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Cross-border Schemes of Arrangement and Forum Shopping

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Abstract

In recent years, there has been a growth in the use of English schemes of arrangement by companies registered in other EU Member States. Recent high-profile examples include TeleColumbas GmbH, Rodenstock GmbH, Primacom Holdings GmbH, Re Metrovacesa SA and Re Seat Pagine Gialle SpA, although there are many more. In each case, these companies were able to access the English scheme jurisdiction without shifting their seat or COMI to the UK. This paper investigates this phenomenon, explaining the use of an English scheme of arrangement and why it might be regarded as valuable to these companies. The paper then tackles two issues. First, it assesses how these companies are able to access the English scheme jurisdiction, and, in particular, it analyses the potential application of both the Insolvency Regulation and the Judgments Regulation in this regard. As part of this analysis, the recognition and enforcement of English schemes of arrangement in other Member States is discussed. Second, it considers whether this use of English schemes by companies registered in Germany, Spain, Italy and elsewhere gives rise to issues of forum shopping. This paper rejects the idea that forum shopping should be regarded as a concern in this context.

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References

  1. The origins of the scheme of arrangement lie in the Companies Act 1862, ss. 136–137, although only with the Joint Stock Companies Arrangement Act 1870, s. 2, was the first recognisable ancestor to the current legislative provisions put in place.

  2. See, e.g., TeleColumbas GmbH, unreported, 14 December 2010, Ch (involving a German registered company); Re Rodenstock GmbH [2011] EWHC 1104 (Ch) (involving a German registered company); Primacom Holdings GmbH [2012] EWHC 164 (Ch) (involving a German registered company); Re Metrovacesa SA, unreported, 29 March 2011, Ch (involving a Spanish registered company); Re NEF Telecom Co BV [2012] EWHC 2944 (Comm) (involving Dutch and Bulgarian companies); Re Cortefiel SA [2012] EWHC 2998 (Ch) (involving Spanish and Luxembourg companies); Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch) (involving an Italian company).

  3. [2011] EWHC 1104 (Ch).

  4. See, e.g., the scheme of arrangement (and pre-packaged administration) for Wind Hellas Telecommunications SA, a Luxembourg company which relocated its head office to London in order to make use of English restructuring mechanisms.

  5. Companies Act 2006, s. 895(1).

  6. Ibid. The phrase ‘a compromise or arrangement’ within s. 895 of the Companies Act 2006 has been construed widely by the courts. In general, the courts have simply required that the arrangement must have the features of ‘give and take’ and cannot simply amount to a surrender or confiscation: Re Savoy Hotel Ltd [1981] 3 All ER 646, and that the court must be a party to the arrangement. Otherwise the courts have deliberately avoided giving the terms a narrow meaning: see, e.g., Re Lehman Brothers International (Europe) (in administration) (No. 2) [2009] EWCA Civ 1161 at [74].

  7. Sovereign Life Assurance Co v. Dodd [1892] 2 QB 573, 583 per Bowen LJ. See also Re Hawk Insurance Ltd [2001] EWCA Civ 241.

  8. Companies Act 2006, s. 899(1).

  9. The grounds on which the court will subsequently set aside a scheme are extremely limited. Even where the judgment is obtained by fraud, the court will not set it aside if it is satisfied that the result would have been the same in the absence of fraud: Fletcher v. Royal Automobile Club Ltd [2000] 1 BCLC 331.

  10. As a result, it is common for schemes of arrangement to be twinned with pre-packaged administrations, which, in combination, allow the functional equivalent of a cramdown of a whole class to be achieved, see, e.g., Re Bluebrook Ltd [2009] EWHC 2114 (Ch) for an example of this in practice.

  11. See Chapter 11 of the US Bankruptcy Code 1978.

  12. See German Insolvency Statute (Insolvenzordnung), §§ 217–269.

  13. Companies Act 2006, s. 896(1).

  14. Ibid., s. 899(1).

  15. Scottish Lion Insurance Co Ltd v. (First) Goodrich Corp [2009] CSIH 6; [2010] BCC 650 at [36] per Lord Hamilton, the Lord President.

  16. See Report of the Joint DTI/Treasury Review of Company Rescue and Business Reconstruction Mechanisms (2000), at para. 43. For an earlier, but similar, opinion, see Report of the Insolvency Law Review Committee, Insolvency Law and Practice (Cmnd 8558, 1982), ch. 7.

  17. For member schemes, the court will generally only have jurisdiction to sanction a company under the Companies Act 2006 if the company is incorporated under UK law, since issues relating to the share capital of a company are generally governed by the place of incorporation: see, e.g., L. Collins, ed., Dicey, Morris and Collins on the Conflict of Laws, 15th edn. (London, Sweet & Maxwell 2012), at pp. 1542–1543. As a result, the court will only have jurisdiction to sanction a scheme under Companies Act 2006 if the company is incorporated in the UK or if the scheme complies with the Companies Act 2006 and the laws of the jurisdiction of incorporation of the company.

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  18. It was estimated in February 2007 that, of the 80 solvent schemes that had been implemented up to that date, 52 per cent related to non-UK businesses, with 33 per cent of them specifically relating to continental European businesses, mostly insurance and reinsurance companies: PricewaterhouseCoopers LLP, Unlocking Value in Run-off: A Survey of Discontinued Insurance Business in Europe, February 2007.

  19. German law has changed in the interim, with reforms being made to German restructuring law: Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen (ESUG), in force from 1 March 2012. One of the reasons behind this reform was to respond to the migration of German companies for restructuring purposes, in particular to England to access the scheme jurisdiction: L. Westpfahl, ‘Die Sanierung deutscher Gesellschaften über ein englisches Scheme of Arrangement’, Zeitschrift für Wirtschaftsrecht (2011) p. 2033, at p. 2034 (I am grateful to my research student, Artur Swierczok, for this reference).

  20. See the Akkordstörer decision of the German Federal Supreme Court (BGH) Entscheidungen des Bundesgerichtschofes in Zivilsachen (BGHZ) 116, p. 319.

  21. See § 15(a) Insolvenzordnung (German Insolvency Statute).

  22. See Insolvenzordnung (German Insolvency Statute), introduced in 1999.

  23. Companies Act 2006, s. 895(1).

  24. Ibid., s. 895(2)(b).

  25. Insolvency Act 1986, s. 221.

  26. See, e.g., Banque des Marchands de Moscou (Koupetschesky) v. Kindersley [1951] Ch 112.

  27. Insolvency Act 1986, s. 221(5).

  28. Re Drax Holdings Ltd [2004] 1 WLR 1049. This analysis was confirmed in Re Rodenstock GmbH [2011] EWHC 1104.

  29. [1991] BCLC 210 (Ch). The conditions were later approved by the Court of Appeal in Re Latreefers Inc [1999] 1 BCLC 271 (Ch).

  30. See Real Estate Development Co [2001] BCLC 210 at 217. The other two conditions are: (i) that there must be a reasonable possibility, if a winding-up order is made, of benefit to those applying for the winding-up order; and (ii) one or more persons interested in the distribution of assets of the company must be persons over whom the court can exercise a jurisdiction. However, these are less relevant for schemes since they envisage a winding-up, which, of course, need not occur as part of a scheme (for discussion, see Re Drax Holdings Ltd [2004] 1 WLR 1049 per Collins J).

  31. Re Rodenstock GmbH [2011] EWHC 1104 at [21] per Briggs J.

  32. Ibid. at [29].

  33. See, e.g., Re Drax Holdings Ltd [2004] 1 WLR 1049, in which Collins J held that the sufficient connection was the fact that key finance documents created English law-governed obligations and the companies had other characteristics which connected them to England, such as the fact that there were significant operations and assets in England.

  34. See, e.g. Re Rodenstock GmbH [2011] EWHC 1104 (Ch). In Rodenstock Briggs J distinguished between a case where the scheme creditors (either by majority or unanimously) had separately chosen English law and/or jurisdiction to govern their lending relationships with the company, and a case in which the creditors had done so collectively, by a single agreement. Briggs J suggested that the latter scenario would provide the English court with a more compelling case for finding a sufficient connection to exist than the former. In Briggs J’s opinion this is because the single agreement regulates not merely a series of individual creditor/debtor relationships, but also the relationship between the lenders inter se. In other cases, e.g., Re Primacom Holding GmbH [2012] EWHC 164 (Ch), there has been less emphasis on the inter-creditor aspects of the arrangement.

  35. [2012] EWHC 164 (Ch).

  36. It is interesting to note that in Rodenstock Briggs J considered that the fact that the restructuring of the company and the scheme itself had been devised and negotiated in England did not add anything of real substance to the connection afforded by the English choice of law and jurisdiction clauses in the creditor agreements.

  37. Council Regulation (EC) 1346/2000 on insolvency proceedings.

  38. Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments.

  39. See Directive 2001/17/EC on the reorganisation and winding-up of insurance undertakings and Directive 2001/24/EC on the reorganisation and winding-up of credit institutions. Discussion of this legislation falls outside the parameters of this paper.

  40. See supra n. 2.

  41. Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335 (Ch).

  42. A notable exception is Re Rodenstock GmbH [2011] EWHC 1104 (Ch), in which these issues were discussed in considerable detail.

  43. ECJ, Case 133/78 Gourdain [1979] ECR 733. See B. Hess, T. Pfeiffer and P. Schlosser, The Brussels I Regulation 44/2001: Application and Enforcement in the EU (Verlag C.H. Beck 2008), at p. 53.

  44. Specifically, the Regulation applies to ‘collective insolvency proceedings, which entail the partial or total divestment of a debtor and the appointment of a liquidator’: Insolvency Regulation (EC) 1346/2000, Art. 1.

  45. European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation EC No 1346/2000 on insolvency proceedings, COM(2012) 744 final, 12 December 2012. A public consultation was launched in July 2013: <http://europa.eu/rapid/press-release_IP-13-655_en.htm>.

  46. The Proposal suggests the amendment of Article 1 of the existing Regulation so as to allow the inclusion of ‘interim proceedings, which are based on a law relating to insolvency or adjustment of debt and in which, for the purpose of rescue, adjustment of debt, reorganisation or liquidation, (a) the debtor is totally or partially divested of his assets and a liquidator is appointed, or (b) the assets and affairs of the debtor are subject to control or supervision by a court…’.

  47. European Parliament, Committee on Legal Affairs, Draft Report on a proposal for a regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, 11 September 2013.

  48. Insolvency Regulation (EC) 1346/2000, Art. 3(1)(2).

  49. Judgments Regulation (EC) 44/2001, Art. 1.

  50. Ibid., Art. 1 (2)(b).

  51. See Re Drax Holdings Ltd [2003] EWHC 2743 (Ch) at [28]; Re Rodenstock GmbH [2011] EWHC 1104 (Ch) at [37]–[38].

  52. Note that one exception to this analysis is the English court’s ability to wind up on the grounds of public interest (under Insolvency Act 1986, s. 124). This form of winding-up is unaffected by either the Insolvency Regulation or the Judgments Regulation (see Re Senator Hanseatische Verwaltungsgessellschaft [1996] 1 BCLC 562 (Ch) at 577). Therefore, it might be argued that companies are always liable to be wound up for the purposes of Companies Act 2006, s. 895, irrespective of the location of their seat or COMI, or the fact of having an establishment in the UK. However, this view is not supported by judicial authority: Re Rodenstock GmbH [2011] EWHC 1104 at [39].

  53. Note, however, that schemes that are combined with insolvency proceedings falling within the Annexes (e.g., administration) would then be within the scope of the Insolvency Regulation.

  54. For a criticism of this approach, see L. C. Ho, ‘Making and Enforcing International Schemes of Arrangement’, 26 Journal of International Banking Law and Regulation (2011) p. 434, at pp. 435–436.

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  55. See, e.g., Re Drax Holdings Ltd [2003] EWHC 2743 (Ch); DAP Holding NV [2005] EWHC 2092 (Ch); Re La Seda de Barcelona SA [2010] EWHC 1364 (Ch); Re Rodenstock GmbH [2011] EWHC 1104; Primacom Holding GmbH [2012] EWHC 164 (Ch); Re Metrovacesa SA (unreported) 29 March 2011; Re NEF Telecom Co BV [2012] EWHC 2944 (Comm); Re Cortefiel SA [2012] EWHC 2998 (Ch); Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch); cf. Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335, in which the scheme was opposed at that stage.

  56. [2005] EWHC 2092.

  57. See, e.g., Re Rodenstock GmbH [2011] EWHC 1104 (Ch) at [46] per Briggs J.

  58. See, e.g., Ho, supra n. 58.

  59. [2011] EWHC 1104 (Ch) at [63].

  60. Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335 at [37].

  61. See, also, the arguments put forward by Gabriel Moss QC in Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335 at [36]–[37].

  62. Cf. Insolvency Act 1986, s. 221(4), which explicitly provides for the importation of rules of allocation of international jurisdiction into domestic law for voluntary winding-up.

  63. ECJ, Case 93/71 Leonesio v. Italian Ministry of Agriculture and Forestry [1972] ECR 287; [1973] CMLR 343.

  64. See, e.g., Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch), in which the judge acknowledged that there were two quite different routes to the conclusion that the Insolvency Regulation did not impact on the definition of ‘a company’ for scheme purposes (i.e., that in DAP and that in Rodenstock). Nevertheless, because the outcome of the two routes is the same, and the judge agreed with that outcome, he was content to accept that the court had jurisdiction to sanction the scheme (involving an Italian company in that case) without having to choose between the two routes.

  65. See, e.g., Re Rodenstock GmbH [2011] EWHC 1104 (Ch) at [46] per Briggs J.

  66. [2005] EWHC 2092 (Ch).

  67. In Rodenstock Briggs J left open the question whether such schemes could fall within the Judgments Regulation. Despite the arguments put forward by Richard Snowden QC in Roden-stock (at [51]), the bankruptcy exclusion in Article 1 (2)(b) of the Judgments Regulation makes it difficult to see how schemes involving insolvent companies can be regarded as falling within that Regulation.

  68. This is by analogy with Article 4 of the Judgments Regulation, which allows a Member State to apply its own national law in certain circumstances.

  69. [2011] EWHC 1104 (Ch) at [61]. Brigg s J seems to envisage all affected members/creditors being potentially regarded as defendants, because they have the potential to appear and oppose the scheme, even those that vote in favour of the scheme at the class meetings. To regard these consenting creditors/members as defendants in contentious proceedings might seem a little odd.

  70. Primacom Holding GmbH [2012] EWHC 164.

  71. See, e.g., Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch) per David Richards J; Re NEF Telecom Co BV [2012] EWHC 2944 (Comm) per Vos J.

  72. Briggs J did, however, contrast the facts on the present case with the situation in which ‘merely by happenstance a majority or even all of the Scheme Creditors have separately chosen English law and/or jurisdiction to govern their individual lending relationships with the Company’ (at [68]), suggesting that such a situation might be a ‘less persuasive candidate’ for finding a sufficient connection to be present (at [69]).

  73. Rodenstock at [73]–[77].

  74. It is worth remembering that even if a foreign court does not formally recognise the scheme, it may recognise the impact of the scheme when hearing a creditor action based on an English law-governed contract, the terms of which have been modified by the scheme, i.e., the foreign court might provide de facto recognition of the scheme even if it will not provide de jure recognition: J. Windsor and P. Sidle, ‘International Recognition of Schemes of Arrangement’, 9 Journal of International Banking and Financial Law (2010) p. 523.

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  75. An example of this may be seen in Re NEF Telecom Company BV [2012] EWHC 2944 (Comm), in which the court received an expert opinion that schemes would be recognised in the Netherlands under Dutch domestic private international law.

  76. Where the assets are held in jurisdictions that have schemes of arrangement of their own (such as Australia, New Zealand, Canada, Hong Kong, Singapore, Bermuda and the Cayman Islands) then parallel schemes can be put forward in those jurisdictions in order to ensure that the creditors in those jurisdictions are bound.

  77. See, for example, in the US context, Chapter 15 of the US Bankruptcy Code, introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act 2005, which implements the Model Law and allows for the recognition of English schemes in the US.

  78. See Cambridge Gas Transportation Corporation v. Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26 for a discussion of universalism in this context. For an example of this principle in action in relation to schemes, see, e.g., Re Contel Corp Ltd [2011] SC (Bda) 14 Com, in which the Supreme Court of Bermuda utilised this concept to recognise a Singapore court order sanctioning a scheme of arrangement. However, a recent decision of the English Supreme Court in Rubin v. Eurofinance SA; New Cap Reinsurance Corp v. Grant [2012] UKSC 46 potentially casts doubt on the modified universalism approach adopted in Cambridge Gas, and the application of this concept in the future remains to be seen.

  79. This is the case in Canada, for example. See, e.g., Re Cavell Insurance Company Ltd (2006) 269 DLR (4th) 679.

  80. Council Regulation (EC) No. 593/2008. For creditors with non-contractual claims, see the Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (Rome II).

  81. See Re Rodenstock GmbH [2011] EWHC 1104 (Ch); Re Primacom Holding GmbH [2012] EWHC 164 (Ch). See also Re TeleColumbas GmbH, unreported, December 2010 (in relation to German law), and Re Metrovacesa SA, unreported, 29 March 2011 (in relation to Spanish law).

  82. See, e.g., Re Rodenstock [2011] EWHC 1104 (Ch) at [76].

  83. [2005] EWHC 2092 (Ch).

  84. Of course, as discussed above, Rodenstock only dealt with the application of the Judgments Regulation to solvent companies and there remains a question of whether the Judgments Regulation can apply to a scheme involving an insolvent company. On the face of the Regulation it would appear that such schemes should be excluded, since Article 1(2)(b) of the Regulation excludes ‘bankruptcy proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings’ (but see the contrary argument put before the court in Rodenstock at [51]). It remains an open question whether such schemes would fall within this Regulation.

  85. OLG Celle 8 U 46/09, 8 September 2009.

  86. Ibid., at para 84, where it was suggested that a scheme involves a mere ‘wish/desire’ of a company to financially restructure itself outside a formal insolvency proceeding.

  87. See Kempe v. Ambassador Insurance Co [1998] 1 WLR 217 (PC) p. 276 per Lord Hoffmann.

  88. See, e.g., British Aviation Insurance Co Ltd [2005] EWHC 1621 (Ch); Sovereign Marine & General Insurance Co [2006] BCC 774.

  89. ECJ, Case C-414/92 Solo Kleinmotoren GmbH v. Boch [1994] ECR I-2237, at [17].

  90. OLG Celle 8 U 46/09, 8 September 2009, at para. 84.

  91. It was also suggested in the decision of the Celle Higher Regional Court that the necessity to file the scheme-sanctioning decision with the Registrar of Companies in order to make the scheme effective speaks against the presence of a judgment: ibid.

  92. LG Potsdam, 2 O 501/07. Ultimately, however, the court declined to recognise the scheme on other grounds.

  93. BGH, 15.2.2012 — IV ZR 194/09. For discussion, see R. Bork, ‘Recognising Schemes of Arrangements in Germany — Back to Square One’, Insolvency Intelligence (2013) p. 10.

  94. Ibid., para. 24.

  95. EC Insolvency Regulation, recital 4.

  96. See, e.g., the scheme of arrangement (and pre-packaged administration) for Wind Hellas Telecommunications SA, a Luxembourg company which relocated its head office to London in order to make use of English restructuring mechanisms.

  97. For discussion, see P. de Vareilles-Sommières, ed., Forum Shopping in the European Judicial Area (Oxford, Hart Publishing 2007).

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  98. For a discussion of good and bad forum shopping, see AG Colomer in ECJ, Case C-339/07 Seagon v. Deko Marty Belgium NV. See also H. Eidenmüller, ‘Free Choice in International Company Insolvency Law in Europe’, 6 European Business Organization Law Review (EBOR) (2005) p. 423; G. McCormack, ‘Jurisdictional Competition and Forum Shopping in Insolvency Proceedings’, 68 Cambridge Law Journal (2009) p. 169; W.-G. Ringe, ‘Forum Shopping under the EU Insolvency Regulation’, 9 EBOR (2008) p. 579; L. Enriques and M. Gelter, ‘Regulatory Competition in European Company Law and Creditor Protection’, 7 EBOR (2006) p. 417.

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  99. AG Colomer in Seagon v. Deko Marty Belgium NV, supra n. 111.

  100. See, e.g., ECJ, Case C-1/04 Susanne Staubitz-Schreiber [2006] ECR I-701, para. 27.

  101. Ringe, supra n. 111, at p. 602.

  102. See, e.g., Opinion of AG Colomer in Staubitz-Schreiber, supra n. 112, paras. 71–77 (6 September 2005); Opinion of AG Colomer in Seagon v. Deko Marty Belgium NV.

  103. Law 22/2003 of 9 July on insolvency (Ley 22/2003, de 9 de Julio, Concursal), as amended by Law 38/2011 of 10 October (Ley 38/2011). See also the reformed German insolvency provisions, ESUG, introduced on 1 March 2012, in response, in part, to the threat provided by the English scheme.

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Payne, J. Cross-border Schemes of Arrangement and Forum Shopping. Eur Bus Org Law Rev 14, 563–589 (2013). https://doi.org/10.1017/S1566752912001309

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