This is a two-part article on ways to restructure debt taken up by a German company. The first part looks at financings under English law, the second refers to German law-governed debt.
Part I – Financings governed by English law (restructuring through schemes of arrangement)
In recent years a number of German companies such as Tele Columbus, Rodenstock and Primacom have used English law scheme of arrangements to restructure their debt.
An element of the restructuring toolbox
Schemes of arrangement governed by sections 895 to 901 of the Companies Act 2006 are a tool to compromise liabilities by majority consent of the creditors (holding 75% of the affected liabilities). They are used where a company and the majority of its creditors (or a class of creditors) wish to restructure corporate debt outside of insolvency proceedings and where credit documentation does not allow disregard of any dissenting creditors’ objections. They can be used to restructure the debt of German companies if
- there is sufficient connection with England; and
- the scheme will be enforceable in any relevant jurisdictions other than England and so achieve its purpose.
Sufficient connection with England
The High Court of Justice, whose sanction is needed for a scheme to be effective, only exercises its jurisdiction if a sufficient connection of the company's affairs with England is shown.
One way such a sufficient connection can be established is if the creditor claims to be restructured are or become governed by English law and are subject to the jurisdiction of the English courts. If a company has a financing and the relevant loan documents are governed by English law, it can apply for sanctioning a scheme even though the company’s centre of main interests (COMI) is not in England (if the second criteria discussed right below is also met).
Recognition in Germany as a precondition to sanction
A scheme of arrangement cannot be sanctioned if the English High Court is not satisfied that the scheme will achieve its purpose, i.e. that relevant foreign courts will recognise the scheme. The English High Court, as evidenced in the cases of Tele Columbus, Rodenstock and Primacom, clearly considers that schemes involving German companies are capable of fulfilling the purpose for which they are intended. Where the relevant scheme liabilities are governed by English law one can readily see grounds for proceeding on this basis.