Factual and Procedural Background
An application was made for an order sanctioning a scheme of arrangement under Part 26 of the Companies Act 2006. The application was submitted by Company A, an English incorporated subsidiary of Company B, a Spanish parent company engaged in gaming and related activities across Latin America, Italy, and Spain. The group’s financing primarily consisted of a senior facilities agreement and the issuance of notes governed by New York law but subject to an English law intercreditor agreement. As of 28 August, the group had gross debts of approximately 1,460 million, with notes accounting for about 1,214 million, and was unable to meet all its debts.
Restructuring negotiations began over two years prior, considering insolvency proceedings in other jurisdictions but rejecting them due to risks to essential licenses. The group chose to pursue the English scheme jurisdiction, driven by creditor interests. Company A was acquired recently for this purpose and agreed to assume joint and several obligations relating to the notes, with over 97% of noteholders consenting.
The proposed restructuring involves cancelling existing notes in exchange for shares and new notes, injecting 400 million of new capital, and reorganizing the group’s corporate structure through asset transfers and interposed entities. Implementation is conditional on recognition under Chapter 15 of the US Bankruptcy Code, with a hearing scheduled. The scheme anticipates creditors recovering at least 47% of liabilities, compared to a potential zero recovery otherwise. At a creditor meeting, 98.78% by value voted in favor, with no opposition.
Legal Issues Presented
- Whether the statutory requirements under the Companies Act 2006 for sanctioning a scheme of arrangement have been complied with.
- Whether the class of creditors was fairly represented and acted bona fide without coercion of the minority.
- Whether the scheme is one that an intelligent and honest member of the class might reasonably approve.
- Whether the recent acquisition of the English company for the purpose of invoking the scheme jurisdiction constitutes impermissible forum shopping sufficient to refuse sanction.
- Whether the scheme’s recognition under the Insolvency Regulation and the recast Judgments Regulation presents any obstacle to sanction.
Arguments of the Parties
Appellant's Arguments
- The company contended that all statutory requirements for sanctioning the scheme had been met, including compliance with the Companies Act and fair representation of creditors.
- It argued that the scheme was reasonable and in the best interests of creditors, supported by overwhelming creditor approval and lack of viable alternatives.
- Addressing concerns about forum shopping, the company maintained that the recent acquisition was justified and did not warrant refusal of sanction, emphasizing the scheme’s connection to England through the company’s centre of main interests and other jurisdictional links.
Appellee's Arguments
- An ad hoc committee of creditors, represented by counsel, emphasized that the use of the English scheme jurisdiction was creditor-driven.
- Concerns were raised regarding the recent acquisition of the company as potential forum shopping, referencing judicial observations about the extremity of such a tactic.
- Submissions highlighted the need for the court to carefully consider the jurisdictional connections and the appropriateness of sanctioning the scheme in light of these factors.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re National Bank Ltd [1966] 1 WLR 819 |
Guidance on the court’s approach to sanctioning schemes: compliance with statute, fair representation of the class, bona fide action by majority, and reasonableness of the scheme. |
The court applied the three-part test endorsed in this case to confirm compliance and fairness in the present scheme. |
| Re Van Gansewinkel Groep BV [2015] EWHC 2151 (Ch) |
Jurisdictional considerations under the Insolvency Regulation and recast Judgments Regulation for schemes involving companies with a centre of main interests in England. |
The court relied on this authority to conclude that no regulatory obstacles prevented sanctioning the scheme. |
| Re A I Scheme Ltd [2015] EWHC 1233 (Ch) and [2015] EWHC 2038 (Ch) |
Sanctioning schemes involving companies that voluntarily assume liabilities to invoke English scheme jurisdiction. |
The court found this precedent analogous, supporting sanction despite recent acquisition and assumption of liabilities. |
Court's Reasoning and Analysis
The court began by confirming compliance with the statutory provisions under the Companies Act 2006 and that the creditors who voted fairly represented the class to be bound by the scheme. It found no evidence of coercion or improper conduct by the majority. The court applied the established three-part test from Re National Bank Ltd, concluding that the scheme was reasonable and that an intelligent and honest creditor would approve it.
Addressing concerns about forum shopping raised by a prior judge, the court acknowledged that the recent acquisition of the company to invoke the English scheme jurisdiction was a form of forum shopping. However, it distinguished between improper forum shopping aimed at evading debts and legitimate forum shopping intended to secure the best outcome for creditors. The court found that the scheme’s connections to England—such as the company’s centre of main interests, the English law intercreditor agreement, the domicile of a significant portion of creditors, and the involvement of trustees operating from London—provided a sufficient jurisdictional basis.
The court also considered relevant authorities confirming the acceptability of sanctioning schemes involving companies with recent connections to England or changes in governing law. It noted that the scheme’s effectiveness in other jurisdictions was supported by the condition precedent of Chapter 15 recognition in the United States.
Overall, the court exercised its discretion to sanction the scheme, emphasizing the benefits to creditors, the overwhelming support received, the absence of opposition, and the substantial loss that could result from refusal.
Holding and Implications
The court GRANTED the application and sanctioned the scheme of arrangement under Part 26 of the Companies Act 2006.
The direct effect is that the proposed restructuring can proceed, enabling the group to restructure its debts and corporate structure in a manner supported by creditors and consistent with English law. No new legal precedent was established; rather, the decision affirmed the court’s established approach to sanctioning schemes, including the acceptance of certain forms of forum shopping when justified by creditor interests and jurisdictional connections.