Lecta Paper UK Limited, Re
[2023] EWHC 2908 (Ch)
OQ Chemicals Holding Drei GmbH & Anor, Re
31 July 2024
[2024] EWHC 2036 (Ch)
High Court
Two companies want to extend their loan deadlines. They asked a judge for permission to hold a meeting with their lenders to vote on the plan. The judge said yes after checking everything was fair, even though there were some complicated parts to the deal. The lenders mostly agreed with the plan anyway.
Key Facts
- •OQ Chemicals Holding Drei GmbH (German borrower) and OQ Chemicals Corporation (US borrower) applied for orders to convene creditor meetings for schemes of arrangement under Part 26 of the Companies Act 2006.
- •The schemes aim to extend the maturity of term loans and a revolving credit facility to December 31, 2026.
- •The credit agreement was originally governed by New York law but was amended to be governed by English law to facilitate the schemes.
- •The companies are pursuing a parallel M&A process.
- •An ad hoc group of lenders representing over 75% of the loans supports the restructuring.
- •A Restructuring Support Agreement (RSA) sets out the commercial terms, including fees for consenting lenders and super priority bridge funding.
- •The schemes include provisions for capitalizing accrued interest, an exit fee, an extension fee, a 'snooze' provision, and a reduced voting threshold for certain amendments.
- •The court considered jurisdictional issues, international effectiveness, class composition, and the adequacy of the explanatory statement.
Legal Principles
Court's jurisdiction to convene scheme meetings is under section 896(1) of the Companies Act 2006.
Companies Act 2006
An 'arrangement' has a broad meaning requiring some element of give and take.
Case law (unspecified)
A foreign company liable to be wound up under the Insolvency Act 1986 can be subject to a scheme.
Insolvency Act 1986
Sufficient connection to the jurisdiction is needed to sanction a scheme; English law governing the indebtedness usually suffices.
Case law (Re Vietnam Shipbuilding Industry Group [2014] BCC 433)
A change in governing law of a credit agreement is acceptable if not alien to prior arrangements or done for improper purpose.
Case law (Re Tele Columbus AG [2024] BCLC 428)
International effectiveness of a scheme is primarily a matter for the sanction hearing.
Case law (Re Tele Columbus, Safari Holding, Re Swissport Fuelling)
Class composition requires comparing creditors' positions with and without the scheme, considering whether differences unite or divide them.
Case law (unspecified)
Material differences in creditor rights don't necessarily fracture the class; avoid proliferation of classes.
Case law (unspecified)
Opportunities to participate in new money facilities do not necessarily create class issues if fairly offered to all.
Case law (unspecified)
Accession to an RSA is not inherently class-creating unless fees materially influence voting decisions.
Case law (Re Telewest Communications Plc [2004] BCLC 356)
Harmonization of voting thresholds might not create class issues if integral to the scheme and benefits all creditors.
Case law (Re Veon Holdings BV [2022] EWHC 3273 (Ch))
Outcomes
Sufficient notice was given to creditors.
15 days' notice was provided, covering all necessary matters, considering creditor sophistication and prior involvement.
Court has jurisdiction to sanction the schemes.
The proposals constitute a compromise with an element of give and take; the companies are foreign companies subject to the Insolvency Act 1986; no insuperable obstacles to effectiveness were identified.
International effectiveness will be considered at the sanction hearing.
While expert evidence is preferable, the absence of opposition and prior successful schemes suggest no roadblocks.
A single class of lenders is appropriate.
The differences in creditor rights pre- and post-scheme are not materially significant, considering the overall scheme's effect and the parallel M&A process; various fee structures and the 'snooze' provision do not fracture the class.
The explanatory statement is adequate.
It's detailed and complex but suitable for the intended recipients, given their prior engagement.
Convening order granted.
All necessary considerations were addressed, and the court found no reason to deny the application.