Castle Holdco 4 Ltd, Re

The court may convene meetings for a scheme involving a foreign company where it has jurisdiction to wind up that company under Part V of the Insolvency Act 1986, the company has a sufficient connection with England and Wales, and the statutory scheme jurisdiction is engaged.

Scheme meetings must be constituted by reference to similarity of legal rights against the company, rather than differences in members’ private interests. Beneficial owners of notes held through a global note structure may be treated as contingent creditors, and arrangements may be made for their votes to be elicited while preventing double-counting. Private interests and lock-up agreements may be relevant at the sanction stage but do not ordinarily alter the meeting composition.

Castle Holdco 4 Limited, a Cayman Islands company forming part of the Countrywide group, applied for directions to convene meetings in relation to proposed linked schemes of arrangement. The restructuring involved a debt-for-equity swap and new notes intended to reduce the group’s indebtedness.

The proposed meetings were for floating-rate note creditors and senior note creditors. The court had to determine its jurisdiction over the foreign company, the appropriate creditor classes, the treatment of beneficial owners in a global note structure, and the proper venue for the meetings.

1. The court had jurisdiction to convene the meetings. Under Part V of the Insolvency Act 1986, the court would have jurisdiction to wind up the Cayman company. It therefore fell within section 895(2)(b) of the Companies Act 2006. The company also had a sufficient connection with England and Wales, including its English subsidiary, tax residence, centre of main interests, English-law security documents and registration as a foreign company. The approach in Drax Holdings [2004] 1 WLR 1049 supported the exercise of jurisdiction.

2. Two meetings were appropriate. The two categories of floating-rate notes had sufficiently common legal rights despite differences concerning the rolling-up of interest. The senior note holders had materially different security and scheme rights and could not meet with the floating-rate note holders, although they could meet as a class.

3. For class purposes, the relevant test was similarity or dissimilarity of legal rights against the company, not similarity or dissimilarity of private interests not derived from those rights. The court adopted the test stated by Lord Millett in UDL Argos Engineering. Other interests, including interests in the revolving credit facility or equity, did not require separate meetings. They could be considered when the schemes were presented for sanction. Lock-up agreements likewise did not affect the constitution of the meetings, although they might be relevant at sanction.

4. The ultimate beneficial owners could properly be regarded as contingent creditors. Notices should ultimately be directed to those principals, and their votes, rather than votes of the common depository or nominee, should count. The common depository’s undertaking not to vote avoided double-proof or double-counting.

5. London was an appropriate venue. The companies, guarantors, financing documents, note marketing and relevant stakeholders had substantial connections with England. The court directed that the meetings be convened in accordance with the draft order and intended to grant declaratory relief concerning the appointment of an authorised representative for a Chapter 15 application, following Telewest [2004] BCC 342.

First-instance decision. The court directed the convening of the proposed scheme meetings and related relief.