Project Lietzenburger Strabe Holdco, Re [2024] EWHC 468 (Ch) would seem to heed my prediction when I reviewed AGPS BondCo (“Strategic Value Capital Solutions Master Fund LP & Ors v AGPS BondCo PLC (Re AGPS BondCo PLC) [2024] EWCA Civ 24) here: that the English jurisdictional basis for schemes of arrangement and restructuring plans for corporations without English anchor prior to the restructuring, is less certain than court practice suggested.
Prior to AGPS Bondco and as I report in many posts which readers can find using the ‘scheme of arrangement’, in the event of a non-E&W incorporated debtor whose debt was being restructured, the classic technique is to insert 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. That technique in itself has not changed, but the court’s fairly ready acceptance of jurisdiction arguendo is now coming under some pressure.
As I reported in the past, the arguendo technique’s smooth riding through the courts first if all was assisted by the general absence of challenge by creditors. Even those not entirely convinced of the economic soundness of the restructuring at issue would eventually give up opposition when push came to shove. Further, pre-Brexit the assumption that a scheme or a plan would be readily recognised across the EU as a ‘judgment’ under Brussels Ia, despite question marks over the soundness of that ia viz the definition of ‘judgment’ and the application of BIa’s ‘insolvency’ exception, similarly lubricated passage through the courts. Post Brexit and absent UK Lugano membership, things have not necessarily changed from the content point of view; however they have certainly changed from the perception point of view.
In the case at issue, Richards J refers to AGPS Bondco and discusses COMI shift of the Plan corporation at length [69] ff.
The plan company having its COMI in E&W is one of the jurisdictional routes available. The Insolvency (Amendment) (EU Exit) Regulations 2019 are the main port of call, and Re Swissport Holding International SARL [2020] EWHC 3556 (Ch) (unreported), which I flagged in my discussion of Barings v Galapagos here is the lead judgment referred to on the principles of COMI. One of the issues in Barings is the question of ‘permanency’ of COMI move, an urgent issue in Barings but perhaps less immediately concerning in current case (the judge does briefly address it [85]).
The judge having decided that COMI was indeed located in E&W then [86] ff discussed whether this move of COMI might have been in breach of Luxembourg law. The structure of this analysis is not entirely clear. Whether COMI moved in breach of applicable lex societatis is not in itself I would suggest relevant to the COMI move itself and indeed this is not how the judge seems to approach it. One assumes his analysis on this point is part of his consideration of whether the courts at Luxembourg would recognise the Plan, alongside [103] ff where the potential of exclusive Luxembourg jurisdiction is considered. Consideration including by the experts is made of CJEU C-723/20 Galapagos BidCo Sarl, with the judge eventually by a slender margin deciding that the view is to be preferred that Lux courts would not consider themselves to have such jurisdiction.
On recognition proper (again I am not quite sure of the structure here). [112] ff consider the Re DTEK Energy BV test, with consideration in particular of the COMI move as fraude à la loi /fraus (additionally in the form of fraude au jugement) and on balance the judge holds that it is unlikely that the LUX courts would object on ordre public grounds (ia given EU law’s acceptance of COMI move for restructuring purposes.
The same ordre public test under German law with an important Brexit consequence [125]: “Both experts agree that an English judgment sanctioning the Plan would be recognised in Germany only if the Plan Company’s COMI is in England at the time of any order sanctioning the Plan. Without that, the German courts would not accept that the English courts have jurisdiction for the purposes of s343 of the InsO.” I am not an expert on German law but it seems prima facie implicit in that opinion that a Plan would have to be considered an insolvency and indeed [125] ff follows that discussion. Here the judgment takes an interesting turn with [130] the presence of cross-class cram-down in an English Plan leading to pro inspiratio an Annex A EU Insolvency Regulation notified German procedure, StaRUG, in implementation of EU Directive 2019/1023 on Preventive Restructurings (the “Restructuring Directive”), the Plan being considered one in insolvency.
Consider the competing reasons:
Professor Thole’s reasons for concluding that the Plan would be recognised and given effect to in Germany can be summarised as follows:
i) The Plan is similar in nature to a StaRUG. StaRUGs fall within the list of “insolvency proceedings” set out in Annex A.
ii) Proceedings set out in Annex A are “insolvency proceedings” for the purposes of the InsO. In official commentaries on German domestic legislation, the German legislature has stated that, in deciding whether non-EU proceedings constitute “insolvency proceedings”, it is helpful to consider their similarities with proceedings listed in Annex A.
iii) Since the Plan is similar to a StaRUG, which falls within Annex A, a German court would likely conclude that an order sanctioning the Plan would be an order in “insolvency proceedings” for the purposes of the InsO.
iv) That conclusion is not altered by the accepted fact that the Plan does not deal with all the Plan Company’s creditors (such as professional advisers). The requirement for “collective proceedings” is present by virtue of the fact that the Plan deals with the rights of the Plan Company’s financial creditors. That conclusion is supported by a comparison with StaRUGs which likewise do not need to deal with the claims of all creditors.
v) Accordingly, the Plan would be enforced and recognised under the terms of the InsO.
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- Professor Skauradszun’s reasons for reaching a contrary conclusion can be summarised as follows:
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i) German legal literature categorises plans under Part 26A as “preventive restructuring frameworks” which are the province of the StaRUG Act rather than the InsO. Accordingly, a German court would consider that the question whether the Plan should be recognised and enforced in Germany should be answered by reference to the StaRUG Act, rather than by reference to the InsO.
ii) The StaRUG Act does not provide for preventive restructuring frameworks of a non-EU member state to be recognised or enforced in Germany. There is, therefore a “gap” in German domestic legislation which means that non-EU “preventive restructuring frameworks” are inherently incapable of being recognised in Germany. Since Germany has a civil law tradition, the courts would not seek to fill that gap by adopting a strained interpretation of the concept of “insolvency proceedings” so as to enable the Plan to be recognised under the InsO. Rather, a German court would look to the legislature to fill the gap if it saw fit.
iii) The Plan falls outside the definition of “insolvency proceedings” in the InsO applying orthodox principles of interpretation which are not affected by any wish to fill a perceived gap in the legislation. That is because the Plan lacks the requisite element of “collectivity” to satisfy the definition.
iv) The fact that the Plan is similar to procedures (such as a StaRUG) listed in Annex A is not relevant. While German legislation does indeed take into account similarities with EU insolvency proceedings, the InsO only requires a comparison to be made with proceedings listed in the EU Insolvency Regulation prior to it being recast in 2015. The German court would not apply an “always speaking” doctrine of statutory interpretation to “update” those references to include Annex A of the Insolvency Regulation Recast.
These are interesting positions and in the end the judge sides by a very narrow margin with the former.
Further consideration of the plan then lead to the judge suggesting a number of amendments but for the purposes of the blog, the findings on jurisdiction and recognition are as extensive as they are exciting.
Geert.
EU Private International Law, 4th ed. 2024, 5.35 ff.
gavc law - geert van calster 