Re Castle Holdco 4 Ltd

The court held that it had jurisdiction to convene meetings for a scheme of arrangement in respect of a Cayman Islands incorporated holding company under Part V of the Insolvency Act 1986 and section 895(2)(b) of the Companies Act 2006 because there was a sufficient connecting nexus with England and Wales. The court directed that two meetings be convened: one for Floating Rate Note holders and one for Senior Note holders, on the basis that the legal rights within each class were sufficiently similar.

The court treated ultimate beneficial owners (principals) recorded through global notes and book-entry systems as the persons entitled to be consulted and to vote, with the common depository/nominee to be requested not to vote, and approved the arrangements for notifying account holders and eliciting responses. The court applied the similarity-of-legal-rights test (as articulated by Lord Millett in the UDL Argos authority) and held that private or ancillary interests (including lock-up agreements and other commercial connections) did not require separate classes. London was held to be an appropriate venue. The court also indicated it would grant declaratory relief for the appointment of an authorised representative for Chapter 15 purposes.

Nature of the application: An application by Castle Holdco 4 Limited for directions to convene meetings of creditors in relation to a proposed scheme of arrangement to implement a restructuring (a debt-for-equity swap, issue of new notes and an equity raising) supported by a group of noteholders.

Background and parties: Castle Holdco is a Cayman Islands holding company and the ultimate holding company for Countrywide Plc and its trading subsidiaries. The group had three tranches of secured funding: a £100 million revolving credit facility, £470 million of Senior Secured Floating Rate Notes (in two sub-categories), and £170 million of Senior Notes secured by second priority pledges. The Scheme had been proposed by certain funders and considered by an independent committee of the board. The application to convene meetings formed part of a wider multi-jurisdictional process including steps in the Cayman Islands and applications for Chapter 15 relief in the United States.

Issues for decision:

• whether the English court had jurisdiction to convene meetings in respect of a Cayman company;
• whether the restructuring constituted one scheme or two linked schemes and which creditor classes should be convened;
• how meetings should be constituted and who should be entitled to notice and to vote given that the debt instruments were held in global form through nominees and common depositories; and
• whether London was an appropriate venue for the meetings.

Reasoning and conclusions: The court concluded it had jurisdiction under Part V Insolvency Act 1986 and section 895(2)(b) Companies Act 2006, relying on the sufficient connection evidenced by Castle Holdco's principal asset (shares in an English company), its tax residency and centre of main interests in England and Wales, the English governing law of the security documentation and its registration as a foreign company at Companies House. The court decided that two meetings should be convened: one for Floating Rate Note holders (including both the secured Floating Rate Notes and the Payment In Kind Election Notes) and a separate meeting for Senior Note holders, because the legal rights and security arrangements differed between those classes.

The court addressed complications arising from global notes and nominee/common depository arrangements, determining that ultimate beneficial owners (account holders) should be treated as the relevant creditors for notice and voting purposes, that they may be regarded as contingent creditors entitled to be consulted, and that the common depository had undertaken not to vote to avoid double-counting. The court adopted the similarity-of-legal-rights test (as described in the UDL Argos authority) for class composition and held that private or ancillary commercial interests (including lock-up agreements) do not justify separate classes; such matters can be taken into account at the sanction stage. The arrangements for notice through Euroclear/Clearstream and for eliciting responses were approved. London was held to be an appropriate venue for the meetings. The court additionally stated it would exercise its jurisdiction to grant a declaratory relief permitting appointment of an authorised representative for Chapter 15 purposes, following the approach in Telewest.

The court granted directions to convene the proposed meetings and held that it had jurisdiction to do so under Part V of the Insolvency Act 1986 and section 895(2)(b) of the Companies Act 2006 because Castle Holdco had a sufficient connection with England and Wales. Two separate meetings (Floating Rate Note holders and Senior Note holders) were appropriate; ultimate beneficial owners should be treated as the relevant creditors for notice and voting (with the common depository not to vote); the similarity-of-legal-rights test governed class constitution; and London was an appropriate venue. The court also indicated it would grant declaratory relief to appoint an authorised representative for Chapter 15 purposes.