Tag: insolvency tourism

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Restructuring tourism and Virgin Atlantic. The first application of England’s new Restructuring Plan leaves the jurisdictional issue hanging.

Update 12 May 2021 Snowden J ([2021] EWHC 1246 (Ch)) has now also sanctioned the scheme.  He noted [316] the unchallenged expert evidence suggesting likely recognition in jurisdictions with non-UK guarantors of the Senior Facilities Agreement (SIN, AUS, IT) and also those whose law governs small number of lease guarantees (SP, PORT). This does not of course rule out future circumstances where such evidence may be challenged, depending I imagine on the nature of the cram-down (eg re ownership of shares).

I flagged [2020] EWHC 2191 (Ch) Virgin Atlantic (the plan in the meantime has been sanctioned in [2020] EWHC 2376 (Ch)) in an update of my earlier post on the Colouroz Investment Scheme of Arrangement.

Restructuring practitioners have been justifiably excited by this new addition to England’s regulatory competition in restructuring tourism.

In my many posts on Schemes of Arrangements (see in particular Apcoa with the many references to later cases in that post; and Lecta Paper), I have summarised the modus operandi: no firm decision on jurisdiction under Brussels Ia is made (it is by no means certain but scheme creditors have so far not taken much of a swipe seeing as they tend to accept the attraction of the debtor company continuing as  a going concern following the use of an English scheme). If at least one of the creditors is domiciled in England, it is considered sued and a defendant per Article 4 Brussels Ia. Other, non-England domiciled creditors are then pulled into English jurisdiction using the one anchor defendant per Article 8(1). Trower J extends that assumption to Restructuring Plans at 58 ff:

      1. It is now well-established that an application for sanction of a Part 26 scheme is a civil or commercial matter and the reasoning seems to me to apply with equal force to a Part 26A restructuring plan. However, it has never been completely determined whether the rule laid down in Article 4(1) of the Regulation, that any person domiciled in an EU member state must (subject to any applicable exception) be sued in the courts of that member state, also applies to a Part 26 scheme, although the matter has been referred to and debated in a number of cases.
      1. In the present case, I shall adopt the usual practice of assuming without deciding that Chapter II and, therefore, Article 4 of the Recast Judgments Regulation applies to these proceedings on the basis that Plan Creditors are being sued by the company and that they are defendants, or to be treated as defendants, to the application to sanction the scheme. If, on the basis of that assumption, the court has jurisdiction because one of the exceptions to Article 4 applies, then there is no need to determine whether the assumption is correct and I will not do so.
      1. In the present case, the Company relies on the exception provided for by Article 8 of the Recast Judgments Regulation. By Article 8, a defendant who is domiciled outside a member state may be sued in that member state provided that another defendant in the same action is domiciled there and provided that it is expedient to hear the claims against both together to avoid risk of irreconcilable judgments resulting in separate proceedings. The consequence of this is that if sufficient scheme creditors are domiciled in England then Article 8(1) confers jurisdiction on the English court to sanction a scheme affecting the rights of creditors domiciled elsewhere in the EU, so long as it is expedient to do so, which it normally will be (see, for example, Re DTEK Finance Plc [2017] BCC 165 and [2016] EWHC 3563 (Ch) at the convening and sanctioning stages).
    1. and concluding at 61
      1. In the present case, the evidence is that at least one Plan Creditor from each class is domiciled in the jurisdiction. Perhaps most importantly, so far as in terms of Trade Plan Creditors, it is 90 out of 168. In my view, this is amply sufficient to ensure that the requirements of Article 8 are satisfied.’

Article 25 BIa jurisdiction is obiter dismissed at 62 for not all creditors have credit arrangements subject to English choice of court.

Restructuring Plans do have features which differ from Schemes of Arrangement and some of those do trigger different considerations at the recognition and enforcement level than have hitherto been the case for Schemes.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5. Note: 3rd of the Handbook is forthcoming (February 2021).

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The Colouroz Investment et all Scheme of arrangement. Change to asymmetric choice of court issue left to sanction hearing.

In Colouroz Investment et al [2020] EWHC 1864 (Ch.), Snowden J at 59 ff considers the classic issues (see ia Lecta Paper) on the jurisdictional consideration: no cover under the Insolvency Regulation; cover under Brussels Ia (future Brexit alert: ditto under Lugano) left hanging and assumed arguendo (update 11 January 2021 ditto in PGS ASA, Re [2020] EWHC 3622 (Ch) (Norwegian company. A25 after facility agreement choice of law and court had been amended from New York to E&W. A8 BIa anchor defendants); update 18 August 2020 ditto in [2020] EWHC 2191 (Ch) Virgin Atlantic). At 62 Snowden J summarises the position excellently:

‘(T)he court has usually adopted the practice of assuming that Chapter II of the Recast Judgments Regulation applies to schemes of arrangement on the basis that the scheme proposal is to be regarded as a “dispute” concerning the variation of the existing relationship between the company and its creditors under which the company “sues” the scheme creditors as “defendants” seeking an order binding them to the scheme.  If, on the basis of that underlying assumption, the court has jurisdiction over the scheme creditors pursuant to Chapter II of the Recast Judgment Regulation, then there is no need for the Court to determine whether that assumption is correct.

At 64: ‘Credit Agreements and the ICA (Intercreditor Agreement, GAVC) were originally governed by New York law and were subject to the exclusive jurisdiction of the New York Court. However, as a result of the amendments made on 2 June 2020 with the consent of the requisite majority of the lenders under the contractual amendment regime, the governing law and jurisdiction provisions have now been changed to English governing law and English exclusive jurisdiction.’ At 65: expert evidence on NY law suggests amendments made on 2 June 2020 are valid and binding as a matter of New York law.

This to my mind continues to be a fuzzy proposition under the Rome I Regulation: change of lex contractus by majority must beg the question on the relevant provisions under Rome I. As far as I am are, this hitherto has not been driven home by anyone at a sanction hearing however it is bound to turn up at some point.

At 66 Snowden J, who gives consent for the sanction hearing, announces that one issue that will have to be discussed there is that if the Schemes are sanctioned, the intention is to have the jurisdiction clauses then changed to asymmetric jurisdiction clauses, detailed in 21-23: lenders will be entitled to bring proceedings against the obligors in any jurisdiction although any proceedings brought by the obligors must be brought in England. At 66 in fine: ‘that question is not for decision at this convening hearing, but should be considered at the sanction hearing.’

That’s a discussion I shall look forward to with interest.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

 

 

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Swissport Fuelling. Another Scheme of arrangement, with a slight twist.

Swissport Fuelling Ltd, Re [2020] EWHC 1499 (Ch) at 59 ff repeats the classic (see Lecta Paper for the status quo), unresolved issue of jurisdiction for schemes of arrangement under under BIa (hence also: Lugano 2007). The case is worth reporting for slightly unusually, the scheme company, UK incorporated, acts as guarantor rather than borrower. Borrowers are mainly incorporated in Luxembourg and Switserland. Under the Credit Agreement, the Borrowers do not have a right of contribution or indemnity against the guarantors, so a claim against them would not ricochet against the UK incorporated Company.

Recognition under New York law is discussed – not yet the issue of recognition under Luxembourgish and Swiss law. That, one imagines, will follow at the sanctioning hearing, which will ordinarly follow the meeting of the scheme creditors which Miles J orders in current judgment.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

 

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Lecta paper. Scheme of arrangements in the Brexit transition period, and the Brussels IA elephants in the room continue to be undisturbed.

Update 24 June 2020 see also Swissport Fuelling Ltd, Re [2020] EWHC 1499 (Ch) at 59 ff for the further unresolved issue of jurisdiction under BIa.

In Lecta Paper [2020] EWHC 382 (Ch), Trower J picks up where Zacarolii J left off in [2019] EWHC 3615 (Ch) (which I briefly flagged in my post here and which is referred to in current judgment 12) and goes through the usual matrix for assessing the international impact of an English scheme of arrangement on the European continent.

Ultimate parent company is a Luxembourg company, with further controlling interests held by yet another Luxembourg and a Spanish company. A 10-11 Trower J flags a sensitive issue for credit and other financial arrangements: financial instruments subject to New York law, where amended to English law as governing law and the courts at England as non-exclusive jurisdiction. This was done in accordance with New York law, and approved by over 90% of the instruments’ holders. Yet again therefore a crucial question viz schemes of arrangement and the Brussels jurisdictional and applicable law regimes remains unaddressed, namely the event of opposition of a sizeable stake of creditors.

At 33 ff the issue of jurisdiction is discussed along the lines of Apcoa, Codere and NN2 Newco. Under residual private international law, the sufficient connection to England, engineered by the aforementioned change of governing law and jurisdiction in line with the law governing the instruments at the time (New York law, at 38), was held not to be unfair viz the creditors even in the case of the mother company with COMI in Luxembourg. At 44 ff Trower J returns to the issue of whether Brussels Ia can apply at all to the case, particularly via Article 4 juncto Article 8(1), holding for application of Article 25 in the end. However as in the authority he applies, there continue to be a lot of assumptions in this analysis which, failing substantial opposition by creditors, still have not been settled by either UK, CJEU or continental authority.

At 40 follows the equally standard reference to national experts testifying to the scheme’s recognition in the jurisdictions concerned: France, Italy, Spain, Luxembourg.

At 41 Trower J then briefly mentions Brexit (see my reference to similar cases here). Referring again to the national experts but also to his own insight, Justice Trower simply notes that

‘The Recast Judgments Regulation will continue to apply to the recognition of an English judgment in EU member states, notwithstanding the occurrence of Brexit, provided that the judgment has been given in proceedings which were instituted before 31 December 2020, being the end of the transition period. This follows from Article 67(2) of the Withdrawal Agreement. It follows that any sanction order made in this case should be recognised in EU member states, pursuant to the Recast Judgments Regulation, as will their own domestic law dealing with the recognition of judgments. It is also the case that the application of the Rome I Regulation ought to be unaffected by Brexit in any event. As I read the expert reports, they each confirm that that Regulation will continue to apply after the end of the transition period so that the law of the jurisdiction in respect of which they give evidence will recognise the governing law of the relevant contracts, in this case English law, as applying to the variation and discharge of rights under that contract.’

Note as I did above, the continuing Brussels IA cover assumptions, as well as the position post Brexit (whether under Lugano 2007 or not, remains to be seen).

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

 

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NN2 Newco limited and Politus BV. The Nyrstar (Belgium) scheme of arrangement’s jurisdictional confirmation.

Update 5 November 2020 the Belgian courts are investigating the wrestling of control over, and use of Nyrstar resources by Trafigura. This will undoubtedly involve conflict of laws issues on the relation between Belgian corporate law and (mostly English) restructuring and contract law.

Update 13 September 2019 same principles on jurisdiction (and reference to NN2Newco) made by Falk J in [2019] EWHC 2412 (Ch) Syncreon Group BV. Update to the update 😉 December 2019 for the Canadian side of Syncreon see my review here.

Update 13 January 2019 ditto [2019] EWHC 3615 (Ch) Lecta Paper which I review here and where reference is also made to Codere. Jurisdiction upheld on the basis of Article 25 and Articles 8 juncto 4 Brussels Ia.

Update 20 August 2019 For an Irish approval of a scheme of arrangement with extensive US links see Re Ballantyne RE Plc & the Companies Act 2014 [2019] IEHC 407, reported here.

The Nyrstar business was created on 31 August 2007 by combining the zinc and lead smelting and alloying operations of Zinifex Limited and Umicore NV/SA. Nyrstar is a global multi-metals business, with a market leading position in zinc and lead, and growing positions in other base and precious metals. It is one of the world’s largest zinc smelting companies based on production levels. The Nyrstar business has mining, smelting and other operations located in Europe, the Americas and Australia and employs approximately 4,200 people. The ultimate group Parent is incorporated in Belgium and has corporate offices in Zurich, Switzerland.

Its debt is now being restructured using an English scheme of arrangement, with a variety of new companies being formed as corporate vehicles for same. Readers of the blog will not be surprised: this is a classic example of regulatory (restructuring) competition, which I regularly report on the blog (most recently: New Look, with further references there).

In [2019] EWHC 1917 (Ch) re NN2 Newco limited and Politus BV, Norris J applies the now established jurisdictional test, with one or two points of attention. Against the scheme company jurisdiction is straightforward: this is England incorporated. Against the scheme creditors, English courts apply the jurisdictional test viz the Brussels Ia Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction?

At 11: viz the Notes:

They are now governed by English law (in place of New York law). Clause 12.06 of the governing Indenture now reads:- “The courts of England and Wales shall have jurisdiction to settle any disputes that arise out of or in connection with the Indenture, the Notes and the Guarantees, and accordingly any legal action or proceedings arising out of or in connection with the Indenture the Notes and the Guarantees (“Proceedings”) may be brought in such courts. The courts of England and Wales shall have exclusive jurisdiction to settle any Proceedings instituted by [NNH or NN2]… in relation to any Holder or the Trustee on behalf of the Holders (“Issuer Proceedings”). [NNH and NN2], each of the Guarantors, the Trustee and each Holder (each, “a Party”) irrevocably submit to the jurisdiction of such courts and agree that the courts of England and Wales are the most appropriate and the most convenient courts to settle Issuer Proceedings and accordingly no party shall argue to the contrary. Notwithstanding the foregoing, this section 12.06 shall not limit the rights of… each of the Holders to institute any Proceedings against [NNH and NN2] in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of proceedings in any other jurisdiction….”

This is an asymmetric jurisdiction clause. The English Courts have jurisdiction over all disputes and the parties agree that they are the most convenient forum and submit to the jurisdiction of the English courts. NNH and NN2 are bound to use the English courts if they sue the Holder of a Note, because the English courts have exclusive jurisdiction in such a case. But the Holder of a Note can also sue NNH and NN2 in any Court that otherwise has jurisdiction, so the English courts have a non-exclusive jurisdiction in such a case.

At 13:

The original governing law of the Existing Bonds was English law. But the holders voted to amend the jurisdiction clause in the Trust Deed to provide: “The courts of England and Wales shall have exclusive jurisdiction to settle any disputes that arise out of or in connection with the Trust Deed and the Bonds, and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed and the Bonds (“Proceedings”) may be brought in such courts. [NNV and NN2] and the Trustee (in its own capacity as such and on behalf of the Bondholders) irrevocably submit to the jurisdiction of such courts and waive any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. Notwithstanding the foregoing, Belgian courts have exclusive jurisdiction over matters concerning the validity of decisions of the Board of Directors of NNV of the general meeting of shareholders of NNV and of the general meeting of Bondholders.”

This is a symmetrical jurisdiction clause with a “carve out” for specific proceedings.”

At 18 ff the details of the scheme are outlined. It involves Trafigura financial instruments, Trafigura now being Nyrstar’s controlling shareholder. At 31 ff jurisdiction is discussed. There is no abusive forum shopping (per Codere; which I reference here). The usual Article 8 and Article 25 routes are discussed. With respect to Article 25, the English jurisdiction clauses in the Existing Notes and the Politus Facility are asymmetric; however Norris J at 41 (with reference to authority) does not see that as an obstacle seeing as Article 25 covers both symmetric and asymmetric choice of court.

A final hurdle is whether any order sanctioning the scheme is likely to be effective or whether it is apparent even at this stage that the scheme will not be recognised in other relevant jurisdictions even if sanctioned: this will eventually be settled at the sanctioning hearing however Norris J already indicates that it is unlikely that expert evidence will yield surprising (objectionable) results.

Scheme meetings may therefore be convened.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

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New Look: Application of the good old rules for schemes of arrangements, with some doubt over the substantial effects test.

In [2019] EWHC 960 (Ch) New Look Secured Issuer and New Look Ltd, Smith J at H applies the standing rules on jurisdiction over the scheme and other companies which I also signalled in Algeco and Apcoa (with further reference in the latter post). Against the scheme companies jurisdiction is straightforward: they are England incorporated.  Against the scheme creditors, English courts apply the jurisdictional test viz the Brussels I Recast (‘a’) Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction? Yes, it is held: under Article 8 (anchor defendants). (Often Article 25 is used as argument, too).

At 48 Smith J signals the ‘intensity’ issue: ‘In some cases it has been suggested that it may not be enough to identify a single creditor domiciled in the United Kingdom, and that the court should consider whether the number and size of creditors in the UK are sufficiently large: see Re Van Gansewinkel Groep, [2015] EWHC 2151 (Ch) at [51]); Global Garden Products at [25]; Re Noble Group Ltd [2018] EWHC 3092 (Ch) at [114] to [116].’ Smith J is minded towards the first, more liberal approach: at 49. He refers to the liberal anchoring approach in competition cases, both stand-alone (think Media Saturn) and follow-on (think Posten /Bring v Volvo, with relevant links there).

At 51 he also discusses the ‘substantial effects’ test and classifies it under ‘jurisdiction’:

‘As well as showing a sufficient jurisdictional connection with England, it is also necessary to show that the Schemes, if approved, will be likely to have a substantial effect in any foreign jurisdictions involved in or engaged by the Schemes. This is because the court will generally not make any order which has no substantial effect and, before the court will sanction a scheme, it will need to be satisfied that the scheme will achieve its purpose: Sompo Japan Insurance Inc v Transfercom Ltd, [2007] EWHC 146 (Ch); Re Rodenstock GmbH, [2011] EWHC 1104 (Ch) at [73]-[77]; Re Magyar Telecom BV, [2013] EWHC 3800 (Ch) at [16].’ 

This is not quite kosher I believe. If, even arguendo, jurisdiction is established under Brussels Ia, then no ‘substantial effects’ test must apply at the jurisdictional stage. Certainly not vis-a-vis the scheme companies. Against the scheme creditors, one may perhaps classify it is a means to test the ‘abuse’ prohibition in Article 8(1)’s anchor mechanism.

A useful reminder of the principles. And some doubt re the substantial effects test.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 5.

 

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Ema Garp Fund v Banro Corp: Chapter 15 and international comity.

Chapter 15 is the typical entry gate for a foreign insolvency practitioner to engage in US bankruptcy proceedings – it is also the general jurisdictional gateway for US courts viz international insolvencies, COMI and insolvency tourism discussions etc. By way of example see Norton Rose’s 2017 overview here.

In Ema Garp Fund v. Banro Corp., Case No. 18-01986 Law360 summarise the outcome as it stands (I understands motion to appeal has been filed) as follows: ‘Canada’s Banro Corp. won’t face a suit in New York federal court alleging the mining company lied to investors about its operations in the Democratic Republic of Congo after a judge ruled (..) that those claims were resolved last year in bankruptcy proceedings in Canada.’

Kelly Porcelli excellently reviews the issues here, with justified emphasis on comity considerations – I am happy to refer.

One for the comparative litigation ledger.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.5, Heading 5.6.

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Stripes US. High Court considers jurisdiction for scheme of arrangement in the usual way.

In [2018] EWHC 3098 (Ch) Stripes US, Smith J deals with jurisdiction for schemes of arrangement in the now well established way (see my last report on same in Algeco):

The EU’s Insolvency Regulation is clearly not engaged: the schemes fall under company law. The High Court then applies the jurisdictional test viz the Brussels I Recast Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction? Yes, it is held: under Article 8 (anchor defendants).

The issue in fact splits in two: so far as the question of jurisdiction in relation to a foreign (non-EU or Lugano States based) company is concerned (Stripes US is incorporated in Delaware), the law is clear. It is well-established that the court has jurisdiction to sanction a Scheme in relation to a company provided that company is liable to be wound up under the Insolvency Act 1986.

Turning next to the Scheme Creditors, of the 31 Scheme Creditors, 19.4% by number (26.35% by value) of the ‘defendants’ (an odd notion perhaps in the context of a Scheme sanction) are domiciled in the UK, plenty Smith J holds to suggest enough reason for anchoring: not taking jurisdiction vis-a-vis the defendants domiciled in other Member States, would carry with it a serious risk of irreconcilable judgments.

Finally the case for forum non conveniens (and comity) is considered (vis-a-vis the US defendant), and rejection of jurisdiction summarily dismissed: in this case the relevant agreement which is the subject of the Scheme has a governing law which is (and, I understand, always has been) English law: at 63: ‘Generally speaking, that is enough to establish a sufficient connection. The view is that under generally accepted principles of private international law, a variation or discharge of contractual rights in accordance with the governing law of the contract should be done by the court of that law and will be given effect to in other third-party countries.’ US experts moreover advised any judgment would most probably have no difficulty being enforced in the US

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 5.

 

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Algeco: Scheme of arrangements tourism continues, with tenacious questions still outstanding.

Thank you Tom Whitton and Helen Kavanagh  for flagging Algeco Scotsman PIK SA [2017] EWHC 2236 (Ch). Algeco has COMI in Luxembourg.  This was clear when the relevant scheme of arrangement (‘SAR’) was being discussed. To manage potential problems at the jurisdictional stage, Hildyard J at 22 lists the precautions the company and the majority of the lenders took:

‘Accepted by the relevant 75 per cent or more, was first, the amendment of the governing law clause in the PIK Loan Agreement to change the governing law from New York law to English law; secondly, the amendment of the jurisdiction clause to submit the parties to the non-exclusive jurisdiction to the courts of England; and thirdly, a waiver of any restrictions under the PIK loan agreement so as to permit the company to take all steps necessary to confirm or establish sufficient connection with England including, if appropriate, to take steps to ensure that its COMI is in England.’

When the unsuspected reader sees ‘COMI’ of course (s)he is forgiven for immediately pondering application of the EU’s Insolvency Regulation – quod certe non: for it is clear (ia as a result of schemes of arrangement not being included in relevant Annex) that SARs fall under company law. Hildyard J’s jurisdictional kick-off at 43 is telling: ‘Dealing first with jurisdiction, the primary question is whether this Luxembourg company, the subject of the scheme, is a qualifying company so to be subject to section 895 of the Companies Act’. Idem at 45.

At 47 the High Court then applies the jurisdictional test viz the Brussels I Recast Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction? Yes, it is held: under Article 8 (anchor defendants) and under Article 25 (choice of court).

Yet this in my view is where recourse to SARS in the English courts continues to be exposed: loan agreements and facilities agreements now routinely adopt choice of court and law in favour of English courts and ditto law. Yet where they do not, or did not, the ‘willing’ creditors consent to a change in the agreement in favour of the English courts, with the unwilling creditors left behind. Whether this holds scrutiny under Rome I is far from certain. As for Article 8, its use here may be seen as a form of abuse, disciplined under the Regulation.

Hildyard J considers the case one of ‘good forum shopping’ (at 57-58), with reference to Apcoa which I review here. The concerns above continue in my view to highlight weaknesses in the construction, which so far have not led to any collapse of this restructuring tourism. At 58 the High Court emphasises that there are cases of inappropriate forum shopping in this context (one of that includes haste) yet the role of Rome I in this context has so far played little of a role.

It is noteworthy that in my view (and I so testified in re Apcoa) even a wrong view of the English courts on Rome I’s impact, would not suffice for jurisdictions outside of the UK to refuse to recognise the scheme under Brussels I – all with the huge Brexit caveat evidently.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 5.

 

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