The English High Court has sanctioned a scheme of arrangement for Algeco Scotsman PIK SA, a Luxembourg-incorporated company, after the creditors consented to the New York governing law and jurisdiction clause being altered in favour of the jurisdiction of the English courts. The issues discussed were:

  1. the fair representation of a class of creditors;
  2. cross-jurisdictional schemes; and
  3. early tender fees offered to creditors.

Background

The proposed scheme was a part of a broader strategy to restructure the liabilities of the company and incorporate new investors into the group. It related to the repayment of a loan facility (approximately $400million), which contained a non-exclusive New York governing law and jurisdiction clause. The matter of the company’s centre of main interests (COMI) further compounded the cross-jurisdictional complexity.

The creditors consented to the New York governing law and jurisdiction clause being altered to prefer the jurisdiction of the English courts. Moreover, although the company was incorporated in Luxembourg, its COMI was adjudged overwhelmingly to rest in England. The head office functions and negotiations for the scheme of arrangement with creditors were conducted from England.

Decision

The scheme of arrangement was sanctioned by the court. The court had to be satisfied that there was a sufficient connection with this jurisdiction to warrant the intervention of the English courts. Even if the COMI of a company is shifted prior to the presentation of the scheme for the purpose of facilitating that scheme, this will create a sufficient connection with England. Similarly, a change in the jurisdiction clause of a facility agreement for the purpose of opening a scheme to the English jurisdiction would also count towards proving sufficient connection. In this case, the court found that the company’s COMI was in England and the financial obligations to be restructured by the scheme were governed by English law after the creditors had agreed to change the non-exclusive jurisdiction clause from the New York to the English Courts.

The court considered that in absence of the scheme, the recovery for creditors would be negligible by comparison to the return offered if the scheme was sanctioned. The requisite majority of the class under s.899 Companies Act 2006 was easily satisfied, receiving 97.56% approval of scheme creditors entitled to vote. The arrangement was in the best interests of the entire class, which had been formed in a bona fide manner and the scheme properly informed the majority about the merits of the arrangement.

The court approved the legitimacy of the early tender fee. Equating to 2% of the debt under the facility agreement, the offer was not unduly excessive and did not constitute a deceptive attempt to procure creditors’ approval. The fee was offered to all class members concerned and did not impair the opportunity for those who immediately accepted it to deliberate with others who considered rejecting the offer.

Comment

The judgment of the High Court does not create a seismic shift in the current approach to sanctioning a scheme of arrangement where similar complexities arise. However, the judge acknowledged that the decision highlights that the English courts will emphasise the importance of the function and intention of the scheme when considering similar cases. They are willing to be pragmatic in their interpretation of the issues and to give effect to the obvious intentions of the parties. Notwithstanding these guidelines, any such intention must be bona fide and be conceived with regards to the best interests of the entire class of creditors.

Additionally, where cross-jurisdictional matters are present, the scheme of arrangement should demonstrate a considered intention to submit to the jurisdiction of the English courts. As in the present case, this could be ensuring the COMI is in England or by altering a governing law and jurisdiction clause to represent submission to the authority of the English Courts.

Finally, the position is reinforced that an early tender fee can be considered as a viable mechanism to promote a scheme of arrangement. However, this should not be excessive nor be a concealed attempt to facilitate the unopposed approval of creditors without any consideration of the wider restructuring strategy.