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Restructuring & Insolvency analysis: When will the courts be prepared to sanction schemes of arrangements where jurisdiction is an issue? Stefan Ramel of Guildhall Chambers says the English courts appear prepared to countenance forum shopping in a corporate context.
Re Apcoa Parking Holdings GmbH and other companies  EWHC 3849 (Ch),  All ER (D) 221 (Nov)
The Chancery Division sanctions schemes of arrangement in respect of the Apcoa group, a leading pan-European car park operator.
The Apcoa group’s borrowing facilities were due to expire on 25 October 2014. The Apcoa companies considered that they could not afford to repay them, and that had been the position since September 2013. Between September 2013 and September 2014, there had been a year of difficult and fractious negotiations between creditors. Although an offer of new facilities had been made, that offer was due to expire on 25 November 2014. By late 2014, a quick restructuring of the Apcoa group’s debt was therefore necessary.
Two creditors of the nine scheme companies challenged the proposed scheme of arrangement. FMS Wertmanagement (FMS) was an assignee of a creditor originally bound by a facilities agreement made in April 2007. FMS was represented before Hildyard J at both the convening hearing (22–24 September 2014) and the sanctions hearing (20–22 and 27, 29–30 October 2014). The second scheme creditor that opposed the proposed schemes was Litespeed Master Fund Limited, acting through its New York manager. Litespeed did not appear through counsel at the hearings, but had formally written in advance of the hearings to record its opposition to the schemes and its support for the position adopted by FMS. As against those dissentient creditors, one strongly supporting creditor spoke in favour of the schemes—Centerbridge Partners. Centerbridge was the largest creditor of the Apcoa group and it also appeared, and was represented at, both hearings by counsel. Hildyard J described the adversarial position being adopted by those creditors as being that FMS accused Centrebridge of being a ‘loan to own’ vulture, and Centrebridge accused FMS of being a ‘hold out’ creditor. He described the struggle and name calling between the creditors as not unfamiliar.
FMS challenged the schemes at both the convening hearing and the sanctions hearing. At the convening hearing, FMS relied on an argument that its rights (and those of Litespeed), and its interests derived from those rights, as well as the commercial effect of the schemes were such as to mean that FMS and Litespeed should be treated as a separate class. In short, FMS argued that because of a Turnover Agreement, which was then replaced by a lock-up agreement, the rights, as against the scheme companies, of all creditors bound by those agreements had been altered because they had been subordinated to the rights of the ‘new’ creditors that had proposed and driven the turnover agreement and the lock-up agreement. FMS’ (and Litespeed’s) rights had not been subordinated in that way— in turn that constituted them as a different creditor class.
At the sanctions hearing, FMS adopted several arguments. They argued that the scheme documents imposed on the existing senior creditors a new indemnity obligation. As regards the votes cast at one of the class meetings, because of a conflict of interest between those creditors bound by the turnover agreement/lock-up agreement and those not bound by those agreements, the votes which were cast were not representative. Separately, and as a matter of discretion, those agreements also gave rise to creditor class manipulation and, therefore, should not receive the court’s sanction. There was an insufficient connection to the English jurisdiction to confer on the English courts the power to sanction the schemes. Further, the restructuring envisaged by the schemes would not be effective or recognised in Germany.
Hildyard J emphasised that the task of the court at a convening hearing is limited, and indeed, any decision which the court makes at that point is not final. The focus is on whether, assuming class meetings were called and then voted to accept the scheme, the court would have jurisdiction to sanction it. If it wouldn’t then there would be no point in calling the meetings at all. The correct identification of creditor classes, and the composition of each class, are precisely matters which go to that jurisdiction. The judge emphasised that in determining creditor classes, the starting point is to identify the difference in legal rights as against the relevant company. If there is a difference in legal rights, then it is proper to proceed, at the convening stage, to consider whether, if the scheme were to fail, would there be more to unite than divide the creditors in the proposed class, ignoring any personal interests or subjective motivations.
Hildyard J’s judgment is interesting because of the distinction he drew between a creditor’s rights, and the exercise by that creditor of those rights. In this case, the creditors had the right to vote on the scheme and or to enforce their rights—that is to do with exercising those rights. The turnover agreement and the lock-up agreement went to the exercise of the rights, not the rights themselves. Just because FMS and Litespeed were not bound by those agreements did not mean they had different rights to the other creditors. It is also implicit from the decision that Hildyard J took account of the fact that some creditors who might have thought to have been in the same position as FMS and Litespeed were content to enter into the turnover agreement and the lock-up agreement. Lastly, Hildyard J also considered the position as it would be in a ‘no-scheme world’ (ie a liquidation). His view was that a reasonable creditor acting in the position of FMS would prefer a smaller slice of a large cake (in a scheme world) than a large slice of a small cake (in a liquidation).
In the circumstances of this case, an interesting and novel point raised by FMS was whether the court should sanction a scheme which had the effect of imposing a new obligation on FMS, as opposed to simply altering FMS’ rights. None of the counsel in the case was able to cite any English authority directly on point. They relied for assistance on the decisions of the English courts in Re T&N and others (No3)  EWHC 1447 (Ch),  1 All ER 851 and Re Lehman Brothers International (Europe)  BCC 272, but as it happens Hildyard J did not find those decisions to be determinative of the issue. However, the Apcoa companies did rely upon a number of Australian authorities and one New Zealand authority which supported them. As it happens, and having expressed concerns about this issue and given a provisional indication that he would not approve the schemes as drafted, overnight the Apcoa companies prepared amended schemes which addressed the new obligation point. As a result, Hildyard J did not have to decide the point. He went on to state, obiter, that he did not think an English scheme could impose new obligations.
In short, yes it did. Although FMS had challenged the change of law as being a device designed solely to confer jurisdiction on the English courts to approve a scheme (and so by extension the change of governing law was not driven by any commercial considerations) the court held that the change of law was valid, and did give rise to a sufficient connection.
Hildyard J’s judgment is both lengthy and detailed. He explicitly commented that:
‘the adversarial process inevitably shines light on issues that in unopposed matters may not have been so sharply exposed.’
For that reason, it repays careful reading. His consideration of the test to be applied at each of the two stages of the court’s involvement is both clear and concise. It is also noteworthy that he was prepared to be led by, and work within, the commercial pressures of the case. That is a fact well worth emphasising—it is not just about justice, but speedy justice.
On balance, yes. FMS suggested that these schemes were an example of forum shopping. Even if they were, the English courts do appear prepared to countenance forum shopping in a corporate context—corporate rescue and restructurings are welcomed. The same cannot be said, of course, for bankruptcy tourism, which is forum shopping in a personal context.
Interviewed by Nicola Laver.
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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