Key Point

Two recent cases have resulted in innovative structures for restructuring the finances of groups of companies being sanctioned by the English Courts pursuant to schemes of arrangement. The trend for using such a mechanism for financial restructuring shows no signs of abating. On the contrary the innovative scope of such schemes appears to be expanding

Stemcor restructuring

The scheme

The first case is Re Stemcor. Here a large group involved in steel trading was in financial difficulty. It had multiple lenders under half a dozen different syndicated facilities. Different group companies were the borrowers and/or guarantors under different facilities made available to the group ("the old facilities"). The scheme proposed by Stemcor had the following features;

  • The old facilities were to be consolidated, amended and restated into a new term loan facility ("the new facility") made up of senior and junior ranking elements;
  • A new trade finance facility would be made available to the group;
  • For those  lenders who agreed to participate in the new trade finance facility more of their old facility debt would qualify for conversion into the senior element of the new facility than non-participating creditors; and
  • Participation in the new trade finance facility also brought other benefits to participating creditors which would not be available to those old lenders who chose not to participate in the new trade finance facility.

The innovative feature of this scheme is the way it offered different treatment to creditors in the same class dependent upon whether they chose to take part in the new trade finance facility.

The decision

The Court decided this was a scheme which was fair and so should be sanctioned acknowledging that it had an unusual feature in treating certain similar lenders differently. The key to arriving at this decision was that the group faced liquidation if the scheme was not implemented and each lender had the ability to participate in the new trade finance facility if it so wished.

Apcoa restructurings

The scheme

Apcoa group was involving in the car parking business. Schemes of arrangement for nine group companies were put forward as part of a general financial restructuring which it was hoped would eventually be implemented by consensual agreements between the relevant group companies and the lenders. The schemes had a narrow objective of simply extending the date upon which the facilities made available to the group would become repayable. This was necessary because all lender consent was required under the terms of the loans to extend maturity and that could not be obtained even though a significant majority of lenders would have been in favour. The following features of the scheme are relevant:

  • Companies from Austria, Belgium, Denmark, England, Germany and Norway were involved;
  • Each of the non-English companies had their COMI in another country;
  • The facility agreements had originally been governed by German law; and
  • The governing law clause had recently been changed to English law by majority lender consent.

The novel feature of this scheme was that the majority lenders had changed the governing law clause of the facility agreement with the specific aim of founding jurisdiction to implement an English scheme of arrangement which itself had one object  - overriding the need for unanimity in relation to extending the maturity of the relevant loans.

The decision

In Re Apcoa the judge decided that the change in the governing law clause was effective, the Court had jurisdiction to hear the scheme application and the scheme – even though designed to override an "obstacle" built into the facility agreement – was fair and should be sanctioned.

Comment

These two cases are just the most recent schemes used in the context of financial restructurings to push through complex restructurings where some dissenting element needs to be overridden. Schemes have been the tool of choice for both English law governed debt rescheduling - and now it seems foreign law governed indebtedness - at least where the governing law clause can be changed. English courts are not shy of accepting jurisdiction over foreign registered entities and similarly do not need much convincing about the "sufficient connection test" used to found that jurisdiction even where it is obvious forum shopping has taken place. The English court is prepared to distinguish good forum shopping from bad forum shopping when judged against the yardstick of financial collapse into liquidation or analogous proceedings.