In the matter of DS Smith PLC

The court’s sanction of a scheme of arrangement is not a formality or automatic approval. The court must independently consider whether the statutory requirements have been met and whether the scheme is fair in all the circumstances.

The relevant considerations include fair representation of the class, bona fide voting without coercion, informed approval, and whether an intelligent and honest member of the class might reasonably approve the scheme. The court must also consider whether there is any legal or technical blot affecting the scheme. In schemes involving foreign law or expert evidence of foreign practice, CPR 35 applies, although the court may grant permission to rely on such evidence where appropriate.

DS Smith plc applied under Part 26 of the Companies Act 2006 for sanction of a scheme of arrangement with its ordinary shareholders. The scheme implemented a combination with International Paper Company through its wholly owned vehicle, International Paper UK Holdings Limited.

The court meeting was convened on the basis that the shareholders formed a single class. The statutory majorities approved the scheme by 83.08% in number and 99.84% in value. The court was required to determine whether the jurisdictional and procedural requirements had been satisfied, whether the scheme was fair and rational, whether any interests fractured the class, whether there was a blot on the scheme, and how foreign-law evidence should be treated.

1. Jurisdiction and class. The proposed transfer arrangement was a compromise or arrangement between the company and its members within Part 26 of the Companies Act 2006. Although the company’s role was limited, established convention and Re Jelf Group Plc supported treating it as sufficiently involved. A single shareholder class was appropriate because all shares received the same rateable consideration.
2. Approval and representation. The statutory majority requirements were satisfied. The arrangements for directors’ synergy-related payments, employee bonuses and directors’ irrevocable undertakings did not fracture the class. The payments related to continued services and achieving synergies, rather than to the shares held by the recipients, and the undertakings represented only approximately 0.06% of the scheme shares.
3. Sanction discretion. The court retained an unfettered discretion and had to consider the scheme carefully. Applying the guidance discussed in Re National Bank Limited, Re Telewest Communications (No 2) Ltd and Re TDG Plc, the court was satisfied that the class was fairly represented, the majority acted bona fide without coercing the minority, and the explanatory statement provided sufficient information. The scheme was one which an intelligent and honest shareholder, acting in their own interest, might reasonably approve.
4. Blot. A blot ordinarily means a technical or legal defect, such as a scheme which cannot operate according to its terms or infringes a mandatory legal provision. No such defect existed.
5. Foreign-law evidence. Evidence concerning the proposed reliance on section 3(a)(10) of the US Securities Act 1933 was treated in the particular case as information, although the court permitted reliance on it. More generally, the court stated that CPR 35 applies to evidence of foreign law or expert evidence of conventional foreign practice in creditors’ schemes under Part 26 and plans of reconstruction under Part 26A. The scheme was sanctioned.

Not stated in the judgment.