Rodenstock GmbH

The court sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 to vary the rights of the Company’s senior lenders. Key legal principles applied were (i) the statutory touchstone for scheme jurisdiction that the company be "liable to be wound up" under the Insolvency Act 1986 (section 895 Companies Act 2006 construed purposively); (ii) the effect of EU legislation, in particular the Judgments Regulation (Council Regulation (EC) No 44/2001) and the Insolvency Regulation (Council Regulation (EC) No 1346/2000), on the English court’s international jurisdiction; and (iii) the conventional discretionary considerations of sufficient connection with the forum and practical effectiveness of the sanction.

The judge concluded that: the scheme jurisdiction extends to the German-incorporated Rodenstock GmbH because the phrase "liable to be wound up" is to be read so as not to have been curtailed by those EU instruments; a sufficient connection existed principally because the senior facilities were governed by a single English-law agreement with an English jurisdiction clause and a majority (by value) of the affected lenders were domiciled in England; and, although automatic recognition under the Judgments Regulation in Germany was doubtful, the scheme would be effective in practice because German courts would apply English law (Rome Convention) and, on the merits, the scheme had been properly convened and approved by the requisite majorities and was a commercially reasonable restructuring.

Background and parties. Rodenstock GmbH, incorporated in Germany with its centre of main interests in Germany, applied for the sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 to restructure approximately €305.3m of senior debt. The Coordinating Committee for the Senior Lenders opposed on jurisdictional and discretionary grounds (initially some minority creditors also indicated objection but later withdrew opposition).

Nature of the application. An application for court sanction of a creditors’ scheme of arrangement to effect amendments to an English‑law governed facilities agreement and related documentation so as to implement a restructuring and provide new money to avoid imminent insolvency in Germany.

Issues framed by the court.

• Whether the English court had jurisdiction to sanction a solvent-company scheme in respect of a German-incorporated company with no UK establishment, in the light of the statutory touchstone "liable to be wound up" (section 895, Companies Act 2006) and EU instruments (the Judgments Regulation and the Insolvency Regulation).
• Whether the court should, in its discretion, exercise the scheme jurisdiction: (a) whether there was a sufficient connection with England; (b) whether the scheme would be effective in practice given a German regional appellate decision declining recognition of a sanction order in a comparable context; and (c) whether the scheme was fair and one which creditors acting bona fide might reasonably approve.

Court’s reasoning and conclusions. The judge undertook a purposive construction of "liable to be wound up" and reviewed prior authorities (including Drax, Garuda, DAP Holding, Sovereign Marine and others). He held that: (i) proceedings to sanction a solvent-company scheme fall within the scope of the Judgments Regulation but are not caught by Article 22.2 so as to oust the English court’s traditional scheme jurisdiction; (ii) the Judgments Regulation and the Insolvency Regulation did not purposively narrow the statutory "liable to be wound up" touchstone; (iii) a sufficient connection existed because the Senior Lenders were parties to a single English-law facilities agreement with an English jurisdiction clause and a majority (by value) of affected creditors were domiciled in England; (iv) although automatic recognition in Germany under Chapter III of the Judgments Regulation was unlikely following the regional court decision in the Equitable Life-related case, German courts would, under the Rome Convention, apply English law and could give effect to the variation after a merits trial, so the scheme would be effective in practice; and (v) on the merits the scheme was properly convened, approved by the requisite majorities and was a commercially reasonable restructuring. The court therefore sanctioned the scheme.

Procedural posture. First instance Chancery Division hearing: sanction application heard expeditiously and reserved judgment issued after a sanction order was made; reasons set out in this judgment.

Application for sanction granted. The court held that it had jurisdiction to sanction a scheme in relation to the German company because the statutory touchstone that a company be "liable to be wound up" is to be construed so as not to have been restricted by the Judgments Regulation or Insolvency Regulation, and that a sufficient connection existed by reason of a single English-law facilities agreement and a majority of affected creditors domiciled in England. The court also held that, despite doubts as to automatic recognition in Germany, the scheme would be effective in practice and, on the merits, it was one which an intelligent and honest creditor might reasonably approve.