Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd

A majority power to bind minority security holders must be exercised for the benefit of the class as a whole. It cannot be used coercively to expropriate dissenting holders’ rights for nominal consideration. An exit consent linked to an exchange offer is unlawful where its essential purpose is to intimidate holders into accepting the exchange by threatening destruction of their existing rights. An specifically enforceable securities exchange contract may confer a beneficial interest before completion, engaging a voting prohibition directed to securities held for the issuer’s benefit.

The claimant managed funds holding subordinated notes issued by the defendant bank. The bank offered new notes in exchange for existing notes at 20 per cent of face value. Holders accepting the offer irrevocably appointed a proxy to vote for a resolution allowing the bank to redeem all remaining notes for €0.01 per €1,000.

More than 90 per cent of the notes were exchanged. The resolution passed and the claimant’s notes were redeemed for €170. The claim challenged the resolution as exceeding the majority’s contractual power, involving votes that should have been disregarded, and constituting an abuse of majority power.

1. The resolution fell within the power to abrogate noteholders’ rights. The special quorum for cancellation of principal or minimum interest showed that the power could extend to cancellation of all rights, subject to the separate rule against abuse.
2. The voting prohibition applied at the time of the meeting. The exchange contracts were specifically enforceable because the transaction was intended to terminate the market and cancel the notes. They therefore conferred a beneficial interest on the bank before settlement. The relevant votes were prohibited and had to be disregarded.
3. A majority power to bind a minority must be exercised bona fide for the benefit of the class as a whole. The exit consent was a coercive threat whose function was to intimidate holders into accepting the exchange by threatening expropriation for nominal consideration. That was oppressive and an abuse of power. The claimant succeeded on the second and third grounds.

First-instance decision. No appellate history was stated in the judgment.