The High Court has sanctioned a scheme of arrangement between a Vietnamese company and certain of its creditors; the first time a Vietnamese company has taken advantage of this restructuring process in England.
The Vietnam Shipbuilding Industry Group (Vinashin), a Vietnamese government-owned company registered in Vietnam, yesterday successfully applied to the High Court for sanction of a scheme of arrangement with certain of its creditors pursuant to a US$600 million facility. Vinashin was the fifth-largest shipbuilder in the world in 2008 and had liabilities of more than US$4.5 billion at the commencement of its financial restructure.
Vinashin has also successfully entered into deals with its other domestic and international creditors as part of its overall financial restructuring plan. Mayer Brown London, Mayer Brown JSM and KPMG were advising on various aspects of the financial restructuring and the implementation of the scheme.
Vinashin defaulted on the US$600 million facility on 20 December 2010 when it missed the first principal repayment of US$60 million. The need to employ a scheme of arrangement for this tranche of indebtedness arose due to certain creditors being unwilling to accept Vinashin's debt restructuring proposals.
After over two years of extensive negotiations involving various ministries and departments in Vietnam, Vinashin has come up with a restructuring proposal which has been accepted by the majority of the creditors and sanctioned by the court. Under the scheme, each creditor's debt will be exchanged for notes issued by a separate entity of a value pro-rata to its debt, guaranteed by the Vietnamese government, due in 2025. Thus, payment to the creditors will be delayed but the scheme results in a better position for creditors than would be the case were Vinashin to be placed into an insolvency process in Vietnam.
Key Ruling on Jurisdiction to Sanction a Scheme for Vinashin
The court considered in some detail, at the convening hearing for the scheme, whether it had jurisdiction to sanction the scheme. Vinashin has no assets, operations or other connection to England. Nevertheless, the court held that it did have jurisdiction to sanction the scheme, pointing to the fact that the loans restructured by the scheme derived from a facility agreement which was subject to English law.
The court went on to consider whether it had such jurisdiction where certain of the scheme creditors were based in the EU. This was the first time the court had had to consider whether a non-exclusive jurisdiction clause, conferring jurisdiction on the English High Court and enforceable for the lenders' benefit only, would suffice to meet any requirements under the Council Regulation (EC) No. 44/2001 (the Judgments Regulation). Whilst leaving open the question whether the Judgments Regulation applies to schemes at all, the court ruled that the jurisdiction clause sufficed for these purposes.
Another First – Stay of Summary Judgment Proceedings to Allow a Scheme to be Promoted
Vinashin was subject to claims by two of its creditors and, in April this year, successfully obtained stays of both sets of proceedings to allow it to put forward the scheme. The court granted the stays pursuant to its discretionary powers under the Civil Procedure Rules and on the basis that:
- support for the scheme in the form of executed undertakings to vote in favour had been obtained from creditors exceeding 50 percent in number and 75 percent in value of the total debt under the facility agreement;
- the court was satisfied that the scheme had been set on foot and had a reasonable prospect of succeeding;
- Vinasin was patently insolvent and accordingly the court had to consider the interests of Vinashin's creditors as a whole;
- there was a strong argument that no creditor should be entitled to a judgment to the expense of other creditors; and
- if individual lenders were entitled to obtain or execute a judgment against Vinashin, this may jeopardise the scheme.
Why Is This Important?
This is the first large-scale international restructuring undertaken by a Vietnamese state-owned enterprise. Due to Vinashin's role in an industry of strategic importance to Vietnam, the Vietnamese government has had significant involvement in the process. Given the widely reported financial difficulties experienced by other important state-owned enterprises, the restructuring of Vinashin will no doubt be hailed in Vietnam as a landmark success. The restructuring is also of importance to the market in terms of how rating agencies rate the debt of Vietnamese state-owned enterprises and the credit market’s appetite for Vietnamese issues.
The courts have shown an increasing willingness to permit foreign companies to make use of the English scheme of arrangement as a restructuring process. However, this is the first time that a Vietnamese company has taken advantage of the process to compromise its debts and it is also of note because none of Vinashin's creditors had a particular connection to England. The redeeming factor was that the relevant facility agreement is governed by English law.
This is another example of the English court's support for the rescue culture, particularly in light of the flexible approach to the court's case management powers, which were used to stay proceedings to allow a restructuring via a scheme to proceed. Developments like this will no doubt see the UK continuing to be a key focal point for international restructurings.