In the matter of DS Smith PLC

The court sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 by which DS Smith Plc shareholders would receive new International Paper common shares in exchange for their DS Smith ordinary shares. The judge found that the statutory jurisdictional requirements were met: the Scheme constituted an "arrangement" with the company, the single class meeting had been properly convened and informed, and the requisite majorities had been achieved. The court applied established guidance (including the rationality test and the requirement that the class be fairly represented) and concluded there was no coercion, no "blot" or technical defect, and that an intelligent and honest member could reasonably approve the Scheme. The court addressed ancillary issues including director payments, small irrevocable undertakings (approximately 0.06% of Scheme shares), and the fact that the consideration shares would rely on section 3(a)(10) of the US Securities Act 1933 rather than registration. The judge directed that permission be given to rely on foreign-law evidence in the absence of formal CPR 35 compliance and invited formal undertakings and the form of order to be finalised.

Background and parties: DS Smith Plc (an English registered company with ordinary shares admitted to the main market of the London Stock Exchange) applied for the court's sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 to effect a combination with International Paper Company through a Bidco vehicle.

Nature of the application: Sanction of a transfer scheme under Part 26 so that, on completion, each DS Smith ordinary share would be exchanged for 0.1285 new International Paper common shares. The economic effect valued each DS Smith share at 415 pence based on a particular International Paper closing price, representing a c.47.7% premium.

Procedural posture: First instance application for sanction before the Chancery Division (Companies List). A court-ordered shareholders' meeting had been convened by ICC Judge Frith and held; the judge at sanction was MR JUSTICE HILDYARD.

Issues framed:

• Whether the jurisdictional requirements of Part 26 were satisfied (the Scheme being an "arrangement" and appropriate parties and classes);
• Whether the class meeting(s) were properly convened and informed and whether the statutory majorities had been obtained;
• Whether the class was fairly represented and the statutory majority acted bona fide and not coercively;
• Whether the Scheme met the rationality test (an intelligent and honest member could reasonably approve);
• Whether any "blot" or technical defect existed; and
• Whether foreign-law evidence (relating to reliance on section 3(a)(10) of the US Securities Act 1933) could be admitted without formal CPR 35 compliance.

Court's reasoning and findings:

• The Scheme fell within Part 26 and the Company’s limited role in effecting transfers did not undermine that jurisdictional basis.
• The court meeting involved a single class, which the judge confirmed was appropriate; the meeting had been properly informed by a compliant explanatory statement and other materials.
• The statutory majorities were comfortably achieved (99.84% in value in favour; turnout 15.31% in number and 51.58% in value), and there was no evidence of coercion or fractured representation despite director interests and small irrevocable undertakings (c.0.06% of Scheme shares).
• The Scheme satisfied the rationality test and was one that an intelligent and honest member could reasonably approve; directors had recommended the Scheme with financial advice from reputable firms and a substantial premium was offered.
• No "blot" or legal defect was identified that would prevent sanction.
• On evidence relating to US registration/exemption, the judge observed the material had features of foreign-law expert evidence and directed that permission be included in the order to permit reliance on that evidence despite the absence of formal CPR 35 compliance; the judge suggested that practice on expert foreign-law evidence in schemes and plans may be tightened in future practice directions.

Relief granted: The court sanctioned the Scheme and invited submissions on undertakings and the form of the sanction order.

This first-instance application to sanction the proposed scheme of arrangement is allowed: the Scheme is sanctioned. Rationale: the Part 26 jurisdictional requirements were satisfied; the convened single class meeting was properly informed and produced the required statutory majorities; the class was fairly represented and there was no coercion; the Scheme met the rationality test and contained no technical "blot"; the court permitted reliance on foreign-law evidence concerning section 3(a)(10) of the US Securities Act 1933 notwithstanding CPR 35 formalities and directed parties to provide undertakings and the form of order.