UK: English Schemes Of Arrangement: Some Practical Advice For Proponents

Van Gansewinkel Groep BV, Re [2015] EWHC 2151 (Ch)

In what appears to be a growing trend, the High Court in England has sanctioned another scheme of arrangement involving non-English companies. Last week's judgment from Mr Justice Snowden joins an ever growing number of decisions by the English courts to sanction schemes where debtors do not have their centre of main interests, establishment or any significant assets in England. In this instance, the scheme was sanctioned on the basis that the English governing law clauses contained in the companies' financing agreements, constituted a "sufficient connection" with England. In addition to providing further evidence of the English courts readiness to sanction such schemes of arrangement, it provides some helpful advice for proponents of schemes.

What is a Scheme of Arrangement?

A scheme of arrangement is a tool which allows a company to restructure some or all of its debts outside a formal insolvency process by presenting a proposal and receiving agreement from the requisite majority of its creditors. Pan European companies have increasingly sought to restructure their debts by way of an English scheme as it offers a flexible and expeditious route that may not necessarily be available to them in their own jurisdictions. Generally speaking, effecting a scheme of arrangement is a three stage process which involves:

  1. The holding of a convening hearing where the company or its creditors makes an application to the court for an order to convene a meeting/meetings of creditors so that the company's creditors can consider and vote on the company's proposals (the "Court-Convened Meeting"). A company can seek to "scheme" all its creditors, or only certain classes of them, classes are determined by the rights creditors have against the company. The court issued Practice Statement1, advises companies to raise any issues they may have relating to the composition of the classes of creditors at the convening hearing and to give notice to creditors of the convening hearing.
  2. The next step is the holding of the Court-Convened Meeting. This is where the company's creditors meet to consider and vote on the proposed scheme. A proposed scheme will be approved if a majority in number representing three-quarters in value of the creditors (or of each class of creditors) vote in favour. In advance of voting, creditors should be provided with an Explanatory Statement informing them of the effect of the scheme, the alternatives to the scheme and whether company directors have any material interests in same.
  3. The final step is the sanction hearing. This is where, if the company's creditors approve the proposed scheme, the court is asked, to sanction the scheme by way of a court order. At the sanction hearing the court will consider whether: (i) the scheme is fair and reasonable; (ii) each class was fairly represented (iii) the Explanatory Statement was comprehensive enough to enable creditors to make an informed decision when voting; and (iv) the relevant majorities approved the scheme. When dealing with non-English companies (as in this case) the court will also consider whether it has jurisdiction to sanction the scheme (assuming this has not been determined at the convening hearing) and whether the scheme has a "sufficient connection" with England.

Background

In this matter, Van Gansewinkel Groep B.V., headed a group of five Dutch companies and one Belgian company (the "Group") which sought an urgent restructuring of its debts by way of six inter-conditional schemes of arrangement (the "Schemes"). Following the order of Mr Justice Henderson the Group held the Court-Convened Meeting at which creditors voted in favour of the Schemes. At the sanction hearing, Mr Justice Snowden considered whether the court should sanction the Schemes.

Lessons for proponents of schemes

While Mr Justice Snowden ultimately confirmed that the English court had jurisdiction to sanction the proposed Schemes and there was a "sufficient connection" with England, his judgment is most notable in that it provides some helpful advice for future proponents of schemes. Takeaways from the judgment are that proponents of a scheme should ensure that:

  1. the Explanatory Statement provided to creditors adequately details and explains the alternative options that exist to the proposed scheme of arrangement. The Statement should clearly explain why a scheme of arrangement would be better for creditors than formal insolvency proceedings;
  2. further to the Practice Statement, and in accordance with developed practice, proponents should also raise any jurisdictional issues for determination at the convening hearing rather than delaying determination to the sanction hearing. Raising such issues early avoids wasting time and costs in the event the court decides at the sanction hearing that it does not have jurisdiction. Jurisdictional issues, like class issues, should be set out in the notice to creditors prior to the convening hearing, to give them fair warning and allow them to make an informed decision as to whether to attend the convening hearing;
  3. if they want jurisdictional issues to be considered and determined in way that can be relied upon by the judge at the sanction hearing, then these should be brought to the attention of the judge at the convening hearing and the judge's essential reasoning should then be captured and recorded in the order they make; and
  4. if they want to introduce significant new or different terms to an existing agreement with creditors, these should be drawn to creditors attention prior to their voting on the scheme.

Footnote

1. [2002] 1 WLR 1345

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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