Jurisdiction in cross-border schemes—Re Van Gansewinkel Groep B.V

According to Alex Rogan, an associate in the corporate restructuring team at Skadden, the Van Gansewinkel judgment is the latest example of a trend in recent years for schemes of arrangement to be successfully used to restructure the English law governed financial obligations of overseas companies that do not have their centre of main interest (COMI), or an establishment, or any significant assets in England.

Original news

Re Van Gansewinkel Groep B.V and others [2015] EWHC 2151 (Ch), [2015] All ER (D) 241 (Jul)

The Chancery Division held that, in all the circumstances, it had jurisdiction and it was appropriate to exercise its discretion to sanction cross-border schemes of arrangement in respect of the group, Van Gansewinkel Groep BV. The scheme creditors could be regarded as coming within the jurisdiction of the English court under Regulation (EU) 1215/2012, art 8(1) (Brussels I (recast)) for the purposes of the exercise of the scheme jurisdiction in relation to them. The court further considered the proper approach, in practice, to applying for the sanction of schemes of arrangement where jurisdictional issues might be involved.

What is the background to the schemes?

The case concerned an application for the sanction of inter-conditional schemes of arrangement for five Dutch companies and one Belgian company in the Van Gansewinkel Group. The schemes were a necessary part of the steps required to enable an urgent restructuring of the group's financial indebtedness. The scheme companies did not have their COMI, or any establishment, or any significant assets in England -nevertheless, the terms of their debt documentation were governed by English law.

What practical guidance did the judge give on best practice for schemes applications?

This judgment provides welcome guidance on best practice for scheme applications and in particular will assist practitioners to identify which matters they will be required to bring to the court's attention. In particular it sets out a number of points relating to the so called 'Practice Statement Letter' and the amount of information that should be provided to scheme creditors and the court in relation to the consequences if the scheme is not implemented.

In regard to the Practice Statement Letter, the judgment provides guidance on how to ensure that any jurisdictional issue, beyond class issues, that is raised for determination at the convening hearing is appropriately addressed. In this regard, the proponent of the scheme must set out their arguments in the Practice Statement in the same way as is required for a class issue. The proponent must also clearly bring the issue to the judge's attention at the convening hearing so that the judge can give a reasoned judgment on the point or at least have his reasoning recorded so that there is a basis for persuading the judge at the sanction hearing that the point does not have to be revisited. This is important to ensure that jurisdictional issues that are addressed by the court at the sanction hearing are confined to those which have not already been determined at the convening hearing.

In regard to information on the consequences of the scheme not being implemented, the judgment requires that a greater level of detail should be set out both in the explanatory statement and in the evidence before the court on the possible alternatives to the scheme in circumstances where (as is almost always the case) a scheme is being put forward on the basis that it provides a more advantageous outcome than the possible alternatives. The Van Gansewinkel explanatory statement provided a range of recoveries (38-46%) that scheme creditors could expect in the alternative, liquidation scenario. Nevertheless, it did not provide any detail on the basis for this range beyond referring to advice that the directors of the scheme companies had received from their financial and legal advisers as well as KPMG. Ultimately the evidence was accepted but the judgment provides a warning that greater detail can be expected of future scheme proponents.

Does the EC Regulation on Insolvency Proceedings 1346/2000 (the Insolvency Regulation) and/or Brussels I (recast) apply to schemes?

The judgment notes that addressing jurisdictional issues is particularly important for schemes involving overseas companies which have a limited jurisdictional nexus with England and where recognition of the scheme in other countries is therefore an important factor. The jurisdiction of the English court to sanction a scheme of arrangement under the Companies Act 2006, Pt 26 extends to any company which is liable to be wound up under the Insolvency Act 1986 (IA 1986). This provides a very broad extra-territorial jurisdiction which covers foreign companies by virtue of IA 1986, ss 220 and 221(1). However, when considering its scheme jurisdiction for a foreign company with its COMI in another EU member state and no establishment in England the court must consider any restrictions imposed by the Insolvency Regulation and Brussels I (recast).

A number of scheme cases have considered these issues and this judgment accepts the prevailing view that the Insolvency Regulation imposes no limitation on the scheme jurisdiction of the court. In relation to the application of Brussels I (recast), this judgment, like a number of scheme cases before it, does not decide the point on whether or not Brussels I (recast) applies. Nevertheless, it notes that there is force in the view that it does not apply on the basis that either:

  • a scheme falls within the exclusion in art 1(2)(b) for 'bankruptcy proceedings relating to the winding up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings' (as per the view taken by Lewison J in Re DAP Holding NV [2005] EWHC 2092 (Ch)), or
  • the jurisdictional provisions in Ch II do not apply as no one is being sued (as per the view taken by Hildyard J in Primacom Holding GmbH v a group of the senior lenders & Credit Agricole [2011] EWHC 3746 (Ch)).

The countervailing argument is that Brussels I (recast) is designed to dovetail with the Insolvency Regulation which leads to the conclusion that it must apply where the Insolvency Regulation is found not to apply.

In the light of the possibility that Brussels I (recast) does apply in scheme cases, the judgment considers the potential application of arts 25 and 8.

Brussels I (recast), art 25(1) is potentially engaged where the relevant documents contain a jurisdiction clause pursuant to which parties have agreed that the courts of a particular member state are to have jurisdiction to settle disputes. This judgment provides that a one way exclusive jurisdiction clause (ie, a jurisdiction clause which is for the benefit of the scheme creditors and only provides for the scheme company but not the scheme creditors to submit exclusively to the jurisdiction of the English courts) cannot be relied upon to establish jurisdiction for the purposes of art 25.

Brussels I (recast), art 8(1) provides that a defendant may be sued in a member state where another defendant is domiciled provided that 'the claims are so closely connected that it is expedient to hear and determine them together'. This judgment provides that this article may be engaged on the basis provided for in Re Rodenstock GmbH [2011] EWHC 1104 (Ch), [2011] All ER (D) 62 (May). It was then provided that scheme creditors can be shoehorned into Brussels I (recast) as defendants in light of the fact that they are entitled to appear and oppose the relief sought, and that they will be bound by the court's judgment. The judgment provides that the number and value of the scheme creditors in this case (around 14% by number and 12% by value) were not immaterial and that they were sufficiently large to satisfy the art 8(1) test for expediency which in any event could potentially be engaged on the basis of one scheme creditor being domiciled in England.

What does the judgment tell us about considerations around establishing a 'sufficient connection'?

The mere fact that the court has scheme jurisdiction does not mean that it will necessarily see fit to exercise its jurisdiction. This judgment is consistent with an ever-growing line of scheme cases where the court has exercised its jurisdiction on the basis of a sufficient connection between the scheme company and English jurisdiction by virtue of the relevant rights of the scheme creditors being governed by English law and a one way exclusive jurisdiction clause in favour of the English court.

What did the judge find in relation to the release of a non-scheme company guarantor where the release had not been provided for?

The court will not generally sanction a scheme if there is a blot on the scheme so that it will not have the effect that the company and scheme creditors intend. The Van Gansewinkel restructuring required the scheme creditors to release each of the existing guarantor companies from their obligations in respect of part of the existing debt. The relevant release for one of the group companies (which was not a scheme company), however, had not been provided for in the scheme or the restructuring documentation. It is well settled that a release of a third party is possible in circumstances where the release is necessary to give legal or commercial effect to the scheme compromise. The documentation nevertheless needs to provide for the applicable release.

The judgment provides that an applicable deed of release could be drawn up on the basis that the schemes allowed for 'restructuring documents' to be entered into on behalf of scheme creditors and the definition for restructuring documents referenced 'any other documents that the scheme companies consider necessary or desirable to give effect to the restructuring'. Providing for this release was held to have been in line with the intention behind the scheme and importantly it could be inferred by scheme creditors from the general description in the explanatory statement relating to the release of guarantors.

What standard of expert evidence that the schemes will be recognised abroad is required?

The judgment helpfully clarifies the position on expert evidence in providing that the court does not need certainty as to the recognition of the scheme under foreign law, but it will be looking for some credible evidence that it will not be acting in vain. The judgment provides that there was a realistic prospect that the Van Gansewinkel schemes would be recognised under private international law in both Belgium and the Netherlands even if Brussels I (recast) was not applicable.

In relation to recognition through Brussels I (recast), Ch III, the judgment sets out two possibilities. The first being that if the court's jurisdiction is established under Brussels I (recast), Ch II then the scheme would automatically be recognised in the Netherlands and Belgium under Ch III at the same regulation by virtue of the English court's judgment.

The second possibility considered was that where the English court's jurisdiction has not been founded upon Ch II because the scheme fell outside Brussels I (recast), the scheme could nevertheless be recognised automatically under Ch III by virtue of the English court's judgment on the basis that the foreign court would not review an assumption of jurisdiction by the English court pursuant to Brussels I (recast), arts 45(3) and 45(2)(e). The judgment does not support this argument and notes that the basis for this conclusion was not explicitly discussed in the expert reports.

Did Apcoa push the envelope too far?

In the Apcoa scheme, the court did not accept that changing the governing law of the debt documentation which was the subject of the scheme claims to English law in order to establish jurisdiction was 'a step too far' (Re Apcoa Parking Holdings Gmbh [2014] EWHC 3849 (Ch), [2014] All ER (D) 221 (Nov) and Apcoa Parking (UK) [2014] EWHC 997, [2014] All ER (D) 49 (Apr)). The Apcoa judgment has significantly increased the scope for the implementation of a restructuring by means of an English law scheme of arrangement. Apcoa has now been followed by a number of other cases, including DTEK and TORM, which employed a governing law amendment to establish jurisdiction. This provides practitioners with further confidence when advising clients on the availability of the scheme jurisdiction following a governing law amendment in order to establish a 'sufficient connection'.

Nevertheless, it is important to note the factors which supported the conclusion in Apcoa that establishing jurisdiction primarily on the basis of an amended governing law clause was not a step too far in the circumstances. Notably these include that the governing law amendment had been approved by scheme creditors who had nothing to gain from the compromise, it could reasonably have been contemplated by the lenders when they entered into the documents and the lenders had been advised that it would be a gateway to the implementation of a scheme under English law when approval for the amendment was sought. The fact that certain of the agreements in their original form and as executed by all parties, had identified and selected English law for certain (albeit limited) purposes, was also a relevant consideration.

Do you have any final remarks?

The Van Gansewinkel judgment is the latest example of a trend in recent years for schemes of arrangement to be successfully used to restructure the financial obligations of overseas companies that do not have their COMI, or an establishment, or any significant assets in England. The judgment notes the inherent flexibility of schemes of arrangement has proved particularly valuable in cases where the existing financing agreements do not contain provisions permitting voluntary modification of their terms by an achievable majority of creditors, or in cases of pan-European groups of companies where co-ordination of rescue procedures or formal insolvency proceedings would prove very difficult to achieve without substantial difficulty, delay and expense.

Nevertheless, the judgment emphasises that despite the utility of the scheme jurisdiction and the resulting commercial pressures on the court to approve schemes where the overwhelming majority of creditors have supported the scheme, it is important to appreciate that the court does not act as a rubber stamp.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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First published on LexisPSL Restructuring and Insolvency

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