Azevedo & Anor v Imcopa Importacao, Exportacao E Industria De Oleos Ltd & Ors

Factual and Procedural Background

The appellants appealed an order dated 30 May 2012 concerning the lawfulness under English law of a company undertaking a process described as buying votes of holders of notes or other securities issued by the company. The core issue was whether English law permits a company to solicit and procure votes supporting a financial restructuring proposal by offering and making cash payments (consent payments) only to those voting in favour, excluding dissenters or non-voters. This practice is known as consent solicitation.

In 2006, the Second Defendant, incorporated in Uruguay ("Company A"), issued $100 million in guaranteed notes due 2009, guaranteed by its parent company, the First Defendant, incorporated in Brazil ("Company B"). The Third Defendant, a Cayman company ("Company C"), was also involved. The notes were governed by a Trust Deed under English law with English jurisdiction. The Claimants invested approximately $1.2 million in these notes.

In October 2010, a resolution was proposed as part of restructuring the Company's obligations, involving postponing interest payments. The meeting notice stated that payments would be made only to those voting in favour. The resolution passed overwhelmingly, but the Claimants did not vote in favour despite supporting earlier resolutions. They contended that the consent payments made only to those voting in favour were unlawful, alleging breach of the pari passu principle or that the payments were akin to bribes, thus not permitted under English company law.

The Claimants sought repayment or damages, and declarations that three resolutions passed in 2009 and 2010 were invalid and unlawful under English law. The Defendants denied the allegations, asserting the substitution of Company C as issuer was valid and that the consent payments were lawful and properly disclosed. The case was initially determined by Mr Justice Hamblen, who rejected the Claimants’ contentions. Permission to appeal was granted, but the appellate court dismissed the appeal, agreeing with the judge's reasoning and cost orders.

Legal Issues Presented

1. Is it lawful under English law for a company to solicit and procure votes in support of a financial restructuring by offering cash payments only to those voting in favour (consent payments) while excluding others?
2. Do such consent payments breach the pari passu principle or constitute an unlawful bribe under English company law?
3. Whether the substitution of the original issuer company with another released the original issuer from liability under the Trust Deed and Notes?
4. Whether the costs order made by the judge was appropriate?

Arguments of the Parties

Appellant's Arguments

• The consent payments paid only to consenting Noteholders breached the pari passu principle requiring equal treatment of all members of the class without preference.
• Offering payments only to those voting in favour was unlawful, akin to bribery, and rendered the resolutions invalid and ineffective.
• The majority votes obtained by such payments could not bind non-consenting Noteholders.
• The substitution of the issuer company did not release the original issuer from liability.
• The judge erred in ordering the Claimants to pay part of the Defendants' costs related to a security for costs application.

Respondent's Arguments

• The substitution of the issuer company was valid and released the original issuer from obligations.
• The consent payments were lawful, properly disclosed, and did not constitute bribery or fraud on non-consenting Noteholders.
• By not voting in favour, the Claimants effectively elected not to receive the consent payments.
• The no action provision in the Trust Deed did not bar the Claimants’ claims if repudiatory breach was established, but this was denied.
• The costs order was appropriate, and no misdirection occurred.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed whether the consent payments breached the pari passu principle or were unlawful under English company law. The pari passu principle requires equal treatment of creditors, but here it applied only to funds held by the Trustee under the Trust Deed. The court found that the consent payments were not made from funds held by the Trustee but directly by the issuer, so the pari passu clause did not apply.

The court rejected the Claimants' argument that the payments were unlawful bribes. It noted that the offer of payments was fully disclosed, open to all members of the class who chose to vote in favour, and thus no secret bargain or fraud was present. The court relied on established authorities confirming that while majority powers must be exercised bona fide and in the interests of the class as a whole, individual members may vote according to their own interests, and special treatment is permissible if disclosed.

The court distinguished the present case from Menier, where the majority improperly excluded the minority, finding no similar misappropriation here. It also considered comparative Delaware law materials but gave them limited weight due to jurisdictional differences.

Regarding the substitution of the issuer company, the court agreed with the lower court that the substitution was valid and released the original issuer from obligations.

On costs, the court found no error in the judge’s decision to order the Claimants to pay part of the Defendants’ costs, including those related to an unhearing of a security for costs application.

Holding and Implications

The court DISMISSED THE APPEAL, upholding the judge’s rejection of the Claimants’ challenge to the validity of the consent solicitation and consent payments.

Implications: The decision confirms that under English law, a company may lawfully offer and make consent payments to members of a class of noteholders who vote in favour of a restructuring resolution, provided the offer is fully disclosed and open to all members of the class. Such payments do not breach the pari passu principle if not made from funds held by the Trustee and are not inherently unlawful or bribery if transparent. The ruling clarifies that the majority’s exercise of voting power in such circumstances is valid and binding on the class. No new precedent was established beyond affirming existing principles, and the substitution of issuers in debt instruments can validly release the original issuer from obligations. The appeal against the costs order was also dismissed, confirming the judge’s discretion in costs matters.