Re La Seda de Barcelona

This was an application by La Seda De Barcelona SA for sanction of a scheme of arrangement under section 899 of the Companies Act 2006. The convened meeting was held in accordance with the court's directions and the scheme was approved by the requisite majorities (over 95% by value).

The court addressed three principal issues: (1) jurisdiction to sanction a scheme involving a company incorporated in Spain; (2) compliance with statutory formalities and subsequent amendments and notices; and (3) whether the court could sanction a scheme which provided for release of liabilities of a non-party guarantor, Artenius.

The judge accepted the prior view of Newey J on jurisdiction, found that formalities had been complied with and that the notified amendments were not material to voting creditors (who were sophisticated institutions and did not seek an adjournment). On the third issue the court held that the release of Artenius fell within the court's power because there was the requisite element of give and take, the rights against Artenius were ancillary to the creditors' rights against the company, and the creditors' rights against Artenius were personal and closely connected to their claims against the company. The court relied on T&N Limited (No. 3), Lehman Brothers International (Europe) (in administration) and the Australian authorities to support this approach.

For these reasons the court exercised its discretion to sanction the scheme as one that an intelligent and honest member of the class might reasonably approve.

This was a first instance application for sanction of a scheme of arrangement under section 899 of the Companies Act 2006 by La Seda De Barcelona SA, a Spanish incorporated parent company of a group suffering severe liquidity problems. The scheme formed part of a proposed group restructuring involving new equity and debt arrangements designed to avoid insolvency proceedings in Spain and elsewhere.

• Nature of the claim/application: sanction of a scheme of arrangement to restructure senior lending under an English-law senior facilities agreement and to implement a combined debt and equity solution, conditional on new equity subscriptions.
• Procedural posture: Newey J directed convening a single creditors' meeting; the meeting was convened on 21 May and approved the scheme by the required majorities.
• Issues framed by the court: whether the court had jurisdiction to sanction a scheme involving an overseas company; whether statutory formalities and disclosure were respected in light of subsequent amendments and notices; and whether the court could sanction a scheme that included release of liabilities of a non-party guarantor (Artenius).

On jurisdiction the judge accepted the reasoning and direction of Newey J and did not revisit that question. On formalities the court found the meeting had been properly convened and that subsequent amendments (summarised in notices posted on Intralink) were not material to the voting decision of sophisticated creditors; no creditor sought an adjournment and none opposed sanction. On the release of Artenius, the court applied the principles in the cited authorities and concluded that: (a) the scheme produced a sufficient element of give and take between the company and the scheme creditors; (b) the creditors' rights against Artenius as guarantor were personal, closely connected to their claims against the company and ancillary to the arrangement; and (c) release of Artenius therefore fell within the statutory power to sanction the scheme. The court noted the resolution of dispute in the Australian authorities relevant to the point and considered that T&N (No. 3) remained good law. The judge concluded the scheme was one that an intelligent and honest member of the class might reasonably approve and sanctioned it.

The judgment records material subsidiary findings on the effect of the release, the ancillary nature of third-party claims and the sophistication of the creditor class, and observes the practical context of the proposed restructuring as a means to avoid imminent insolvency of group companies.

The court sanctioned the scheme. The judge found jurisdiction under section 899 in respect of a Spanish incorporated company (accepting Newey J's conclusion), held that statutory formalities had been observed and that later amendments were not material to the voting creditors, and concluded that the scheme could include a release of a non-party guarantor (Artenius) because there was sufficient give and take and the claims against the guarantor were ancillary and closely connected to the creditors' claims. The scheme was therefore approved as one an intelligent and honest member of the class might reasonably accept.