IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Lloyd)
Wednesday, 7th November 2001
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE LONGMORE
|SEA ASSETS LIMITED|
|- v -|
|PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN|
|PENERBANGAN GARUDA INDONESIA|
Smith Bernal Reporting Limited, 190 Fleet Street,
London EC4A 2AG
Tel: 0171 421 4040
Official Shorthand Writers to the Court)
appeared on behalf of the Appellant.
MR MARK PHILLIPS QC and MR RICHARD SNOWDEN (Instructed by Freshfields Bruckhaus Deringer,
654 Fleet Street, EC4Y 1HS) appeared on behalf of the Respondent.
Crown Copyright ©
Wednesday, 7th November 2001
"(1) Where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them, the court may on the application of the company or any creditor or member of it ... order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.
(2) If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement, if sanctioned by the court, is binding on all creditors or the class of creditors or on the members or class of members (as the case may be), and also on the company...".
"With every notice summoning the meeting which is sent to a creditor or member there shall be sent also a statement explaining the effect of the compromise or arrangement... ."
"Creditors whose claims are to be restructured pursuant to the Scheme are the only material Financial Creditors of the Company (other than Government and certain trade creditors) who are unsecured (i.e. do not have formal or informal security from the Company) and whose claims are intended to be restructured pursuant to the Financial Restructuring. These creditors comprise as follows:
(a)holders of certain unsecured promissory notes issued by the Company, denominated in either US Dollars or Rupiah;
(b)creditors whose claim against the Company arises under a US dollar unsecured syndicated term loan facility entered into with the Company; and
(c) creditors whose unsecured claim against the Company arises as a result of the termination by the Company of certain aircraft leases entered into by those creditors in their capacity as lessor or financiers of lessors."
(1)creditors who have claims against Garuda based on procurement contracts for the future supply of aircraft and engines; and
(2)trade creditors (in the sense of suppliers of goods and services on an on-going basis which are regarded as essential to the continuation of Garuda's business as a going concern).
(1)Some US $909 million of debt owed to the Indonesian Government is to be converted into equity of Garuda. That has been agreed to unconditionally.
(2)Some US $441 million of debt owed to the Indonesian Government, including current and future aircraft lease rental obligations and other liabilities, is also to be converted into equity conditionally on all other elements of the financial restructuring being completed.
(3)Some US $131 million owed to state-controlled entities is to be refinanced by the issue of mandatory convertible bonds subordinated to other debt, including the debts owed to Scheme Creditors. On maturity, this debt will be converted into equity.
(4)Some US $610 million owed to the A330 financiers will be rescheduled over an extended period to 2010 with a reduction in the amount of principal repaid in the earlier years.
(5)The debt of US $29.4 million in respect of the two flight simulators is to be restructured from leases to loans to be repaid by 2007 and 2008.
(6)The debts owed to Scheme Creditors and certain unsecured Indonesian borrowings are to be rescheduled so as to be repaid by the end of 2007.
(7)A mechanism called "the cash sweep mechanism" is to be set up whereby financial creditors other than the Indonesian Government and state-related entities will be able to take the benefit pro rata of a proportion of any excess cash which Garuda may have at the end of any financial year and of sums available (after retentions and certain provisions) from disposals.
"However, since the question of class, or not, depends not only on the nature of the rights of a creditor but also on how the creditor is to be dealt with under the scheme, one might have a scheme which did comprise all unsecured creditors but dealt with different groups of unsecured creditors in materially different ways. In that case, each group would be likely to have to be regarded as a different class with separate meetings. That being so, I do not see why the same result should not also be achieved differently with one group of unsecured creditors - here the Government and related entities - being the subject of special bilateral negotiations, and another - here the trade creditors not the subject of any particular negotiation except perhaps as regards time to pay or the like, on an ad hoc basis in the ordinary course of business, and with the remainder of the unsecured creditors being dealt with through the scheme.
Therefore, if it were necessary for the class of creditors not only to share sufficient common characteristics but also to comprise all those creditors who do so, I would be satisfied that the scheme creditors do because they are all the unsecured creditors of Garuda under financing contracts, other than the Government and Government-related entities who can entirely sensibly be segregated, and because the trade creditors, though unsecured, are sufficiently different from the scheme creditors to be properly segregated, as are the contractual creditors under the procurement contracts such as Boeing."
"What is the proper construction of that statute? It makes the majority of the creditors or of a class of creditors bind the minority; it exercises a most formidable compulsion upon dissentient, or would-be dissentient, creditors; and it therefore requires to be construed with care, so as not to place in the hands of some of the creditors the means and opportunity of forcing dissentients to do that which it is unreasonable to require them to do, or of making a mere jest of the interests of the minority."
"They are bound by no community of interest, and their claims are not capable of being ascertained by any common system of valuation. Are we, then, justified in so construing the Act of Parliament as to include these persons in one class? The word `class' is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term `class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."
"the responsibility for determining what creditors are to be summoned to any meeting or constituting a class is the applicant's and if the meetings are incorrectly convened or constituted, or an objection is taken to the presence of any particular creditors, as having interests competing with the others, the objection must be taken on the hearing of the petition for sanction and the applicant must take the risk of having it dismissed."
"The answer, therefore, which Bowen LJ may be taken to give to the question `... are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?' is clear enough. The scheme proposed may be regarded as a single arrangement with those creditors whom it is intended to bind if, but only if, the rights of those creditors are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."
"In each case the answer to that question will depend upon analysis (i) of the rights which are to be released or varied under the scheme and (ii) of the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be released or varied."
"... in cases where one part of a class of equity shareholders has been treated differently from another part of the same class the usual practice is for the company to proceed by way of a scheme of arrangement under section 206 of the Companies Act 1948."
"While I propose to confirm the reduction in this case, I think it right to express the view that it is desirable in cases like the present to proceed by way of a scheme of arrangement, for although no doubt it is true that a dissentient minority shareholder can come to the court and object to confirmation of a reduction, nevertheless the interests of the minority shareholders are better protected under section 206."
"... was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class [to whom the scheme is put], and acting alone in respect of his interest as such a member, might approve of it."
"If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to their commercial advantage than the Court can be."