Telewest Communications Plc , Re

The convening hearing for a creditors’ scheme of arrangement addresses jurisdiction, principally class composition. Substantive fairness is considered at sanction. Classes depend on the similarity of creditors’ existing and replacement legal rights, rather than their collateral interests. Separate meetings are required where those rights are so dissimilar that creditors cannot sensibly consult together in a common interest.

Where a scheme is an alternative to insolvent liquidation, liquidation rights provide the relevant comparison. Currency conversion at the common valuation date forms part of creditors’ rights to pari passu distribution. A different conversion basis departs from those rights, but does not automatically require separate currency classes. Even a material difference in financial outcome may permit a single class where the creditors’ overall rights remain sufficiently similar.

Telewest Communications plc, an insolvent English telecommunications holding company, and its wholly owned Jersey subsidiary, Telewest Finance (Jersey) Ltd, applied for leave to convene creditor meetings under section 425(1) of the Companies Act 1985. The subsidiary had lent its bond proceeds to Telewest, which guaranteed those bonds. A winding-up petition against Telewest had been adjourned to allow restructuring proposals to proceed.

The interrelated schemes would cancel bond and related claims in exchange for a fixed pool of shares in a new holding company, Telewest Global Inc, distributed proportionately to creditors’ claims. Sterling claims would be converted into dollars using an average exchange rate over the period from the first bond default to shortly before the explanatory statement was posted. An informal Bondholder Committee supported the proposals. A separate group of sterling bondholders argued that the average rate disadvantaged them compared with conversion at the spot rate on the scheme valuation date.

The opposing bondholders sought either a change to the conversion provision or separate sterling and dollar meetings. The court also considered other potential class differences and Telewest’s request for confirmation that it had duly appointed a representative for an intended US bankruptcy application.

1. Applications granted. The creditor classes were properly constituted, and both companies were given leave and directions to convene the proposed meetings. The Jersey company fell within section 425 of the Companies Act 1985. The interrelated schemes and its English-situated principal asset justified exercising jurisdiction: Re Drax Holdings Ltd applied (paras [2]; [59]).
2. The convening hearing concerned jurisdiction. Incorrect class composition would prevent subsequent sanction. Objections to the exchange rate’s substantive fairness belonged at the sanction hearing and provided no basis for requiring amendment before meetings were convened (paras [11]; [14]–[16]).
3. Class composition depended on legal rights, including rights released or varied and replacement rights under the scheme. Identical rights were unnecessary. A broad, fact-sensitive assessment determined whether creditors could consult together in a common interest. Unnecessary separation could give a minority a veto: Sovereign Life Assurance Co v. Dodd and Re Hawk Insurance Co Ltd applied (paras [19]–[22]).
4. For an insolvent company proposing an alternative to liquidation, liquidation rights supplied the relevant comparison. Conversion at the common valuation date was an enforceable component of pari passu distribution. A scheme using another conversion basis departed from those rights. Once a scheme selected its valuation date, conversion on that date was necessary for a truly pari passu distribution: Wight v. Eckhardt Marine GmbH, Re Dynamics Corporation of America and Re Lines Bros Ltd applied (paras [29]–[36]).
5. That departure did not require separate currency classes. The bondholders shared presently payable unsecured claims and would receive proportionate interests in the same share pool. The illustrated reductions of 4.25 to 5.8 per cent did not establish sufficient dissimilarity in context. The mixed-holdings committee’s consensus supported their ability to consult together. Hedging difficulties did not determine class composition; overall fairness remained for sanction (paras [37]–[48]).
6. Corporate connections and collateral shareholder interests did not require separation where creditor rights remained sufficiently similar. Voting undertakings with appropriate withdrawal rights raised no substantial objection. The court also observed that undertakings without such rights would concern sanction rather than create separate classes. Additional benefits given for an undertaking could require separation, but independently agreed expenses and immaterial agreement costs did not (paras [50]–[55]).
7. The ancillary-claim procedures did not require a separate class, given extensive notice and adequate opportunity to claim. Leaving creditors outside the schemes for good commercial reasons, with their claims paid, novated or separately compromised, did not undermine class composition: Re PT Garuda Indonesia applied (paras [56]–[57]).
8. Director nominations, registration rights, the proposed US rights plan and restructuring expenses created no relevant inequality. Releases relating to scheme claims, bond indentures or implementation would not usually require separate classes. Their final scope remained subject to the court’s discretion (para [58]).
9. A declaration would confirm the due appointment of Anthony Stenham, or failing him Stephen Cook, as Telewest’s authorised representative for the application under section 304 of the US Bankruptcy Code. The declaration rested on the general declaratory jurisdiction. Whether section 425(1) implied an equivalent power was left unresolved (paras [60]–[61]).

A winding-up petition against Telewest had been presented by Credit Agricole Indosuez, a creditor, following a payment default. The petition had been adjourned to allow promotion of the schemes. It was to be dismissed by consent if the schemes were sanctioned and the restructuring successfully completed. These applications concerned leave to convene meetings, before any sanction hearing.