Factual and Procedural Background
The applications before the court were made by two companies, referred to as the Scheme Companies, seeking orders under section 896 of the Companies Act 2006 to convene meetings of creditors to consider and potentially approve proposed schemes of arrangement. These schemes relate to the restructuring of the Group, a fast fashion retail business operating multiple stores and e-commerce platforms across various countries. The Group comprises a parent company and subsidiaries, including the Scheme Companies, which are incorporated in England and Wales.
The Group faces significant financial difficulties, including liquidity pressures caused by declining retail footfall, increased costs, and unsuccessful market strategies. Several subsidiaries have entered insolvency or liquidation proceedings in different jurisdictions. The Group’s indebtedness includes senior secured notes governed by New York law, a revolving credit facility governed by English law, operating facilities, a bridge facility, and foreign exchange hedging arrangements.
In response to these challenges, the Group proposed a comprehensive restructuring involving new holding companies, administration of the parent company, sale of a key subsidiary, release of certain guarantees and securities, issuance of new notes and equity, and amendments to intercreditor agreements. The restructuring is supported by a Lock-Up Agreement entered into by key financial stakeholders representing a substantial majority of creditors.
The court was asked to consider the appropriateness of convening meetings of creditors to vote on the proposed schemes, including whether the creditors should be divided into classes for voting purposes.
Legal Issues Presented
- Whether the court has jurisdiction over the Scheme Companies.
- Whether the court has jurisdiction over the Scheme Creditors in accordance with the recast Judgments Regulation.
- Whether, if approved, the Schemes are likely to have a substantial effect in relevant jurisdictions.
- Whether the proposed meetings of Scheme Creditors are appropriate and whether the creditors should be divided into separate classes for voting purposes.
Arguments of the Parties
Scheme Companies' Arguments
- The Scheme Companies argued that the rights of the Senior Secured Scheme Creditors are sufficiently similar to allow them to consult together in a single class for voting.
- They submitted that differences between Fixed Rate Notes and Floating Rate Notes, such as currency denomination and interest rates, are not material enough to require separate classes.
- The Lock-Up Agreement, which confers fees on creditors who acceded, does not materially affect the rights or voting decisions to warrant separate classes.
- The rights of the Parallel RCF Scheme Creditors are also sufficiently similar to be treated as a single class.
- The Lock-Up Agreement is irrelevant to class composition for the Parallel RCF Scheme as it confers no fees on those creditors.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re Noble Group Ltd [2018] EWHC 3092 (Ch) |
Jurisdictional considerations at convening stage and approach to evidence on substantial effect. |
Used to support the approach that jurisdictional questions not dependent on future evidence can be decided at convening stage, while substantial effect requires evidence. |
| Re Magyar Telecom [2014] BCC 448 |
Scheme company’s sufficient connection to jurisdiction despite foreign law governing debt. |
Supported finding jurisdiction over Scheme Companies despite New York law governing some notes. |
| Sompo Japan Insurance Inc v Transfercom Ltd [2007] EWHC 146 (Ch) |
Requirement that schemes have substantial effect in foreign jurisdictions. |
Referenced to explain necessity of substantial effect for sanctioning schemes. |
| Re Hawk Insurance Co Ltd [2001] 2 BCLC 480 |
Test for class composition in scheme meetings based on similarity of legal rights. |
Applied to determine whether multiple classes of creditors are required. |
| Re UDL Holdings Ltd [2002] 1 HKC 172 |
Principles on similarity of rights for class formation in scheme meetings. |
Used to emphasize that divergent private interests do not justify separate classes, only legal rights do. |
| Re Primacom Holding GmbH [2012] EWHC 164 (Ch) |
Focus on existing and replacement rights in class determination. |
Guided the court’s approach to class composition focusing exclusively on rights. |
| Re Telewest Communications plc [2004] BCC 342 |
Materiality of differences in rights for class formation. |
Supported conclusion that differences in currency and interest rates did not fracture class. |
| Re Co-operative Bank [2013] EWHC 4072 (Ch) and [2017] EWHC 2269 (Ch) |
Similar principles on class composition and voting rights. |
Referenced in support of approach to class composition and voting rights allocation. |
| Re Global Garden Products [2017] BCC 637 |
Jurisdiction over scheme creditors under Judgments Regulation and Article 8 exception. |
Applied to confirm jurisdiction over scheme creditors domiciled in the UK. |
| Re Metinvest [2016] EWHC 79 (Ch) |
Same as above on jurisdiction over creditors. |
Supported jurisdictional analysis over scheme creditors. |
| Re DTEK Finance plc [2016] EWHC 3563 (Ch) and [2017] BCC 165 |
Same as above on jurisdiction over creditors. |
Reinforced conclusions on jurisdiction under Judgments Regulation. |
| Re Bibby Offshore Services plc [2017] EWHC 3402 (Ch) |
Same as above on jurisdiction over creditors. |
Used to support jurisdictional findings. |
| Re Lehman Brothers [2018] EWHC 1980 (Ch) |
Same as above on jurisdiction over creditors. |
Referenced for jurisdictional principles. |
| Re Van Gansewinkel Groep [2015] EWHC 2151 (Ch) |
Consideration of size and number of creditors domiciled in the UK for jurisdiction. |
Not directly decided but discussed in context of jurisdiction over creditors. |
| Re McCarthy and Stone plc [2009] EWHC 712 (Ch) |
Comparison of rights in insolvency for class determination. |
Used to illustrate that future interest claims are not material differences in insolvency. |
| Re DX Holdings Ltd [2010] EWHC 1513 (Ch) |
Lock-Up Agreement’s impact on class composition. |
Supported view that small fees under lock-up do not necessitate separate classes. |
| Re NEF Telecom [2012] EWHC 2483 (Comm) |
Lock-Up Agreement and class composition. |
Referenced to support approach to lock-up fees and class composition. |
| Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch) |
Lock-Up Agreement and class composition. |
Used to confirm approach on lock-up agreement fees and voting classes. |
Court's Reasoning and Analysis
The court commenced by confirming jurisdiction over the Scheme Companies, noting their incorporation in England and Wales and the English law governing the revolving credit facility. The foreign law governing certain notes did not preclude jurisdiction given the sufficient connection to England.
Regarding jurisdiction over Scheme Creditors, the court considered the recast Judgments Regulation and accepted the approach that jurisdiction exists if at least one creditor is domiciled in the UK, supported by the fact that a significant proportion of creditors were UK-domiciled. The court found no jurisdictional impediment.
On the requirement that the Schemes have a substantial effect, the court acknowledged that evidence was not yet presented but found no obvious impediment at the convening stage.
In assessing whether the proposed meetings of creditors were appropriate, the court applied established legal principles focusing on the similarity of legal rights rather than interests. It found that the Senior Secured Scheme Creditors, despite differences in currency and interest rates, held sufficiently similar rights, especially when compared to their rights in insolvency, where such differences are neutralized. The Lock-Up Agreement’s fees were deemed too small to materially affect voting behavior or require separate classes.
Similarly, the court found the Parallel RCF Scheme Creditors formed a single class due to their materially identical rights and the absence of any material impact from the Lock-Up Agreement on their rights or voting.
The court also considered potential conflicts of interest arising from a significant creditor’s dual role as a shareholder but concluded that such differences in private interests do not justify separate classes.
Holding and Implications
The court GRANTED the applications by the Scheme Companies to convene meetings of creditors to consider the proposed schemes of arrangement.
The court held that the Scheme Companies have jurisdiction, the court has jurisdiction over the Scheme Creditors, and there is no obvious impediment to the Schemes having a substantial effect. It approved the composition of the meetings as proposed, with one class for the Senior Secured Scheme Creditors and one class for the Parallel RCF Scheme Creditors.
The direct consequence is that the Scheme Companies may proceed to convene creditor meetings on the basis approved. The decision does not establish new precedent but applies established principles to the facts of this complex restructuring.