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When can an English scheme be used to restructure foreign banks? In Re Public Joint-Stock Compant Commercial Bank ‘Privatbank’, the court considered an innovative use of an English scheme of arrangement to restructure a Ukrainian bank.
Re Public Joint-Stock Company Commercial Bank 'Privatbank'  EWHC 3299 (Ch)
Public Joint-Stock Company Commercial Bank 'Privatbank' (the bank) applied for the sanction of the court to a scheme of arrangement under section 899 of the Companies Act 2006 (CA 2006) with creditors in respect of two series of subordinated loan notes (the 2016 Notes and the 2021 Notes), having an aggregate nominal value of US$220m. Mr Justice David Richards approved the scheme.
The key points to note from this case are:
The bank was the largest bank in Ukraine by assets loans and deposits with a market share of roughly 34% of all retail deposits. The English scheme proposed to extend and amend the terms of the 2016 Notes and 2021 Notes. The bank had the following jurisdictional connections:
One potential problem was the fact that the 2016 and 2021 Notes were held in global note form meaning that the rights of the noteholders were recorded through the EuroClear and Clearsteam systems (ie technically the depository was the creditor).
Here, there was concern that the noteholders weren't creditors of the bank, although they would have a right of direct recourse against the bank under the terms of the security arrangements in the event that the security trustee, having become bound to proceed against the bank, failed to do so within a reasonable time.
To resolve any difficulties regarding the noteholder's status as creditors, the bank entered a deed poll agreeing that if it failed to make any payment under the subordinated loans it would be liable directly to the noteholders as if it were the original principal obligor under the notes and/or the noteholders were the original counterparty under the subordinated loans. Effectively under the deed poll, the noteholders became contingent creditors of the bank (contingent creditors are creditors for the purposes of CA 2006, ss 895–899) so definitising their notes.
Richards J noted that Asplin J had addressed this issue at the earlier convening hearing. Richards J agreed with her conclusion that if Brussels I (recast) applied to applications to sanction a scheme of arrangement, then the court had jurisdiction under Brussels I (recast), art 8 the evidence established that notes representing 12% by value of the two classes of notes were held by persons domiciled in the UK. In all the circumstances, including the fact that the claims were all subject to English law, Asplin J decided that it was expedient that the English court should assume jurisdiction under Brussels I (recast), art 8. Interestingly, there was no discussion on whether the court would alternatively have jurisdiction under Brussels I (recast), art 25 (1).
Richards J considered the following factors before deciding to sanction the scheme:
This is a welcome decision from Richards J and is useful clarification that a scheme can even be used to restructure a foreign bank, as well as a foreign company. Those proposing schemes of foreign companies should still bear in mind the guidance given by Snowden J in Re Van Gansewinkel Groep BV  EWHC 2151 (Ch),  All ER (D) 241 (Jul) (see blog post: Jurisdiction in cross-border schemes) and it is interesting to note the careful attention Richards J pays here to some of those points, including proper evidence on the alternative to the scheme (here, temporary administration in Ukraine, followed by the sale of the bank or its assets and liabilities or its nationalisation or its liquidation). However, it is reassuring to see the courts are still willing to adopt a pragmatic and constructive approach in appropriate cases.
Kathy Stones, solicitor in the Lexis®PSL Restructuring & Insolvency team.
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Benefits of a scheme of arrangement compared to other processes
Schemes of arrangement—process and statutory framework
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First published on LexisPSL Restructuring and Insolvency
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