[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE]
	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> DS Smith Plc, Re [2025] EWHC 696 (Ch) (30 January 2025) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2025/696.html Cite as: [2025] EWHC 696 (Ch)

[New search] [Printable PDF version] [Help]

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES LIST (CHD)

IN THE MATTER OF DS SMITH PLC
IN THE MATTER OF THE COMPANIES ACT 2006

		The Rolls Building 7 Rolls Building Fetter Lane, London EC4A 1NL
		30 January 2025

MR JUSTICE HILDYARD:

1. This is an application by a company now called DS Smith Plc ("the Company") seeking the sanction of the court of a proposed scheme of arrangement between the company and the holders of its ordinary shares of 10 pence each ("the Scheme"). Sanction is sought pursuant to Part 26 of the Companies Act 2006.
2. The Company is a leading provider of sustainable paper-based packaging solutions across Europe and North America. It operates in 34 countries and employs some 30,000 people. Its ordinary shares are listed on a main market for listed securities operated by The London Stock Exchange.
3. The underlying commercial purpose of the Scheme is to facilitate and implement what is described as a combination with another company in a complimentary field called International Paper Company, a New York corporation headquartered in Memphis, Tennessee in the United States. That company, International Paper, is a leading producer of renewable fibre-based packaging and pulp products and one of the world's largest recyclers with established operations primarily in North America. The actual transfer will be to a special purpose vehicle called International Paper UK Holdings Limited, or Bidco, which is wholly owned by International Paper Company. Bidco was formed for the purpose of the proposed combination and has not traded other than undertaking steps in preparation for the Scheme.
4. Under the Scheme, for every Scheme share, that is to say ordinary shares of the Company held at the Scheme record time (as defined in the Scheme) and transferred to Bidco under the Scheme, every shareholder would be entitled to receive 0.1285 new shares of common stock with a par value of $1 per share of International Paper. Those will be called the new International Paper shares.
5. In terms of the economic features of the Scheme, based on the closing International Paper share price of US $40.85 on 25 March 2024, which was the last business day prior to the announcement by DS Smith of a possible offer, the terms of the combination valued each DS Smith ordinary share at 415 pence per share. That represented a premium of some 47.7% to the closing price of 281 pence at which the shares were trading on their last business day prior to the commencement of the offer period. The consideration values the Company's entire issue and to be issued share capital at approximately £5.8 billion.
6. In terms of the effect of the combination, upon completion of the Scheme the Scheme shareholders will hold approximately 34.1% of the enlarged share capital of International Paper and the existing International Paper shareholders will hold approximately 65.9% of the enlarged share capital. It is proposed that the new International Paper shares will be trading on the main market.
7. A feature which has been explained and to which I will return is that the new International Paper shares will not be registered under the US Securities Act 1933 but instead International Paper will rely on section 3(a)(10) of the same Act. That is on the basis, amongst other things, that the sanction of the Scheme involves a hearing on the fairness of the proposed exchange which is taking place before me today.
8. In determining whether the court's sanction should be granted, I must first consider whether the jurisdictional requirements of Part 26 of the Companies Act 2006 have been satisfied. In that regard, two definitions set out in section 895 of that Act set out the ambit of Part 26 and important definitions are: (1) the word "arrangement"; and (2) the word "company". To amount to a compromise of a scheme within the jurisdiction of the court under Part 26, the Scheme must amount to a "compromise or arrangement proposed between the company and its members or any class of them".
9. That has caused some query of a largely theoretical kind in the past as to whether a transfer scheme such as this Scheme involves the company in any way; and it is probably not unfair to say that the role of the Company in the context of the Scheme is rather exiguous. All that is required of it, as it is required, is for it to pass the necessary transfers. Nevertheless, that provision which is now entirely commonplace is considered sufficient to bring the Company into the fold and to constitute the arrangements as being a compromise or arrangement proposed between the Company and its members. This is partly by convention, indeed mostly by convention, but the convention has been blessed in a sequence of cases of which the most often cited is Re Jelf Group Plc [2015] EWHC 3857 (Ch). Suffice it to say that in this case I am satisfied that the Scheme does amount to a compromise or arrangement within the relevant section.
10. The Company being an English registered company under the Companies Act 1948 to 1967, there is no cross-border jurisdictional issue save the one, almost ancillary one, relating to dispensation from registration of the US consideration shares.
11. The second jurisdictional requirement is that the Scheme should have been approved by the members or class of members directed by the court by a majority number representing 75% in value of those shareholders who attend and vote at a meeting of those members. Such a meeting must be convened by the court, as it was in this case, where the matter being relatively straightforward, the matter was listed not before a High Court judge but instead before an Insolvency and Companies Court judge, in this case ICC Judge Frith.
12. At that point, the view was taken that as there was only a single class of shares and that since all the shares were receiving the same rateable consideration, there should be only one single class of shareholder meeting convened. It would not be ordinary or usual for the court at the sanction stage to revisit that unless some circumstance had arisen or some argument developed that in some way the original order for convening was flawed. However, it is a jurisdictional matter and therefore appropriate for me to confirm.
13. Prima facie, it seems obvious that the single class was and is appropriate. But I should record that I have also considered whether there was any factor ancillary to the Scheme and its approval which might complicate the issue.
14. One issue or fly in the ointment in that regard was whether the arrangements for synergy fees, for combination fees and for other rewards to directors, both executive and non-executive, in some way introduced a fracturing element such that the meeting might have been, to put it very luridly, perverted by the particular interests of those who stand to gain financially. I am satisfied that this is not the case.
15. I have also borne in mind in the same context that International Paper received irrevocable undertakings from the directors. However, the amount was only approximately 0.06% of the Scheme shares. This was fully explained in the Scheme document at Part 8 of it. The essential point is that, first, the number were very few but, second and most important, no additional consideration was provided to any shareholders who provided irrevocable undertakings, that which might in other circumstances were there more suggestion of large payments to induce shareholders who might otherwise not have voted in favour of the Scheme to do so is not a factor present in this case.
16. In summary, therefore, I am entirely persuaded by the submissions made to me by Mr Thornton that there is no fracturing element in this case.
17. It is true that the CEO and the CFO do receive, or contingently will receive, substantial payments in respect of any synergies which they assist to be accomplished and in respect of the combination it is also so that payments in the nature of bonuses will be made available to other employees. Nevertheless, the question really is whether those arise because of or are paid in respect of the shares held by the relevant persons and I am satisfied that they are not and that these are simply payments to give the best prospect of continuation of their services and the achievement of synergies in the combined companies.
18. I must also be satisfied that at the court meeting which took place in October having been convened in accordance with the directions of the court given by ICC Judge Frith, were properly informed by an explanatory statement and other information necessary in order to bring an informed approach to bear. It is a requirement that the explanatory statement should be in the form and style appropriate to the circumstances of the case and include an explanation of the commercial impact of the Scheme and other material elements, including the emoluments or other benefits payable to directors. The explanatory statement in this case was one of the materials which I was directed to read prior to the hearing: I have done so and I am satisfied that it complies with the requirements.
19. At the meeting which took place, I should record that the requisite statutory majorities were easily achieved. At the meeting, 329 Scheme shareholders voted in favour of the Scheme holding 710,920,407 Scheme shares, 67 Scheme shareholders voted against the Scheme holding 1,143,631 Scheme shares. The majority was therefore 83.08% in numbers representing 99.84% in value. The turnout at the court meeting was 15.31% in number and 51.58% in value. The numbers suggest and confirm that this combination has attracted considerable support from those whom it will affect.
20. I am satisfied, accordingly, that the result of the Scheme was in conformity with the statutory requirements and that I can then move on to the issue of discretion. I should emphasise in that regard that although these schemes are many and frequent, nevertheless that does not absolve the court from a careful consideration in every case. It is not a ministerial act or an automatic stamp. I must be satisfied that it is fair in all the circumstances.
21. Guidance has been refined over the years. Nevertheless the guidance given in the passage in Buckley on the Companies Acts at paragraph 219 is often quoted, and is quoted in this case. It reads as follows:

"Sanction of the Court

Once the meetings have approved the scheme, the sanction of the court must be sought. The sanction of the court is not a formality. The court has an unfettered discretion as to whether or not to sanction the scheme, but it is likely to do so, so long as (1) the provisions of the statute have been complied with, (2) the class is fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and (3) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve…..

The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind or some blot is found in the scheme, or if the Chairman did not conduct the meeting substantially in accordance with the procedure laid down by the court."

22. This passage, as then contained in the 13^th edition of Buckley was approved as long ago as 1966 in a decision of Plowman J, as he then was, in Re National Bank Limited [1966] 1 WLR 819 and elaborated in a seminal judgment of David Richard J, as he then was, in Re Telewest Communications (No 2) Ltd [2005] 1 BCLC 772.
23. In addition and more recently Morgan J in Re TDG Plc [2009] 1 BCLC 445 drew together four matters which required attention when the court was considering whether to sanction any proposed scheme of arrangement.
24. First, the court must be satisfied that the provisions of the statute have been complied with and I am so satisfied.
25. Second, the court must be satisfied that the class of shareholders the subject of the court meeting was fairly represented by those who attended the meeting and the statutory majority acting bona fide and not coercing the minority in order to promote interests adverse to those of the class they purport to represent. This is a rather different hurdle from the statutory requirements that the necessary statutory majority approving the scheme should have been achieved at class meeting(s) duly convened and held. It is getting at the point that it is always a concern lest the majority coerce a minority by reference to some interest that they have and the minority does not for some other noxious interest. There is no evidence or suggestion of any such coercion in this case: to the contrary, I am satisfied that there was fair representation at the meeting and that there is nothing to suggest that the statutory majority was acting other than bona fide or coercing the minority to promote interests adverse to those of the class as a whole.
26. Thirdly, I must be satisfied that an intelligent and honest person, a member of the class concerned and acting in respect of his own interest, might reasonably approve the Scheme. This is sometimes called the rationality test and is applicable most particularly in the case of schemes of arrangement under Part 26 (though only with modification in plans of reconstruction under Part 26A). I am entirely satisfied that this Scheme is one which an intelligent and honest person, a member of the class concerned and acting in respect of his own interest, could reasonably approve. I am fortified in that by the unanimous recommendation by the directors of the company who had in this regard the benefit of advice from no lesser financial figures than Goldman Sachs City and JP Morgan. I am also satisfied, as I have explained, that the Scheme was fully explained and that there is no reason to suppose that the decision was not on a properly informed basis.
27. More generally in this context I note that the premium payable on the shares is a healthy one at 47.7%. At the meeting one of the questions, the last of them which was asked, was whether the Company was being "suckered by the Americans". The answer may lay in both the amount paid by way of premium and the likely prospects of a healthy combination with growth in the future, though that of course is in the future and only a matter of conjecture.
28. Fourthly, I must consider whether there is what was termed by Morgan J "blot on the Scheme". "Blot" is, in a sense, an arresting but not entirely instructive word suggesting some mess: it is ordinarily thought to refer to a technical or legal defect in the Scheme, for example resulting in it not working according to its terms or such that it would infringe some mandatory provision of the law. If there was a technical flaw in the Scheme, for example because it involved something like a reduction of capital without any special resolution to approve it, then that would be a blot on the Scheme. No such consideration is relevant in this case. I am entirely satisfied that that there is no blot on the Scheme.
29. I said I would return to one other matter before inviting Mr Thornton formally to give the confirmation that all the conditions, save those under my control, have been satisfied, and the undertaking to be given by International Paper to be bound by the Scheme. That concerns the evidence which was submitted by a lawyer from Sullivan & Cromwell, Ms Melissa Sawyer. It explains to me what would be the position with regard to shareholders in the United States. From that witness statement, I have seen and it was also explained in the skeleton argument that a section 3(a)(10) exemption, as it is called, will be sought in respect of these shares.
30. I queried the status of that evidence with Mr Thornton, since on one view it has the hallmarks of expert evidence being a description of a foreign law and its effect. I also asked Mr Thornton more generally whether it would be, as it were, useful for the court to make clear its position with respect to whether in respect of such evidence which could be, or is, expert evidence, permission should be sought for it to be adduced in accordance with CPR 35, schemes of arrangement and plans of reconstruction not falling outside or being especially privileged in this regard.
31. Mr Thornton was extremely helpful in this regard. As regards the particular case, he submitted that the evidence was more in the nature of information than it was in the nature of evidence, and I can see that the dividing line can be wavy. I think it is a strong point in this regard but I am not really invited to make any decision in this regard. It is simply an economic feature of the Scheme and whether or not the necessary approvals are given will not affect whether or not the Scheme takes effect.
32. Nevertheless, I think as a matter of safety first it would be prudent to obtain a direction for expert evidence wherever foreign law or some expert evidence of conventional practice in a foreign jurisdiction is given; and in this case, I would simply cure the matter by inviting Mr Thornton to include in his order the permission of the court for this evidence to be introduced and for me to rely on it, notwithstanding the absence of the relevant rules under CPR 35 and the expert's acknowledgement of them.
33. Turning to the more general, it is not for me really to lay down general rules of practice, even though that may be thought implicit in what I have said in respect of the particular matter. This is one of the matters which may call for and be dealt with in a revised practice direction in due course. What I can and I think should say is that it seems to me that in the context of creditors' schemes under Part 26 and plans of reconstruction under Part 26A there is no reason to distinguish the event here from a trial and therefore CPR 35 will apply. More generally, it may be that over the fairly near future it will become more standard where there is any sign of opposition to the scheme or plan to treat the convening hearing not only as dealing with composition of classes and any roadblock to the scheme but also to tighten up the evidential position on which the judge is going to be invited to proceed.
34. To conclude: in all the circumstances, in my judgment, this is a Scheme which can be and should be sanctioned and I hereby sanction it and will hear from Mr Thornton with respect to the undertakings to be offered and with respect to the form of the order.