Posts Tagged Brussel I
Schemes of arrangement: No scheming, and no hastily arranging, please. The High Court adjourns hearing in Indah Kiat.
I have reported before on various schemes of arrangement which the English Courts gave the go-ahead even when they concerned non-English companies (I should flag that in two of those, Apcoa and Van Gansewinkel, I acted as expert). Thank you Arie van Hoe for bringing Indah Kiat to my attention some weeks ago.
Indah Kiat is a Dutch BV seeking an order convening a single meeting of its scheme creditors to consider and if thought fit approve a scheme of arrangement pursuant to Part 26 of the Companies Act 2006. The application is strenuously opposed by one of the Scheme Creditors, APP Investment Opportunity LLC (“APPIO”), which contests the jurisdiction of the court to entertain or sanction the Scheme. Such opposition is different from the other schemes which I mention in my previous postings.
In the first instance, APPIO simply seeks an adjournment of the Scheme Company’s application on the grounds that inadequate notice has been given to Scheme Creditors. However, it also raises a significant number of other issues concerning the adequacy of the evidence and disclosure by the Scheme Company, together with questions concerning the procedure and scope of the court’s jurisdiction to sanction creditor schemes for foreign companies in relation to debts governed by foreign law.
The Scheme Company is a special purpose vehicle which was incorporated for financing purposes in the Netherlands. It sought the COMI way to enable English courts to obtain jurisdiction over the scheme. English jurisdiction, required to carry out the Scheme, usually rests on either one of two legs: COMI, or making English law the governing law of the underlying credit agreements (if necessary by changing that governing law en route).
The COMI route to jurisdiction in many ways defies the proverbial impossibility of having one’s cake and eating it. For the establishment of a company’s centre of main interests, the courts and practice tend to refer to the EU’s Insolvency Regulation. Yet that schemes of arrangement do not fall under the Insolvency Regulation is a crucial part of the forum shopping involved in attracting restructuring advice to the English legal market. This is especially so for the aforementioned second route to jurisdiction (a change in governing law). however it is also true for the first form. Snowden J refers to that at para 85-86 of his judgment.
Indah Kiat has effected its change of COMI (rebutting the presumption of COMI being at its registered seat) by notifying its creditors via a number of clearing houses for the Notes concerned. APPIO contest that this notification sufficed for change in COMI. There are not enough relevant facts in the judgment to consider this objection thoroughly, however APPIO’s misgivings would not seem entirely implausible.
Snowden J notes that whilst protesting the jurisdiction, in the first instance APPIO simply seeks an adjournment of the convening hearing on the grounds that inadequate notice has been given of it to Scheme Creditors. It contends that given the complex nature of the Scheme and the factual background, there is no justification for an urgent hearing of the application. The Court agreed and the convening hearing (different from the sanction hearing, which follows later) was adjourned until 3 March. Snowden J further gave extensive argument obiter as to why the Scheme’s information was insufficient in the form as it stood at the hearing.
He then revisits (82 ff) the jurisdictional issue, which I have already signalled above: what role exactly COMI should play, how the Brussels I recast intervenes, what the impact is of likely recognition of the sanction (if any) in Indonesia, The Netherlands, and the US; and what if any role the relevant US judgments in the case should play: there will be plenty of points for discussion at the convening and sanction hearing. (I mentioned above that the convening hearing was scheduled around 3 March; I have not heard from the case since however if anyone has, please do let me know).
I do not think Indah Kiat has made the jurisdictional hurdle higher for Schemes of Arrangement involving foreign companies. Rather, the fierce opposition of an important creditor has brought jurisdictional issues into sharper perspective than had been the case before.
(Handbook of) EU Private International Law, Chapter 5, Heading 5.4.2).
Postscript 24 September 2015: the incoterm ‘ex works’ was at issue in Cimtrode The Electrode Company GmbH v Carbide BV at Gerechtshof ‘s-Hertogenbosch. Judgment (on appeal) was issued 1 September 2015. The court held inter alia that whether the incoterm was actually part of the agreement between parties, could only be judged in accordance with the lex causae. The agreement was a verbal agreement, and any choice of court which one of the parties claimed had been made, had not been confirmed in writing. Reference to relevant standard terms and conditions on the invoices sent later, following execution of the agreement, could not, the court held, be regarded as confirmation of the choice of court.
In Rhoonse Recycling & Service BV v BSS Heavy Machinery GmbH, the Court at Rotterdam first of all discussed the factual circumstance of a possible choice of court agreement between parties, in favour of the courts at Eberswalde (Germany). Such choice of court is made in the general terms and conditions of seller, BSS. Whether parties had actually agreed to these, was in dispute. Roonse suggests the reference on the front page of the order form to the general terms and conditions on the backside (‘umseitiger‘) was without subject for that back page was blank. The court therefore suggests that agreement depends on whether, as was suggested, the standard terms and conditions were attached (stapled, presumably) to the order form. Whether this was the case is a factual consideration which Rotterdam does not further entertain for even if the choice of court agreement is invalid, the court found it would not have jurisdiction under the only other alternative: Article 7(1) special jurisdictional rule for ‘contracts’.
Rhoonse suggest that the parties had agreed that the contract, a delivery of good, is performed in Rotterdam for that, it argues, is where delivery took place per the Incoterm CPT (carriage paid to). The CJEU has flagged the inconclusive effect of the mere use of Incoterms for the purposes of finding an agreement between parties under Article 7, in Electrosteel Case C-87/10 (in that case with respect to the use of ‘ex works’) and has generally insisted, per Car Trim Case C-381/08 that the courts need to make reference to all relevant terms and conditions in the agreement so as to determine the place of delivery.
Rotterdam in casu held the Incoterm CPT Rotterdam as being mostly a reference to costs, not place of delivery. Where it is impossible to determine the place of delivery on that basis, without reference to the substantive law applicable to the contract, that place at least for the sale of goods, the CJEU held, is the place where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained, actual power of disposal over those goods at the final destination of the sales transaction. In casu, this was found to be in the geographical jurisdiction of the courts at Den Haag. Given that Article 7(1) does not merely identify the courts of a Member State but rather a specific court within a Member State, Rotterdam has no jurisdiction.
The case is a good reminder of the limited power of Incoterms to determine jurisdiction. Better have a specific choice of court clause (which here may or may not have presented itself here in the general terms and conditions of seller).
Apcoa scheme of arrangement: Convening hearing gives firm but considered go-ahead for English Scheme of Arrangement following change in governing law
Postscript January 2016 in Codere the High Court at an earlier stage had expressed its concern at the ‘extreme forum shopping going on (creating a special purpose vehicle with COMI in England but no prior connection to the territory) however for reasons expertly summarised by Iain White, Newey J eventually sanctioned. (The application was made by Codere Finance (UK) Ltd., an English incorporated subsidiary of Codere SA, a Spanish company. Codere SA is the ultimate parent of a group of companies that carries on business by way of gaming and similar activities in Latin America, Italy and Spain. Codere SA’s shares are listed on a number of Spanish stock exchanges).
Postscript July 2015 Forum shopping possibilities were further expanded in Van Gansewinkel, which had the additional peculiarity that the only territorial link with England was the establishment of (only) one creditor there.
Postcript 8 May 2015 in DTEK, a challenge was maded by one disgruntled creditor to the change of governing law from New York law to English law. However reportedly this challenge was withdrawn in the nick of time, leaving this point as far as I am aware at this stage unaddressed by the English courts. (Not that in my view that change ougt to be problematic). (Update 11 June: judgment is now available here).
Postscript 25 November 2014. Hildyard J’s judgment in both convening and sanction hearings was released 19 November 2014, with leave to appeal granted. (Hearing at the CA is scheduled for December 2014).
The title of this piece is as considered as Hildyard J’s approval of the application for an order to convene scheme meetings for the purpose of considering, and if thought fit approving, schemes of arrangement, nine in all, pursuant to Part 26 of the Companies Act 2006, in a scheme of arrangement relating to the Apcoa group of companies.
At the time of writing Bailii did not yet feature a transcript of the hearing however I have a copy for those interested. Hildyard J aptly lists the potential booby traps given the international context of the case (the Scheme Companies comprise two English incorporated companies, a holding company and another company incorporated in Germany, and five other subsidiaries incorporated elsewhere in Europe): jurisdiction under English private international law (not all companies having COMI in England); related to this, establishment of jurisdiction only following a change on governing law of the initial finance agreements, approved by a majority but not all creditors; and, as a related pre-condition to English approval, the likelihood of recognition and enforcement of the Scheme, once adopted, elsewhere in the EU.
The application to convene hearings was approved, justifiably. Schemes of arrangement are, arguably, excluded from the Insolvency Regulation. Recognition and enforcement much facilitated by the Brussels I Regulation. The one big sticky point in any future challenge is likely to be the change in governing law which enabled English jurisdiction in the first place. This was not sub judice in the current proceedings and the scheme at this stage is not opposed by any of the creditors.
Apcoa is not insolvent; it is being restructured. The case highlights the relevance of the ongoing amendments to the Insolvency Regulation. (At the time of writing waiting for first reading by Council; not likely to appear any time soon, given the European elections). The jury is out (and case-law increasing; see e.g. Zlomrex International) whether it would be better for Schemes of Arrangement to be included in the Annex to the Insolvency Regulation. In my view cover by Brussels I is much preferred.
No doubt to be continued.
One or two interesting developments have been held up in my end of year queue. I shall report on them over the next week and a half or so. First up: judgment of the ECJ in Corman-Collins Case 9/12 – I reported on the Opinion of the AG here. The Court, like the AG, holds in favour of ‘services’: such is the diverse nature of the various obligations in the contractual relationship.
Given its confirmation of the contract falling under Article 5(1)(b), first indent, of the Brussels I-Regulation, the Court did not answer the final, subsidiary, question, which questioned the amount of European harmonisation of ‘place of performance of the obligation in question’ under Article 5(1)(a). As I flagged earlier, the AG had suggested the ECJ confirm its deference to national law on this issue, per Tessili Dunlop.