Sea Assets Ltd v Perusahaan Perseroan (Persero) PT Perusahaan Penerbangan Garuda Indonesia

For a scheme of arrangement under Companies Act 1985, section 425, a class need not include every creditor with similar pre-scheme rights. The proposer may select the creditors with whom the scheme is to be made, provided that their rights and the scheme’s effect on them are sufficiently similar to enable consultation in their common interest.

Commercially rational exclusion of creditors who have agreed separate terms, or must be paid in full for the business to continue, does not invalidate the class. Sanction remains subject to the statutory majority, adequate commercial information, fairness and the court’s discretion.

Garuda, an Indonesian airline registered in England, proposed a financial restructuring conditional on schemes becoming effective in England and Singapore. The English scheme replaced the claims of specified unsecured financial creditors with new notes. It excluded government and state-related creditors, which had agreed separate restructuring arrangements, and trade and procurement creditors which were to be paid outside the scheme.

Sea Assets Ltd, a noteholder and the sole creditor voting against the scheme, opposed sanction. Lloyd J in the Companies Court sanctioned the scheme on 4 October 2001 and refused permission to appeal. Sea Assets sought permission from the Court of Appeal, challenging both the jurisdiction to constitute the scheme class and the discretionary sanction, and seeking to adduce fresh evidence.

1. Permission to appeal was refused unanimously. Peter Gibson LJ gave the principal judgment. Laws LJ agreed and gave additional reasons on jurisdiction. Longmore LJ agreed with both judgments. The application was dismissed with costs.

2. Under section 425 of the Companies Act 1985, the relevant question is whether the creditors whom the scheme is intended to bind have rights, and receive scheme rights, that are not so dissimilar that they cannot consult together in their common interest. The provision does not require inclusion of every creditor who has the same or a similar interest as a creditor selected for the scheme.

3. The Scheme Creditors satisfied that test. They were unsecured financial creditors with overdue claims and were treated alike. The Indonesian Government and state-related entities could rationally be dealt with through separate arrangements. Trade and procurement creditors could rationally remain outside the scheme because continued trading required that they be paid in full. Their exclusion did not make the selection arbitrary or defeat the statutory purpose.

4. The court also upheld Lloyd J’s exercise of discretion. The explanatory statement adequately explained the commercial effect of the scheme. The alleged absence of further information about trade creditors, foreign effectiveness, and revised projections did not show unfairness. The overwhelming creditor vote, taken with knowledge of the events of 11 September, strongly supported sanction. The judge had not been plainly wrong.

5. The proposed fresh evidence was refused. The principles in Ladd v Marshall remained relevant under the Civil Procedure Rules. The material would not have had an important influence on the appeal, and substantially could have been obtained with reasonable diligence for the hearing below.

• Court of Appeal (Civil Division): refused Sea Assets’ application for permission to appeal and dismissed it with costs: [2001] EWCA Civ 1696.

• Chancery Division, Companies Court: Lloyd J sanctioned Garuda’s scheme of arrangement under Companies Act 1985, section 425, on 4 October 2001 and refused permission to appeal.