Neutral Citation Number: [2013] EWHC 3469 (Ch)

Case No: 4906-10 of 2013
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Rolls Building
Fetter Lane
London EC4A 1NL

Date: 24 July 2013
BEFORE:

THE HONOURABLE MRS JUSTICE PROUDMAN

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BETWEEN:
	
IN THE MATTER OF

ICOPAL AS
AND OTHERS
		
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MR GABRIEL MOSS QC and MR ADAM GOODISON (instructed by Shearman & Sterling (London) LLP) appeared on behalf of the Companies

MR ROBIN DICKER QC (instructed by Clifford Chance) appeared on behalf of the Supporting Creditors
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Judgment

 

MRS JUSTICE PROUDMAN:
1.	There are before me four applications by four companies to convene scheme meetings.  In the actions the companies seek approval of schemes of arrangement pursuant to section 899 of the Companies Act 2006. Today however I am only concerned with convening the scheme meetings.
 
2.	A large majority of the scheme creditors who are the lenders under an existing seeking facilities agreement support the proposed schemes and indeed have entered into lock up agreements.  Mr Dicker QC attends today to represent the principal creditors.  

3.	Two of the lenders, however, are relentlessly opposed to the scheme, namely Svenska Handelsbanken AB and HSH Nordbanken AG.  They both wrote to the companies on 22 July 2013 to express their opposition, in particular to the points that are being raised today.
 
4.	The purpose of the scheme is a restructuring with a view to refinancing by 2016. The Group says it believes that in the absence of the schemes the Group will enter into an insolvency procedure and the proceeds available to creditors will be much reduced.  

5.	A single class of scheme creditors is proposed for each of the companies.
 
6.	The dissenting lenders oppose the relief sought today basically on two grounds; one enforceability in other jurisdictions; and, two, they say the scheme lenders should not form a single class of creditors for the purpose of each scheme.
 
7.	The court's function at the convening application stage is to deal with questions of jurisdiction and identify the appropriate classes for the purposes of convening meetings to vote on the scheme proposals.  It is not as David Richards J said in Telewest (No 1) a hearing to consider the merits and fairness of the schemes which are to be considered at the sanctions hearing.  On the other hand, it is only a matter of common sense that, as he went on to say, "there is no point in the court convening meetings to consider the scheme if it can be seen now that it will lack the jurisdiction to sanction it later".
 
8.	Accordingly, I must consider (a) whether the companies are liable to be wound up under the Insolvency Act 1986 as required by Companies Act 2006 section 895(2)(b), including whether they have sufficient connection with the jurisdiction for a scheme of arrangement to be sanctioned given the decision in Drax Holdings and (b) whether the class of creditors proposed is correctly constituted.
 
9.	As to jurisdiction, Nordbanken says, "It is not at all clear that it is appropriate for the English courts to take jurisdiction over these companies.  We hope the court will consider this very carefully".  That appears (because of the word "appropriate") to be a reference to discretion.  Handelsbanken's objection is more specific.  It is said, first, in relation to Roofing Holding as that company is incorporated in Delaware, recognition must be obtained by the US Court under Chapter 15 of the US Bankruptcy Code.  For this to happen it is said that either the company's COMI must be England or it must have an establishment in England.  It is said that neither applies so that the scheme will not be recognised in RH’s home jurisdiction.  In relation to RFG Holding (France) SAS, Handelsbanken relies on the French Supreme Court's decision in MSX v Banque Privee Edmond de Rothschild to say that the English jurisdiction clause is invalid in France.  Again therefore it is maintained that the scheme will not be recognised in the company’s home jurisdiction.
 
10.	I am satisfied for today's purposes that the companies are liable to be wound up under the Insolvency Act 1986.  I note that the court will not as a matter of discretion wind up a company without a sufficient connection to the jurisdiction.  The English law jurisdiction clause gives rise to a sufficient connection to the jurisdiction: Re Rodenstock GmbH [68] and Re Primacom Holding GmbH [18] and [61] to [64].  I have also been taken to Article 44 of the Council Regulation, which establishes that Rodenstock is pretty well on all fours with the present case in relation to jurisdiction to sanction this scheme.
 
11.	However, what is disputed as I have said, specifically disputed, is the enforceability of the schemes in other jurisdictions, particularly the home jurisdictions of the two companies concerned.  However, the companies have taken advice from Danish, French and United States experts who advise that the schemes will be recognised and enforced in the relevant jurisdictions. I observe that none of the provisions specifically mentioned by Handelsbanken is referred to in those opinions, but those provisions are mentioned as a matter of assertion and unsupported by any evidence whether expert or otherwise.
 
12.	The group has given evidence that they considered all relevant matters.  It is inappropriate for me to decide any questions of jurisdiction at this stage in the absence of evidence properly adduced from the dissenting creditors.  That seems to me to be far outside the observations of David Richards J in Telewest.  I simply flag that the dissentient creditors have raised such an issue and that the matter should be reconsidered at the sanction hearing.  It cannot “be seen now” that there is no jurisdiction such that there is no point in convening the meetings.
 
13.	I turn to the question of composition of the class.  In Re Hawk Insurance Company, Chadwick LJ said at [30], reformulating the test stated by Bowen LJ in Sovereign Life Assurance Co v Dodd:
 "It seems plain that we must give such a meaning to the term class as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."
 
14.	Chadwick LJ also said at [33] to [39]:
"When applying Bowen LJ’s test to the question ‘Are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?’  it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements – so that they should have their own separate meetings – but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so; lest by ordering separate meetings the court gives a veto to a minority group.  The safeguard against majority oppression, as I sought to point out in the BTR case ([2000] 12 BCLC 740 at 747) is that the court is not bound by the decision of the meeting.  It is important Bowen LJ’s test should not be applied in such a way that it becomes an instrument of oppression by a minority.  It is notable from these passages and from what David Richards J said in Telewest (No 1) at paragraph 19 that it is the differences in rights not interests which are relevant to the composition of classes.  The focus on rights rather than interests enables the court to take a far more robust view as to what the classes should be and to determine a far less pragmatic structure and than if interests were to be taken into account, see: Re Primacon paragraph 45. Lord Millett said in re UDL Holdings Limited at paragraph 27:
          Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings.
          A person whose rights are sufficiently similar they can consult together with a view to their common interest should be summoned to a single meeting.  The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights.  The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings.  The question is whether the rights which are to be released or varied under the scheme or the new rights which the scheme gives in their place are so different that the scheme must be treated as a compromise or arrangement with more than one class."  
  
15.	Handelsbanken claims that its rights are different from those of the supporting creditors.  It accepts that the group has had financial difficulties, but denies that it is on the road to insolvency.  It says that the group has “set its face against the alternatives” and settled on the schemes as a simple and cheap alternative, “notwithstanding that they infringe on our rights”.  It is said that the Group has failed to take into account the fact that the Facilities deliberately had an original differential pricing to take into account the different tenors of the facilities, the different maturity dates and the different margins.  It states its belief that the classes have been arrived at with a view to forcing the majority views on the minority by forcibly varying the rights of the minority.
 
16.	The real underlying issue is whether a formal insolvency process is or is not likely because in insolvency all creditors stand in a similar position. The dissenting creditors say it is not, the companies and the supporting creditors say that it is.  Mr Moss QC submits that the companies face a real danger because they are already in default and breach of covenant under the existing facility, subject to waiver  while the schemes are proposed.  The companies have given evidence that absent the schemes, there is a significant likelihood of insolvency.  I should say they have provided some considerable detail, which I do not propose to go into now because of the commercial sensitivity of such matters.
 
17.	The evidence is therefore that Handelsbanken has failed to understand the real dangers the companies face and the need for the stabilisation of the group through the schemes.  Handelsbanken has suggested in earlier correspondence in June three possibilities which form an alternative to the schemes, but all three possibilities have been responded to in some considerable detail in correspondence.
 
18.	It seems to me that if there are questions of doubt it is appropriate to allow the creditors to meet and then to review the matter at the sanction hearing: RG Victory Reinsurance Limited at [15] of Lindsay J's judgment. The Group has lodged proper evidence.  It is only at the sanction hearing that the dissentient creditors will, as they say, attend and make submissions so the board can consider the matter properly and in due form.
 
19.	The court may if necessary reconsider the matter of classes at the sanctions hearing.  Generally it declines to do so, but each case turns on its own facts and the issue will depend on the cogency of the dissentient creditors' arguments.
 
20.	I am therefore prepared to make the orders sought.  In addition to the main points, I will give the directions for advertisement, notice the chairman, his powers and so on.  I will also make the order sought pursuant to CPR 5.4D(2) because of the commercial sensitivity of this matter.