AGPS BondCo: Court of Appeal obiter slightly opening the jurisdictional can of worms in English restructuring practice.

I have frequently reported on the use of English restructuring and law, including Plans and Schemes of Arrangement, and the forum and applicable law shopping strategies for same. Readers will find the tag ‘restructuring’ or ‘scheme of arrangement’ useful.

My post on Apcoa  summarises many of the issues and cross-refers to many other postings. The same post in a later update reports on Codere, which has become standard reference, and to AGPS Bondco Plc, Re, where the Court’s jurisdiction was unsuccessfully challenged on the basis that the Issuer Substitution was ineffective or invalid as a matter of German law.

That latter judgment has now been successfully appealed in Strategic Value Capital Solutions Master Fund LP & Ors v AGPS BondCo PLC (Re AGPS BondCo PLC) [2024] EWCA Civ 24. The Court of Appeal held that the first instance judge had unjustifiably departed from the paru passi distribution of assets principle in sanctioning the cross-class cram down.

Of note for the blog however is Lord Justice Snowden’s obiter reference to the jurisdiction [29] ff as follows:

1. 1. 1. After the failure of the consent solicitation, the Group announced its intention to implement the proposed restructuring by an alternative route. This was to propose a restructuring plan under Part 26A and to ask the English court to exercise its cram down power to overcome the objections of the Appellants. To that end, the Plan Company was incorporated in England and Wales as a subsidiary of the Parent Company on 23 December 2022.

1. 1. 1. On 10 January 2023, the Appellants put forward an alternative restructuring proposal to the Group. That elicited no immediate response, but on 19 January 2023 the SteerCo informed the Company that the Appellants’ proposal was not acceptable.

1. 1. 1. On 11 January 2023 the Plan Company was substituted for the Parent Company as the issuer of the Notes, ostensibly pursuant to the substitution procedure under the Notes (the “Issuer Substitution”). In connection with that substitution, the Parent Company guaranteed the Plan Company’s obligations under the Notes, and the Parent Company issued back-to-back loan notes to the Plan Company on the same terms as the Notes.

1. 1. 1. It is self-evident, and the Plan Company accepted before the Judge, that the Issuer Substitution was carried out for the sole purpose of introducing an English company into the Group structure in order to persuade the English court to exercise its jurisdiction under Part 26A. Absent the Issuer Substitution, a proposal for the compromise of foreign law debts owed by a foreign company with no relevant connection with England would not have been entertained by the English court.

1. 1. 1. The technique of inserting a newly incorporated English company as a substitute obligor or co-obligor of debt owed by a foreign company in order to engage the jurisdiction of the English court under Part 26 or Part 26A has been used in a number of schemes and plans that have been sanctioned at first instance over the last few years: see e.g. Codere Finance (UK) Limited [2015] EWHC 3778 (Ch) and Gategroup Guarantee Limited [2021] EWHC 775 (Ch) at [12]-[23]. Mr. Bayfield KC told the Judge that it was “an established technique”. It has, however, not been the subject of consideration at an appellate level.

1. 1. 1. The Appellants did not oppose the Plan before the Judge on the basis that the Issuer Substitution was an artificial device that could not justify the exercise of discretion to sanction the Plan. The point did not, therefore, arise for consideration on this appeal. For the avoidance of doubt, and without expressing a view one way or the other, I would wish to make it clear that the fact that this judgment does not deal with this issue should not be taken as an endorsement of the technique for future cases.

1. 1. 1. The Appellants did, however, challenge the legality of the Issuer Substitution as a matter of German law, both before the Judge, and by proceedings in Germany itself. The Judge heard expert evidence and was satisfied that it complied with German law. The Appellants also indicated that irrespective of our decision on this point, they reserved the right to continue their challenge to the Issuer Substitution in Germany.

(emphasis added)

The point is clearly made obiter, seeing as the issue was not appealed (although it is being litigated in Germany, which evidently will raise interesting further issues); and of course it is possible that Snowden LJ simply mentions the issue for it was litigated at first instance. Yet often if that is the case, the Court of Appeal simply keeps schtum about it. Therefore just possibly it may be hinting that the often applied arguendo approach to jurisdiction for Schemes and Plans (“arguments put forward are not barmy and they are not really opposed by any party therefore we accept jurisdiction”) may not work at least across the board in restructuring cases.

An obiter hint of note.

Geert.

EU Private International Law, 4th ed. 2024, 5.35 ff.