England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
AND IN THE MATTER OF THE COMPANIES ACT 2006

		Royal Courts of Justice 7 Rolls Building Fetter Lane London EC4A 1NL
		14th April 2014

MR JUSTICE HILDYARD:

1. The application is for orders to sanction nine schemes of arrangement proposed pursuant to Part 26 of the Companies Act 2006.
2. On 26^th March 2014, I heard applications at an earlier stage in the same proceedings for orders to convene scheme meetings for the purpose of considering and approving the schemes of arrangement, and I gave directions in that regard as to the constitution of the classes and as to the conduct of the meetings required.
3. In the extempore judgment which I gave on that occasion I set out what appeared to me to be the salient background against which the applications have been presented and I need not, I think, repeat that here. This judgment should be read together with that previous judgment ([2014] EWHC 997 (Ch)).
4. The only overriding point that I should perhaps emphasise, which I did draw attention to on the previous occasion, is that each of these schemes is of limited scope, devoted only to dealing with the imminent threat to the companies concerned, constituted by the fact that a termination date in respect of the facilities on which the group relies is fast approaching. I am informed, and have no reason to think otherwise, that if an extension is not sanctioned, the board of the ultimate parent company (which is incorporated in Germany) would be required to file German insolvency proceedings in respect of the main holding company, and this would precipitate further insolvency proceedings along the line. All this would be ultimately destructive of value when compared to what might be achieved by a consensual reconstruction, or some other form of reconstruction, if time is made available for that purpose by an extension of the termination date.
5. On the previous occasion, I emphasised that it was not appropriate for me at that time to delve into the fundamental fairness of the scheme. On that previous occasion, and in accordance with the usual practice, the matters which I had to consider were the proper composition of the classes, the rules to determine how the meetings should be conducted, and any jurisdictional issues which then seemed to arise and were such as to make it likely that whatever might be the result of the scheme meetings, the scheme itself would not be able to achieve the purposes for which it was promulgated because of some jurisdictional impediment or some problem in giving effect to any order that this court made by reason of the cross-border elements concerned.
6. Given what I described in my previous judgment as rumblings of discontent from certain other creditors, I had envisaged that the decisions that I made on that previous occasion, especially in relation to the cross-border aspects of the schemes, might well be contested at this stage by at least two creditors who had demonstrated some concern in this regard. In the event, however, no such objection has been forthcoming.
7. In the circumstances, my task today is really, first, to consider how the class meetings were conducted and their results. Second, to consider whether at those class meetings some conflicting interest, which perhaps was overlooked, or subsequently emerged, might upset the court's satisfaction with the process adopted. Third, to consider any opposition. Fourth, to consider the matter of overall fairness and whether there was any blot such as to invalidate the scheme. Fifth, in light of its novelty, I revisit the issue as to the jurisdiction of the court, given that the connection with English law and this jurisdiction depends upon a change of law clause in a facilities agreement previously governed by another law.
8. I can deal with the first matter quickly. Especially since no new point has been raised, it would be unusual for me to revise or review my decision on the proper constitution of classes for each of the scheme companies, and I do not intend to do so. It seems to me now, as it seemed to me then, that the class composition was such as to enable those concerned, notwithstanding their different rights in point of priority, to commune together and discuss the matter with a view to their common interest; and that view appears to have been confirmed by this: that there was no opposition at the meetings concerned. None of the creditors has raised any objection. In each case the single class meeting directed endorsed the scheme with healthy, in fact extremely impressive, majorities. A very high proportion of creditors attended or voted, and a very high percentage of those who did were in favour in each case. There were some abstentions from one lender only but there were no votes against. This is on any view a resounding endorsement of the schemes of arrangement, which in each case is for the narrow purpose I have described.
9. So far as the question of any conflicting interests is concerned, I mentioned that, at least in part, to prompt Counsel on this essentially unopposed matter to alert me to anything which might have been considered a conflicting interest. Mr Isaacs QC has taken on board that implied invitation and has confirmed to me that so far as he and Mr Goodison (who appeared with him) are aware, and so far as those instructing him are aware, there is none.
10. I have already mentioned the third matter, the question of opposition – there is none.
11. I therefore must focus on the overall fairness of the scheme and consider whether there is any blot on the scheme, by reference to what I have already mentioned or otherwise, militating against its sanction.
12. So far as the overall fairness of the scheme is concerned, the court accepts that in ordinary cases, unless there is some conflicting interest or some overarching improper purpose, the view of the majority of creditors, especially where they are sophisticated and carefully advised, is likely to be a more accurate litmus test of the business advisability of what is proposed than the court can attempt. The statement as to what is required of the court on this occasion and in this context is described in the decision of Mrs Justice Arden (as she then was) in the case of Re Hawk Insurance Company Ltd [2001] 2 BCLC 480 at page 483 from D to G, quoting a passage from Buckley on the Companies Act which was approved by Mr Justice Plowman in Re National Bank Ltd [1966] 1 WLR 819. (Mrs Justice Arden's decision in Re Hawk was reversed, but her approval of the passage in question stands.) The passage is as follows:

"Function of the court. In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with, secondly, that the class was 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 thirdly, 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."

13. This test is sometimes expressed as being the 'man of business' or the 'majority of the Regiment' test. The court will, as I say, ordinarily accept the commercial judgment of the majority of creditors as men of business, and will not demur from the step of the Regiment, unless it is persuaded that the constitution of the classes was flawed, or that those voting were materially misled or given inaccurate or deficient information. I see no reason to do anything in this case other than confirm and accept the view of the very considerable majority.
14. So far as whether there is any blot on the scheme, again this is a matter which Counsel putting forward the scheme will naturally have considered. It has not been suggested to me, and I have not myself seen, any such blot as would cause me to refuse sanction.
15. Accordingly, if this were a domestic scheme, I should have no hesitation in giving sanction to it.
16. The final question which I need to consider, as I have stated earlier, and as I emphasised on the previous occasion, is whether there is some jurisdictional impediment because of the cross-border context in which the scheme is put forward. In that context, I feel I should, notwithstanding that I addressed it in part on the previous occasion, revisit the issue to make sure in my own mind that there is jurisdiction in the court, which would be recognised in the relevant other jurisdictions, to do what I am asked to do. That is also necessary to reassure other jurisdictions as to the careful scrutiny afforded to the schemes and so that it cannot be said, either here or abroad, that the court did not address its mind to the relevant circumstances and considerations.
17. That context, and the concern to which it gives rise, can, I think, be described as being this: seven of the nine scheme companies are companies or bodies incorporated under another jurisdiction, and not this jurisdiction, and each has its 'centre of main interest' or COMI in another country and not this country. The only real connection with this country, with regard to those seven scheme companies, is the selection of this country's laws pursuant to a change of law clause in the facilities agreement governing the indebtedness of the scheme companies. The question is whether a sufficient connection with this jurisdiction has been established. I also need to consider whether there is anything, whether in point of recognition, or the Judgments Regulation, the Insolvency Regulation, or otherwise, which might render likely to be ineffective anything this court does.
18. As I sought to explain in my previous judgment, the jurisdiction (in the narrow sense) of this court seems to me to be confirmed by the analysis in Re Drax Holdings Ltd [2004] 1 WLR 1049, which was adopted in Re Rodenstock GmbH [2011] EWHC 1104 and applied in a variety of cases which have followed in quite quick succession since. It is clear that the test is whether the companies could be wound up in this jurisdiction. The answer to that test is that, notwithstanding the Insolvency and Judgments Regulations, they could be, but that the court would not do so except if it were persuaded that there were sufficient contacts with this jurisdiction such as not to render it inappropriate or exorbitant for it to do so. The second part of the test, relating to what I described as 'jurisdiction in the wider sense', is whether the connections are sufficient to ensure that the exercise of jurisdiction would not be exorbitant or inappropriate or contrary to international comity.
19. Subject to two points or caveats, this case is in line with the sequence of cases starting with Re Drax and Re Rodenstock which I have described. I should acknowledge that in Re Rodenstock, which was really the first of the cases which considered this sort of extra-territorial effect scheme of arrangement, Mr Justice Briggs, as he then was, regarded the combined effect of the majority of creditors being domiciled here and their relationships being exclusively governed by English law, with an English jurisdiction selection, and felt there was only a narrow balance in favour of the exercise of jurisdiction. But as time has moved on, the court has been prepared to accept the choice of English law and the English forum as capable of constituting sufficient connections with this jurisdiction even without the comfort of the majority of creditors being present here, provided that it is also persuaded that the countries in the jurisdictions where the creditors would otherwise have been likely to seek enforcement would recognise the effectiveness of the English court order. That is illustrated in Re Primacom Holdings [2011] EWHC 3746 (Ch) and [2012] EWHC 164 (Ch), Re NEF Telecom B.V. [2012] EWHC 2944 (Ch), Re Vietnam Shipbuilding Industry Groups [2013] EWHC 2476 (Ch) and Re Magyar Telecom B.V. [2013] EWHC 3800 (Ch).
20. The first point or caveat that I mentioned, which I also addressed on the previous occasion, and which I think is a novel and important point which did not arise in any of the cases cited, is that in this case both the choice of English law and the selection of the English courts as having exclusive jurisdiction were not the original choice in the facilities agreement. Those choices have been introduced late in the day by force of a provision under the relevant agreement, enabling the creditors to select a different jurisdiction, in this case England, and a different governing law, in this case English law, than originally applied to their lending relationship.
21. As I say, that is a novel point and it has occasioned expert evidence in order to reassure the court, or to confirm to it, that the original change of law and jurisdiction is in accordance with the laws then governing those instruments, as well as being consistent with English law. In that context, in each of the jurisdictions concerned, an expert has given a view, which I think I can summarise as being this: that though there is no case in any of the jurisdictions which expressly confirms the propriety and effectiveness of the change made, nevertheless none considers that it would be ineffective; and with varying degrees of emphasis each is of the view that, on the contrary, the changes would be effective and given recognition.
22. I was originally concerned whether a proper and sufficient explanation of the precursor to all of this, which was a change in the governing law and jurisdiction law to England, in the case of each of the companies, had been provided prior to the meetings at which the changes were resolved. But I am satisfied pursuant to the further evidence as to the manner in which creditors were notified on the telephone, that there is no basis for my refusing to give sanction on that ground. I am comforted in that conclusion by the fact that, in the event, no creditor has suggested that it was not properly advised as to the reasons for and effect of the changes.
23. The second point with which I was also concerned was lest the adoption of English law and jurisdiction, and the promulgation of a scheme under the Companies Act 2006 might be said unfairly to deprive creditors of an essential part of their bargain: that is, that the termination date should not be altered except by unanimous consent. But, as it seems to me, the provision for change of law qualified that bargain, enabling it to be glossed by provisions of the newly adopted law, provided that the change of law and jurisdiction was properly explained and valid and effective under the original law. Again, I am comforted in my conclusion that the provision for unanimous consent does not preclude altering the termination dates by dint of a scheme by the facts that (a) no creditor has sought to contend to the contrary, whether on the ground of unfairness or otherwise, and (b) the experts consider that the changes would be effective under the original governing law.
24. I should perhaps, and for comprehensiveness, mention that I have also considered a question that is not without its difficulties, which is as to the possible application of Article 2 of the Judgments Regulation. That question has been addressed in the sequence of cases to which I have referred; but a conundrum remains as to whether it applies at all. The easiest answer, if available, would be that the Judgments Regulation has no effect because there is simply nothing which triggers it on the basis that there is no lis in the proceedings. That was the view that I was inclined to provisionally in Re Primacom, but Mr Justice David Richards has rightly cautioned that there may be an autonomous European meaning which would have to be considered before that easy answer could safely be adopted. However, it is once again unnecessary to resolve the conundrum. Even if one proceeds upon the footing that Article 2 of the Judgments Regulation is otherwise applicable, the exceptions to its requirement for a person domiciled in a Member State to be 'sued' there is subject to exceptions in Article 23 (which applies where there is an exclusive jurisdiction clause) and Article 24 (where there has been a submission to the jurisdiction). Accordingly it appears to me that on one or more of the variety of grounds identified in Re Primacom and the subsequent cases, and again with the comfort that the experts, albeit with varying degrees of emphasis, have all confirmed that the scheme would, if sanctioned in England, be given effect in their own jurisdictions, there is no problem in terms of the Judgments Regulations or otherwise such as to cause me to decline sanction.
25. To summarise my views on the jurisdictional issues, I have concluded that the combination of the fact that: (a) the facilities agreement is now (albeit pursuant to a change of law clause) governed by English law, (b) subject to one small issue, the creditors have selected the English court as having exclusive jurisdiction, and (c) the court has been provided with independent experts' opinions confirming that the courts in the jurisdiction where the creditors would have otherwise been likely to seek enforcement would indeed be likely to recognise the effectiveness of the orders if made, is sufficient to warrant the exercise of jurisdiction and the expectation that such exercise will be effective, given (of course) that I am otherwise satisfied that the schemes are fair and the relevant requirements of English law have been satisfied.
26. Accordingly, though the point they raise is a novel one, I think ultimately the schemes proposed fall into line with the sequence of cases to which I have referred. Although I acknowledge, as Mr Justice Vos emphasised in I think it was NEF Telecom B.V. [2012] EWHC 164, that where there is no contest the court can only do its best on the basis of the material which is offered by one side, and all (I think) of the cases were effectively decided ex parte, I see no reason to depart from that line.
27. In conclusion, I am satisfied on each of the matters which I have considered myself bound to assess, and I therefore sanction each of the schemes. I will consider the terms of the orders with Counsel.