The English High Court has again considered whether by itself the choice of English law and court jurisdiction in legal documentation establishes a “sufficient connection” with England to enable a foreign company to avail itself of an English scheme of arrangement.

Background

It has become increasingly popular for foreign companies to utilise an English scheme of arrangement in cross-border restructuring matters. This may particularly be the case where a restructuring in their country of domicile might produce a less advantageous outcome for creditors (or the companies) or where there is a group of companies spread over disparate jurisdictions (e.g. within different EU states).

In July 2015, the English High Court considered a further such example in the case of Van Gansewinkel Groep B.V. [2015] EWHC 2151 (Ch),  dealing with a group of companies incorporated mainly in The Netherlands and Belgium.

Following prior case law (RodenstockPrimacomApcoa), a foreign company may be the subject of an English scheme of arrangement even though it does not have any major assets, an ‘establishment’ or its ‘centre of main interests’ (COMI) in England so long as a “sufficient connection” with England was established. What satisfies the “sufficient connection” test has been extended and elaborated upon in these and other recent cases.

“Sufficient connection” and jurisdictional issues

Further, there are regularly jurisdictional issues which arise when foreign companies propose an English scheme of arrangement, in particular with companies domiciled in another EC Member State in relation to the impact of the EC Insolvency Regulation (EC 1346/2000) and the recast EC Judgements Regulation (EU 1215/2012). The Court in the Van Gansewinkel case considered that it would not act simply as a ‘rubber stamp’ to approve schemes put before it, even where the majority of creditors support the scheme, but must also consider whether it has proper jurisdiction to deal with the matter.

Whilst generally a “sufficient connection” with England can be established by the foreign company showing that the terms of its legal documents with its major creditors are governed by English law (e.g. in a facility agreement), care should be taken to also check whether both the companies and their creditors have submitted to the jurisdiction of the English court. If it is only a ‘one way’ jurisdiction clause (i.e. only the debtor had submitted, not the creditor) the Court will not consider this by itself to be acceptable to establish a “sufficient connection”.

The Van Gansewinkel companies did not have any major assets, an ‘establishment’ or its COMI in England. The legal documents only contained a ‘one way’ jurisdiction clause so the Court sought to utilise alternative provisions of the EC Judgements Regulation to establish whether the companies had this “sufficient connection”. In that regard, they looked at the country of domicile of the scheme creditors. Even though only 15 out of 106 scheme creditors (amounting to c.€135 million of c.€800 million of the total scheme debts) were domiciled in England, the Court held that this established a “sufficient connection” with England. The Court accordingly sanctioned the schemes. Arguably, even if only one significant creditor of the companies was domiciled in England, then this would also establish a “sufficient connection” and allow the English courts to consider the matter. Note however, that the Court did not decide on whether the EC Judgements Regulation would apply to the case, but simply proceeded on the assumption that it would do so (as had been the approach adopted in prior cases).

Finally, on the evidence before it, the Court was satisfied that the English schemes would be recognised in the courts of The Netherlands and Belgium. The Court may have adopted a different approach had this not been the case.

Conclusion

Practically, when considering utilising an English scheme of arrangement where there is no COMI or ‘establishment’ in England, companies and their advisers should review carefully the main creditor documentation in relation to choice of law and jurisdiction. Further, evidence should also be collated of whether there are English creditors (their value and number), and whether an English scheme would be recognised by the Courts of the country of incorporation/domicile of the foreign companies.