: [2012] WLR(D) 243] [Help]
CHANCERY DIVISION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
ASSÉNAGON ASSET MANAGEMENT S.A. |
Claimant |
|
- and - |
||
IRISH BANK RESOLUTION CORPORATION LIMITED (FORMERLY ANGLO IRISH BANK CORPORATION LIMITED) |
Defendant |
____________________
Mr Robin Dicker Q.C. and Mr Tom Smith (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant
Hearing dates: 13,14,18 June and 17 July 2012
____________________
Crown Copyright ©
Mr Justice Briggs :
Introduction
The Facts
i) They were to mature in 2017, for redemption at par, unless redeemed earlier at the Bank's election (also at par) on any interest payment date after 19 June 2012.
ii) In the meantime they carried a floating rate of interest at 0.25% above three months Euribor until 2012 and 0.75% above three months Euribor thereafter.
iii) The Notes were subordinated, so as to be prioritised for payment in an insolvency after all secured and unsecured creditors (including the Bank's depositors) and ahead only of equity shareholders. They were wholly unsecured.
"Neither the Issuer nor any Subsidiary shall be entitled to vote at any meeting in respect of Notes beneficially held by it or for its account."
"(a) Power to sanction any compromise or arrangement proposed to be made between the Issuer and the Noteholders…. .
(b) Power to sanction any abrogation, modification, compromise or arrangement in respect of the rights of the Noteholders… against the Issuer or against any of its property whether such rights shall arise under these presents or otherwise.
(c) Power to assent to any modification of the provisions contained in these presents which shall be proposed by the Issuer or the Trustee."
"The principle of appropriate burden sharing by holders of subordinated debt, however, is one with which I agree. As can be seen from the figures outlined above, the losses in the bank are substantial and it is right that the holders of Anglo's subordinated debt should share the costs which have arisen.
In keeping with this approach, my Department in conjunction with the Attorney General is working on resolution and re-organisation legislation, which will enable the implementation re-organisation measures specific to Anglo Irish Bank and Irish Nationwide Building Society which will address the issue of burden-sharing by subordinated bondholders. The legislation will be consistent with the requirements for the measures to be recognised as a re-organisation under the relevant EU Directive in other EU Member States.
I expect the subordinated debt holders to make a significant contribution towards meeting the costs of Anglo."
The 2010 Exchange Offer
i) The Announcementii) The Exchange Offer Memorandum
iii) A Notice of a Noteholders' meeting in respect of the 2017 Notes
"In connection with the Exchange Offers, the Bank is also convening (at the times specified in the…Memorandum) separate meetings inviting the Holders of each Series of Existing Notes (a definition which included the 2017 Notes) to approve, by separate Extraordinary Resolution in respect of each Series, proposed amendments to the terms and conditions of each Series including giving the Bank the right to redeem all, but not some only, of the Existing Notes of each Series at an amount equal to €0.01 per €1000 in principal amount of Existing Notes at any time after the relevant Settlement Date…
The Bank will announce its decision whether to accept valid offers of Existing Notes for exchange pursuant to each Exchange Offer together with the final aggregate principal amount of the Existing Notes of each Series accepted for exchange and the aggregate principal amount of the New Notes to be issued as soon as reasonably practical after the Expiration Deadline applicable to the relevant Series. Each Exchange Offer begins on 21 October 2010 and will expire at (i) 4.00 p.m. London time on 19 November 2010 in respect of the 2017 Notes…unless extended, re-opened or terminated as provided in the ... Memorandum. The expected Settlement Date for the Exchange Offers is (i) 24 November 2010 in respect of the 2017 Notes Exchange Offer…"
Under the heading Accrued Interest the Bank undertook to pay interest due on the Existing Notes up and until the Settlement Date.
"Commencement of Exchange Offers,
Notice of Meeting 21 October 2010
2017 Notes Expiration Deadline 4 pm 19 November 2010
2017 Notes Results Announcement
(namely whether the Bank intended to accept
the offers, and the amount of 2017 Notes
accepted for Exchange) 22 November 2010
2017 Notes Meeting 10am 23 November 2010
Announcement Results of 2017 Notes Meeting 23 November 2010
2017 Notes Settlement Date 24 November 2010"
That timetable was followed by a warning that it was subject to the right of the Bank to extend, re-open, amend and/or terminate each Exchange Offer.
"By offering to exchange its Existing Notes, a holder will be deemed to have given instructions for the appointment of the exchange and tabulation agent (or its agent) as its proxy to vote in favour of the relevant Extraordinary Resolution in respect of all Existing Notes of the relevant series offered for exchange by such holder and which are accepted by the Bank at the…2017 Notes Meeting…
It will not be possible for Holders of a Series of Existing Notes to validly offer to exchange Existing Notes pursuant to the Exchange Offer without at the same time appointing the Exchange Tabulation Agent (or its agent) as their proxy to vote in favour of the Extraordinary Resolution in respect of the relevant Series as described above. If a Holder does not offer to exchange its Existing Notes, or if its offer to exchange Existing Notes is not accepted by the Bank, such Holder may (subject to meeting certain deadlines for making such arrangements – see 'Risk Factors and other Considerations – Deadlines for making arrangements to vote at Meetings if Exchange Instruction is rejected') separately arrange to be represented, and vote such Holder's Existing Notes, at the relevant Meetings."
"If an Extraordinary Resolution is passed in respect of any Series of Existing Notes and the approved amendments are implemented by the Bank by way of publication (expected to be part of the announcement confirming the results of the relevant Meeting) of amendments to the Final Terms of the relevant Series, the amendments shall be binding on all Holders of Existing Notes of such Series, whether or not those Holders attended or were otherwise represented at the relevant Meeting and/or voted in favour of the relevant Proposal.
(heavy type) If the Bank chooses to exercise such call right (which the Bank currently intends to do shortly after the relevant Settlement Date, although the Bank is under no obligation to do so), the redemption amounts payable to a Holder of Existing Notes (being €0.01 per €1000 in principle amount of Existing Notes) will be significantly less than the principal amount of the New Notes such Holder would have received had such Existing Notes been exchanged pursuant to the relevant Exchange Offer.
The Risk Factors statement continued with a reference to the burden sharing legislation then proposed by the Irish government, including the passage from the ministerial statement of 30 September 2010, which I have quoted above.
"If a Holder's offer to exchange Existing Notes is not accepted by the Bank at the relevant Expiration Deadline and such Holder nevertheless wishes to vote at the….2017 Notes Meeting…, such Holder must either validly request a voting certificate, or otherwise appoint the Exchange Tabulation and Agent (or its agent) as its proxy to vote in favour of or against the relevant Extraordinary Resolution at the relevant Meeting…, such request to be submitted to the Exchange and Tabulation Agent through the Clearing Systems. Holders must request a voting certificate or appoint the Exchange and Tabulation Agent (or its agent) as proxy not later than 48 hours before the relevant Meeting. (heavy type) The indicative timetable for the Exchange Offers is such that, if a Holder's offer to exchange Existing Notes is rejected at or after the relevant Expiration Deadline, such Holder may not have the opportunity – or may have a very limited period of time in which – to make separate voting arrangements in respect of the relevant Meeting, and accordingly may not be able to vote at the relevant Meeting."
When it is borne in mind that the timetable set out both in the Announcement and the Memorandum contemplated that the Bank would announce its decision whether, and how far, to accept Exchange Offers only one day before the 2017 Notes Meeting, that last warning was, if anything, an understatement.
The Claimant's Case
(1) The Resolution constituted, in substance, the conferral of a power on the Bank to expropriate the 2017 Notes for no more than a nominal consideration. It was therefore ultra vires the power of the majority under paragraph 18 of Schedule 3 to the Trust Deed.
(2) At the time of the Noteholders' meeting on 23 November, all those noteholders whose votes were counted in support of the Resolution held their Notes beneficially, or for the account of, the Bank. Accordingly, all those votes are to be disregarded pursuant to paragraph 13 of Schedule 3 to the Trust Deed.
(3) Even if ultra vires, the Resolution constituted an abuse of the power of the voting majority because:
(i) It conferred no conceivable benefit or advantage upon the 2017 Noteholders as a class; and,
(ii) It affected, and could by then only have affected, the Notes of that minority which had not coupled an offer of their Notes for exchange with a commitment to vote in favour of the resolution. Accordingly it was both oppressive and unfair as against that minority.
"It must be plain, that you can neither exercise a power of this description by dissolving the partnership, nor do any other act for purposes contrary to the plain general meaning of the deed, which must be this – that this power is inserted, not for the benefit of any particular parties holding two-third of the shares, but for the benefit of the whole society and partnership…"
"To give a power to modify the terms on which debentures in a company are secured is not uncommon in practice. The business interests of the company may render such a power expedient, even in the interests of the class of debenture holders as a whole. The provision is usually made in the form of a power, conferred by the instrument constituting the debenture security, upon the majority of the class of holders. It often enables them to modify, by resolution properly passed, the security itself. The provision of such a power to a majority bears some analogy to such a power as that conferred by s.13 of the English Companies Act of 1908, which enables a majority of the shareholders by special resolution to alter the articles of association. There is, however, a restriction on such powers, when conferred on a majority of a special class in order to enable that majority to bind a minority. They must be exercised subject to a general principle, which is applicable to all authorities conferred on majorities of classes enabling them to bind minorities; namely, that the power given must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only. Subject to this, the power may be unrestricted."
"Wide, however, as the language of s.50 is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied, and are seldom, if ever, expressed."
In the same case Vaughan Williams LJ said, at page 676:
"I also take it to be clear that the alteration must be made in good faith; and I take it that an alteration in the articles which involved oppression of one shareholder would not be made in good faith."
"91. The starting point is that the facility agreement is a commercial contract between a large multitude of lending bankers and their borrowers. It governs not just the lenders' relationship with the borrowers, but also the relationship between the lenders themselves. The contract has been carefully and professionally drawn and cl.25 devotes itself to setting out the contractual basis on which its terms may be varied as between the lenders and borrowers. Save for the various entrenched provisions, which require unanimous consent before they can be altered, the lenders have, by their contract, empowered a two-thirds majority in value to consent to changes in the facility agreement, being changes which are capable of affecting and binding all of them. Clause 25 also empowered the majority lenders to agree to waivers under the agreement. The modified waiver letter is the fruit of the exercise of those powers.
92. The claimants' case is that that power is subject to the general principle of law relating to the manner in which a majority can bind a minority, namely that the power must be exercised bona fide for the benefit of the lenders as a whole. If so, it can only be on the basis that a principle to that effect is an implied term of the facility agreement. On ordinary principles, terms will only be implied into contracts if, as a matter of necessity, they are required for business efficacy purposes (The Moorcock (1889) 14 PD 64 [1886-90] All ER Rep 530), or if it is a matter of obvious inference that they were intended to apply to the contract (Shirlaw v Southern Foundries (1926) Ltd [1939] 2 All ER 113 at 124, [1939] 2 KB 206 at 227 per MacKinnon LJ), of if they are necessary to give effect to the reasonable expectations of the parties (Equitable Life Assurance Society v Hyman [2003] 3 All ER 961 at 971, [2002] 1 AC 408 at 459 per Lord Steyn). In the present case, if the suggested term is to be regarded as implied into the facility agreement, it would appear to me that it could only be on either the second or third basis."
"The main question, however, is, whether the resolution is one by which it was competent for a majority of debenture holders to bind a dissentient minority. This must depend upon the true construction of the 22nd clause of the deed of the 10th of March 1888; and, in order to arrive at that construction, attention must be paid, not only to the language of the clause, but to the objects to attain which the clause itself was inserted.
Powers given to majorities to bind minorities are always liable to abuse; and, whilst full effect ought to be given to them in cases clearly falling within them, ambiguities of language ought not be taken advantage of to strengthen them and make them applicable to cases not included in those which they were apparently intended to meet. To take the language of the clause – "the power to release the mortgaged premises" does not include a power to release the Defendant company. The power to modify the rights of the debenture holders against the company does not include a power to relinquish all their rights. A power to compromise their rights presupposes some dispute about them or difficulties in enforcing them, and does not include a power to exchange their debentures for shares in another company, where there is no such dispute or difficulty. It is a mistake to suppose that a power to compromise a claim for money becomes a power to accept less than 20s. in the pound, if the debt is undisputed and the debtor can pay. A power to compromise does not include a power to make presents. "
Ultra vires
"Reduction or cancellation of the principal payable on the Notes…or the minimum rate of interest payable thereon."
The whole of paragraph 5 of Schedule 3 assumes that the special quorum regime applies to particular types of Extraordinary Resolution for which the authority must lie in paragraph 18. Paragraph 5 confers no wider powers, but simply imposes an additional quorum. It follows in my judgment that, taking the provisions of the Trust Deed as a whole, the Noteholders must be taken to have assented to the exercise of a power in the majority to bind the minority both to a cancellation of the principal payable on the Notes and to a cancellation of the minimum interest payable thereon. That would, again, be tantamount to forfeiture, confiscation or expropriation of the rights conferred by the Notes, which conferred nothing of benefit on the Noteholders other than re-payment of principal and payment of interest.
Disenfranchisement under paragraph 13 of Schedule 3
(i) because by then the votes of those Noteholders were held at the direction and to the order of the Bank; and,
(ii) because in any event the existence of the contract for the sale of those Notes to the Bank in return for New Notes meant that the Bank had by then become the beneficial owner of those Notes, so that they were beneficially held for the Bank, or for its account.
"The evident purpose of the restriction on the voting of treasury securities is to afford protection against the issuer voting as a bondholder in favour of modifications that would benefit it as an issuer, even though such changes would be detrimental to bondholders. But the linking of the exchange offer and the consent solicitation does not involve the risk that bondholder interests will be affected by a vote involving anyone with a financial interest in the subject of the vote other than a bondholder's interest. That the consent is to be given concurrently with the transfer of the bond to the issuer does not in any sense create the kind of conflict of interest that the indenture's prohibition on voting treasury securities contemplates. Not only will the proposed consents be granted or withheld only by those with a financial interest to maximize the return on their investment in Oak's bond, but the incentive to consent is equally available to all members of each class of bondholders. Thus the "vote" implied by the consent solicitation is not affected in any sense by those with a financial conflict of interest."
Abuse of Power
"Certain things, I think, can be safely stated as emerging from those authorities. In the first place, it is now plain that "bona fide for the benefit of the company as a whole" means not two things but one thing. It means that the shareholder must proceed on what, in his honest opinion, is for the benefit of the company as a whole. Secondly, the phrase, "the company as a whole," does not (at any rate in such a case as the present) mean the company as a commercial entity as distinct from the corporators. It means the corporators as a general body. That is to say, you may take the case of an individual hypothetical member and ask whether what is proposed is, in the honest opinion of those who voted in its favour, for that person's benefit. I think the thing can, in practice, be more accurately and precisely stated by looking at the converse and by saying that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders so as to give to the former an advantage of which the latter were deprived. When the cases are examined where the resolution has been successfully attacked, it is on that ground that it has fallen down. It is, therefore, not necessary to require that persons voting for a special resolution should, so to speak, dissociate themselves altogether from the prospect of personal benefit and consider whether the proposal is for the benefit of the company as a going concern. If, as commonly happens, an outside person makes an offer to buy all the shares, prima facie, if the corporators think it is a fair offer and vote in favour of the resolution, it is no ground for impeaching the resolution because they are considering the position of themselves as individual persons."
i) The consent payments amounted to a repudiatory breach of the terms of the notes;ii) Payments to some only of the noteholders, outside the terms of the resolutions proposed, were unlawful; and,
iii) The payments were in the nature of a bribe, and a fraud on those noteholders who were not paid.
It was not suggested that the proposed resolutions themselves were in any way unfair or oppressive; see para 68. It is the third of the claimant's grounds for challenge that is relevant for present purposes.
Conclusions