Key Points

  • Court held notice to scheme creditors (here two weeks) was not sufficient in light of complexity of scheme
  • Court also highlighted deficiencies in supporting documentation

The Facts

In 2001 Indah Kiat (the Company), part of the APP group of companies, defaulted under the terms of two series of notes with a combined value of $350m (the Notes), both guaranteed by the Company’s parent. Litigation ensued in respect of the Notes and resulted in a number of judgments from both the New York and Indonesian courts.

In 2015, APP Investment Opportunity LLC (APPIO) took an assignment from the trustee of the Notes and commenced enforcement action against the Company. The Company subsequently proposed a scheme which, in exchange for the release of the Company and its parent from obligations under the Notes, gave scheme creditors the option of either: (i) an immediate cash payment of 25% of the value of the Notes (subject to an $8m cap); or (ii) an immediate cash payment of 13.5% of the value of the Notes and new unsecured notes issued by the Company’s parent.

Scheme creditors were given two weeks’ notice of the court hearing to convene a meeting of creditors (the Company having categorised all creditors as forming part of the same class). APPIOopposed the convening of any meeting on the basis of insufficient notice and sought an adjournment of six weeks.

Decision

Snowden J granted the adjournment sought by APPIO on the basis that insufficient notice had been provided to scheme creditors in light of the complexity of the proposed scheme, a view reinforced by the fact that there was seemingly no urgency to the situation. He also noted that even if he were not persuaded on the notice point, he would not have granted an order convening a meeting of creditors on the basis that evidence adduced by the Company in relation to the composition of creditors and the scheme generally (in the Explanatory Statement) were materially deficient.

Comment

The decision highlights the importance of ensuring: (i) adequate notice is provided to scheme creditors, taking into account the complexity of the scheme and the urgency of the situation and (ii) all supporting documentation has been carefully and thoroughly prepared. Snowden J also made the point that whilst the convening hearing was not the occasion to engage in debate on the merits of the proposed scheme, “the scheme jurisdiction can only work properly and command respect internationally if parties invoking the jurisdiction exhibit the utmost candour with the court”.

Re Indah Kiat International Finance Company B.V. [2016] EWHC 246 (Ch)