UK: Cross-Border Insolvency: The Rise Of The Scheme Of Arrangement

Re Zlomrex International Finance SA [2013]EWHC 4605 (Ch)

Re Apcoa Parking (UK) Ltd and others - [2014] All ER (D) 49 (Apr) )


Recently, the issue of restructuring foreign-law obligations using English schemes of arrangements has come to the fore, with various cases coming before the English High Court. This trend is, in part, because of a considerable increase in New York law highyield bonds being issued into Europe. Although defaults on these bonds have been rare, as defaults on these bonds begin to rise, we can expect to see these restructurings becoming more commonplace.

Two such restructurings to come before the English courts this year are Re Zlomrex International Finance SA, which was decided in February, and Re Apcoa Parking (UK) Ltd and others, which was decided in April.

The evolution of this line of case law suggests that it is easier for companies with no clear links to the UK to choose England as the jurisdiction for their restructuring, thus allowing them to use a scheme of arrangement, rather than a formal insolvency process that is often the only option available in other European jurisdictions.


A scheme of arrangement is a court-supervised process under the Companies Act 2006, which aims to implement an agreement between a debtor and its creditors. It is not an insolvency process – which are largely governed by the Insolvency Act 1986, are usually precipitated by an event of default under finance documents, and, generally, involve the company losing control of its day-to-day management, with an insolvency practitioner taking over the company.

An English court has jurisdiction to sanction a scheme of arrangement in a company that has a "sufficient connection" to England. Two methods are often used to establish this sufficient connection:

1. Centre of Main Interests ("COMI"); or

2. Governing Law and Jurisdiction clauses in underlying finance documents

In the cases before the English courts recently, the interpretation of both of these methods have been widened, making the English courts more accessible to foreign companies wishing to make use of a scheme of arrangement. We will look at the two recent cases in more detail below.

Re Zlomrex International Finance SA

In this case, the English High Court sanctioned a scheme of arrangement for a French company with debts governed by New York loan documents. The case discusses the COMI criteria in the context of establishing jurisdiction, and looks at the court's approach to authorising a scheme that compromises foreign-law obligations, where the scheme itself is drafted so that it may take effect without being formally recognised by those foreign-law jurisdictions.


Zlomrex International Finance SA is registered in France and had, just before the hearing, moved its principal place of business and its principal office to London. Zlomrex had issued €118 million notes due 1 February 2014, which were subject to New York law and the non-exclusive jurisdiction of the New York courts. Zlomrex made no secret of the fact that it had moved its offices in order to come under the jurisdiction of the English courts for the purpose of the approval of a scheme of arrangement for the New York law-governed notes.

Continuing the recent, flexible approach of the English courts when dealing with jurisdiction, the court was satisfied that Zlomrex established a sufficient connection with England for the English courts to have jurisdiction to order a scheme of arrangement, as long as all other factors justified making such an order.

Re Apcoa Parking (UK) Ltd and others

In this case, the High Court sanctioned a scheme of arrangement in a foreign company that had no previous connection to the UK. The sole basis for establishing jurisdiction to approve the scheme was the amendment of the governing law and jurisdiction clauses of the company's principal finance documents to make them subject to English Law.


The Apcoa Parking Group is based in Germany and operates in a number of European countries. Apcoa was financed through a facilities agreement, due to mature 25 April 2014; however, by this date the group's ongoing restructuring was not going to be completed. Apcoa, therefore, wanted to use a scheme of arrangement to extend their debt's maturity date.


In recent years, a number of debt restructurings of non-UK incorporated companies have been accomplished, where English law governed the underlying finance documents that were the basis for the scheme of arrangement. The existing case law in this area concerned finance documents that contained an English law and jurisdiction clause when they were negotiated and executed. Apcoa's finance documents, however, were governed by German law. Apcoa amended those finance documents to alter the governing law and jurisdiction clause from German law to English law in order to take advantage of an English law scheme of arrangement.

The court determined that through this alteration of the governing law clauses in the finance documents, there was a sufficient connection with the UK for them to claim jurisdiction and sanction a scheme of arrangement. It must be noted, however, that the judge did highlight the importance of the creditors being aware, at the time of the alteration of the finance documents, that the amendment was done in order to effect a scheme of arrangement under English law. In this case, Apcoa produced telephonic testimony that each of the creditors was fully informed, which was accepted as being sufficient by the court.


The Zlomrex case makes it clear that the courts will continue their flexible approach to the interpretation of a company's COMI. It also leaves open the possibility of an English scheme of arrangement compromising foreignlaw obligations, without the scheme being approved by those foreign-law jurisdictions, which could lead to problems if creditors attempt to enforce their rights (which are now subject to the English scheme) in a different jurisdiction. Whether schemes will be allowed to progress without this recognition, and how such arrangements will work in practice, is yet to be seen.

The Apcoa judgment has established a relatively simple route for foreign companies to determine the jurisdiction of the court, even where there previously was no connection to the UK. This has widened the potential use of schemes of arrangement significantly as a company no longer needs to shift its COMI to the UK and can simply amend its finance documents.

It is clear that the use of an English-law scheme of arrangement has become an important part of a debtor's insolvency toolkit, even in circumstances where a link to the UK is not immediately apparent. Following these recent decisions, we can only expect the use of this mechanism to continue to gain in popularity and become more widespread.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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