Gategroup Guarantee Ltd, Re

Factual and Procedural Background

The Plan Company was incorporated on 8 December 2020 as a wholly owned subsidiary of the Parent, a Swiss-incorporated company that heads a global airline catering Group. The Group suffered a severe downturn in business due to the Covid-19 pandemic, with flights and meals served dropping significantly, leading to serious financial difficulties. Without further funding, unavailable without approval of the Plan, the Group would exhaust its cash by April or May 2021. The Plan Company was ordered on 11 February 2021 to convene two creditor meetings to consider approval of a restructuring plan under section 901C of the Companies Act 2006 (the 2006 Act).

The Group’s debt structure includes three principal financing arrangements: a senior facilities agreement (SFA) governed by English law, CHF350 million bonds governed by Swiss law with jurisdiction in Zurich, and an Interim Liquidity Facility (ILF) provided by entities owned by the Group’s ultimate shareholders. Additionally, a Mezzanine Facility Agreement exists outside the Group structure. The Plan relates only to the SFA and Bonds, which are part of a wider restructuring involving maturity extensions and additional shareholder funding.

The Plan Company was incorporated and executed a Deed Poll agreeing to indemnify Senior Lenders and Bondholders for sums due under the SFA and Bonds, respectively. The Plan Company holds no assets and relies on a Contribution Payment Agreement for funding any payments it must make. The Plan’s substantive effect is to extend the maturity of the SFA and Bonds by five years with certain amendments, while interest rates remain unchanged.

The Plan Company’s application to convene creditor meetings was effectively unopposed after an initial opponent withdrew. The court was tasked with considering jurisdictional issues, the adequacy of notice, threshold conditions under Part 26A of the 2006 Act, class composition, and other procedural and substantive matters relevant to convening meetings.

Legal Issues Presented

1. Whether the court has jurisdiction to sanction the Plan given the exclusive jurisdiction clause in the Bonds and the application of the Lugano Convention and related EU regulations.
2. Whether the Plan Company meets the Threshold Conditions A and B under section 901A of the 2006 Act, requiring the company to be in financial difficulties affecting its ability to continue as a going concern and that the Plan’s purpose is to mitigate those difficulties.
3. Whether the Plan constitutes a valid compromise or arrangement within the meaning of Part 26A of the 2006 Act.
4. Whether the composition of the creditor classes (Senior Lenders and Bondholders) is appropriate for convening separate meetings.
5. Whether there are any other issues, procedural or substantive, that might preclude the court from sanctioning the Plan or convening meetings.

Arguments of the Parties

Appellant's Arguments (Plan Company)

• The Plan Company contended that the Lugano Convention does not apply to Part 26A restructuring plans as they fall within the bankruptcy exception, being proceedings related to insolvency and judicial arrangements.
• The Plan Company argued that the Threshold Conditions A and B are satisfied because it is in financial difficulties and the Plan seeks to mitigate those difficulties.
• The Plan Company maintained that the Plan constitutes an arrangement with creditors despite the artificial co-obligor structure, relying on the Deed Poll and Contribution Payment Agreement to create liability.
• It was submitted that the Senior Lenders and Bondholders, though having different rights, share sufficient common interest to warrant separate classes and meetings, with the Plan providing a better prospect than liquidation.
• The Plan Company asserted that the notice given to creditors was adequate and that the explanatory statement was appropriately clear and concise.
• It was argued that the court’s jurisdiction exists notwithstanding the exclusive jurisdiction clause in the Bonds due to the bankruptcy exclusion in the Lugano Convention.

Opponent's Arguments (Hestia Investments Designated Activity Company)

• Hestia initially opposed on grounds that it was not a creditor due to a disclaimer under the Deed Poll (later withdrawn).
• It contended that the Plan did not constitute a compromise or arrangement with the Plan Company’s creditors because it only amended contracts between the creditors and third parties, not the Plan Company itself.
• Hestia argued the Plan Company was not in financial difficulties affecting its ability to continue as a going concern, as it voluntarily assumed liabilities and had no business or assets.
• It submitted that the circumstances of the Plan Company’s incorporation and assumption of liabilities were unusual and did not meet the Threshold Conditions.
• Hestia challenged the court’s jurisdiction, contending that Part 26A plans are materially the same as Part 26 schemes and thus do not fall within the bankruptcy exception to the Lugano Convention.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed jurisdiction, noting the Plan Company’s acceptance that if the Lugano Convention applies, the exclusive jurisdiction clause in the Bonds would bar this court’s jurisdiction. The court considered whether Part 26A restructuring plans fall within the bankruptcy exception to the Lugano Convention, concluding that they do. This conclusion was grounded in the broad language of the bankruptcy exception, the purpose of Part 26A plans to address financial difficulties threatening going concern status, and the collective nature of such proceedings akin to insolvency proceedings. The court rejected the narrow dovetailing principle argument based on Annex A of the Insolvency Regulation, given the UK’s exit from the EU and timing of Part 26A’s enactment.

The court analyzed the Threshold Conditions A and B, finding that the Plan Company is in financial difficulties and the Plan seeks to mitigate those difficulties, thus satisfying the conditions. The court rejected the opponent’s argument that the Plan Company’s financial difficulties were self-inflicted and that it was not a going concern.

Regarding whether the Plan constitutes a compromise or arrangement, the court applied established principles from Part 26 schemes, holding that the Plan need not alter rights against the Plan Company directly, and that arrangements affecting rights against third parties are permissible if ancillary and necessary to the effectiveness of the Plan. The artificial co-obligor structure, while unusual, was held not to preclude the Plan’s validity.

On class composition, the court applied the test that classes must be composed of creditors with rights sufficiently similar to consult with a view to their common interest. The court found that the Senior Lenders and Bondholders have materially different rights against different obligors, different interest rates, maturity dates, and other terms, making it impossible for them to constitute a single class. Accordingly, two separate classes and meetings were ordered.

The court considered other issues, including adequacy of notice and practical arrangements for meetings, finding the notice sufficient and the explanatory statement appropriately clear. The court also considered expert evidence that the Plan would be recognized and enforced in relevant foreign jurisdictions, removing any obstacle to convening meetings on that basis.

Holding and Implications

The court’s final decision was to ORDER THE CONVENING OF TWO MEETINGS OF CREDITORS, one for the Senior Lenders and one for the Bondholders, to consider and, if thought fit, approve the restructuring Plan under section 901C of the Companies Act 2006.

The court held that it has jurisdiction to sanction the Plan notwithstanding the exclusive jurisdiction clause in the Bonds, due to the bankruptcy exception in the Lugano Convention. The Plan Company meets the statutory Threshold Conditions. The Plan constitutes a valid compromise or arrangement under Part 26A. The creditor classes must be divided into two given the material differences in their rights. Adequate notice and procedural arrangements were confirmed.

The direct effect is to permit the Plan Company to proceed with the restructuring process by convening creditor meetings. No new precedent was established beyond the court’s reasoned application of existing principles to the novel facts of this case, particularly regarding jurisdiction and class composition in the context of a co-obligor restructuring plan.