Schemes widened to compromise non-English debt

Schemes widened to compromise non-English debt

Can English schemes of arrangement be used to compromise non-English debt such as bonds governed by New York law with a non-exclusive jurisdiction clause in favour of New York of a foreign company?

Original news

Re Magyar Telecom BV [2013] EWHC 3800 (Ch), [2013] All ER (D) 20 (Dec)

The Companies Court sanctioned a scheme of arrangement in respect of a company, whose principal business was the operation of telecommunication services in Hungary, and whose principal liabilities arose under an issue of notes which were governed by the law of New York. The court held that the evidence established a sufficient connection with England and that the scheme would substantially achieve its purpose.

What did the court decide?

Mr Justice Richards decided that:

• an English scheme can compromise New York law governed bonds

• even though the governing law and exclusive jurisdiction clauses were not in favour of England (but rather New York), sufficient connection did exist because following the company's movement of its centre of main interests (COMI) to England, any insolvency process for the company would be undertaken under English law in England

• the Council Regulation EC No 44/2001 (the Judgments Regulation) does apply to schemes of insolvent companies

• the consent fee taken by certain creditors didn't create a separate class

• a scheme can release third parties (eg guarantors)

What issues were discussed by the court before reaching its decision?

Richards J discussed a number of issues before reaching his decision, including:

Global notes

The notes were held in global form and so note holders were not strictly speaking creditors until the notes were registered in their names (ie definitised). However, they were treated as contingent creditors (note creditors) for the purposes of the scheme, and so creditors for the purposes of the Companies Act 2006, s 899.

High level of support

The judge noted the high level of support for the scheme from the creditors— it was approved by a majority of more than 97% in number representing more than 99% in value of

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.