Key Issue: Complexities of Proposed Scheme of Arrangement in Steinhoff International Holdings N.V. Case

Citation: [2020] EWHC 3455 (Ch)
Judgment on

Introduction

The case of Steinhoff International Holdings N.V. before the High Court of Justice addresses the complexities surrounding a proposed scheme of arrangement under Part 26 of the Companies Act 2006. Sir Alastair Norris presided over the matter, concerning the convening of meetings for a scheme aiming to restructure financial obligations and address litigation. The case engages with various legal principles including the definition of a ‘compromise’ or ‘arrangement’, class composition, jurisdictional considerations, and the effectiveness of the scheme.

Key Facts

Steinhoff International Holdings N.V., a company incorporated in the Netherlands and operating globally, faced financial difficulties and litigation following the discovery of alleged financial statement inaccuracies. To manage this situation, they proposed a scheme of arrangement providing for an extension of debt maturities and seeking to facilitate the settlement of all litigation against the group.

The proposed scheme also included granting security in support of obligations under the SEAG CPU and depended on the restructuring of existing facilities, A1 and A2, which was impeded by a minority of ‘holdout’ creditors. The scheme required both an extension to payment dates and acceptance from financial creditors, with the latter hindered by non-consenting creditors.

1. Scheme of Arrangement as a ‘Compromise’ or ‘Arrangement’

The court confirmed that the scheme constituted a compromise or arrangement as it involved give-and-take between Steinhoff and its creditors, as required by ‘Lehman Brothers International (Europe)‘.

2. Ascertainment of Class Composition

Distinct meetings for Facilities A1 and A2 creditors were approved adhering to ‘Sovereign Life Assurance Co v Dodds’ – that class members should be capable of consulting for a common interest without dissimilarity in rights.

3. Jurisdictional Matters

The court established jurisdiction over the Company, recognizing the sufficient connection with English law under ‘Re Vietnam Shipbuilding Industry Group’. Jurisdiction over creditors, particularly within the EU, was affirmed by utilizing the asymmetric jurisdiction clauses, referencing ‘Re NN2 Newco Ltd’ and ‘Re Van Gansewinkel Groep BV’.

4. Effectiveness of the Scheme Globally

The scheme’s effectiveness was ensured by expert opinions affirming recognition of English schemes under South African and Dutch law, in line with international principles of obligations.

5. Consideration of Obstacles to Convening Meetings

Potential roadblocks such as creditors’ domiciliation and the implementation of global settlement schemes were deemed not to preclude the convening of creditor meetings, referencing ‘Re New Look Financing plc’ and ‘Re PizzaExpress Financing 2 plc’.

Outcomes

The outcome of Sir Alastair Norris’s judgment was the granting of a convening order for separate meetings of Facility A1 and A2 creditors. He ensured that the structure and notice of meetings were appropriate, following the precedent set in cases like ‘Re Castle Trust Direct plc’, to enable an informed decision by the creditors.

Conclusion

In summary, the court facilitated a necessary step in the complex restructuring and litigation settlement efforts of Steinhoff International Holdings N.V. The judgment meticulously applied established legal principles to approve the commencement of the scheme approval process. It is an affirmation of the English court’s role in managing global financial restructurings and the importance of taking into account cross-jurisdictional considerations and rights of creditors within such proceedings. Legal professionals should consider this a reinforcement of established caselaw principles surrounding schemes of arrangement, especially for companies with international operations.