Tag: Virgin Atlantic

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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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