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) )

BACKGROUND

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.

SCHEMES OF ARRANGEMENT

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.

JURISDICTIONAL ISSUES

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.

FACTUAL BACKGROUND

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.

JURISDICTIONAL ISSUES

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.

CONCLUSION

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.