Drax Holdings Ltd., Re

A foreign company may be the subject of a creditors’ scheme under section 425 of the Companies Act 1985. The foreign-company winding-up requirements are discretionary principles, rather than conditions of statutory jurisdiction. They therefore do not all have to be met before a scheme may be ordered.

The court will nevertheless exercise scheme jurisdiction only where there is a sufficient connection with England. In a creditors’ scheme, a substantial connection may arise from English-law debt and security documents, English assets, creditors subject to the English jurisdiction, and the need for an effective restructuring in both the place of incorporation and the governing-law jurisdiction.

Drax Holdings Ltd, a Cayman Islands company, and InPower Ltd, a Jersey company, proposed interconditional creditors’ schemes to restructure liabilities arising from the acquisition and financing of Drax Power Station. The schemes affected approximately £1 billion and US$300 million of debt and required approval in England as well as in the companies’ places of incorporation.

On 13 November 2003, the court made orders under section 425(1) of the Companies Act 1985 convening creditors’ meetings. This judgment gives the reasons for holding that the court had jurisdiction in relation to the two foreign companies. The central issue was whether the foreign-company winding-up conditions also had to be satisfied before the court could exercise its scheme jurisdiction.

1. The court held that it had jurisdiction to order meetings and to approve the creditors’ schemes. Drax Holdings and InPower were foreign companies, and therefore unregistered companies for the purposes of the Insolvency Act 1986. Through section 425(6) of the Companies Act 1985, read with section 735A and Part V of the Insolvency Act 1986, they were companies liable to be wound up and capable of falling within section 425.

2. The three requirements stated in Stocznia Gdanska SA v Latreefers Inc (No. 2) [2001] 2 BCLC 116 (C.A.) and Re Real Estate Development Co [1991] BCLC 210 concerned the court’s discretion when winding up a foreign company. They were not conditions for the existence of statutory jurisdiction. Accordingly, they did not have to be satisfied for a scheme under section 425, and the compulsory winding-up grounds in section 221(5) of the Insolvency Act 1986 were not required.

3. The court nevertheless would not exercise scheme jurisdiction without a sufficient connection with England. A creditors’ scheme may properly be sanctioned both in the place of incorporation and in the jurisdiction whose law governs the contractual obligations, so that dissenting creditors cannot enforce altered rights elsewhere. Here, the English-law finance and security documents, security over English assets including the power station, creditors carrying on business in England, and parallel approval processes in Jersey and the Cayman Islands supplied that connection.

4. The potential effect of Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and Council Regulation 1346/2000 on insolvency proceedings did not complicate this conclusion. The orders convening the meetings were therefore properly made.

not stated in the judgment.