In re Primacom Holding GmbH

This is an application under Part 26 of the Companies Act 2006 for an order convening meetings of scheme creditors of PrimaCom Holding GmbH to consider a proposed scheme of arrangement. The court held that the English court had jurisdiction under the Companies Act to hear the creditors' scheme in respect of a German company where the relevant finance documents and inter-creditor agreement were governed by English law. The judge applied the established test for class constitution, focusing on rights rather than interests, and concluded that four classes (Super Senior Hedging, Senior, Mezzanine and Existing Mezzanine) were prima facie appropriate.

The court refused an adjournment sought by principal objectors, finding urgency (including imminent interest payments and German filing obligations) made preservation of the scheme process the least bad option. The judge approved convening documents and meeting rules subject to the later fairness hearing. The court identified limits on the power to modify a scheme (no change so great as to alter class composition, falsify the explanatory statement or render the voted scheme essentially different) and reserved issues of fairness for the sanction hearing.

Background and parties. PrimaCom Holding GmbH (a German-incorporated company) and a group of investors applied for orders under Part 26 Companies Act 2006 to convene meetings of scheme creditors to approve a restructuring scheme. The scheme formed part of a wider group restructuring involving Medfort S.a.r.L. and Perseus Holdings S.A. The principal creditor constituencies comprised Super Senior Hedging creditors, Senior creditors, Second Lien creditors and two categories of Mezzanine creditors. Many finance documents and the inter-creditor agreement were governed by English law.

Nature of application. The applicants sought orders to convene four meetings of scheme creditors, approval of the explanatory statement, notices, voting and proxy forms and the regulations for the meetings. The company relied on urgency: interest payments were due on 31 December 2011 and 25 January 2012 and directors had been advised that, absent the restructuring, they might have to commence insolvency proceedings in Germany within a short statutory filing period.

Issues framed by the court.

• Whether the English court has jurisdiction to entertain a creditors' scheme in respect of a German company (statutory company definition and s.895 jurisdictional principles).
• Whether there are sufficient connecting links with England to make the exercise of jurisdiction appropriate (notably that debts and inter-creditor arrangements are governed by English law).
• Whether any decision will be effective in Germany (recognition/enforcement under the European Regulation and German law on governing law and public policy).
• Whether the proposed classes of creditors are properly constituted (the rights v interests distinction and aptness to consult together).
• Whether to grant an adjournment urged by objectors and whether the convening documents and meeting rules should be approved.

Court's reasoning and conclusions. The judge accepted authorities establishing that class composition turns on similarity of legal rights rather than commercial interests and applied that test to conclude the proposed four classes were prima facie appropriate. He relied on prior authorities (including the modern practice derived from Re Hawk) and authority dealing with cross-holdings and special interests. The judge held that English jurisdiction under section 895 extended to a foreign company where the creditors' rights are governed by English law and that the inter-creditor agreement and finance documents gave sufficient connecting links to England. Expert evidence suggested that a sanction would likely be recognised in Germany and was not contrary to German public policy, although some uncertainty about application of Article 32 of the relevant European Regulation was noted. The court refused the adjournment, finding the urgent commercial context and the risk of imminent German insolvency made preservation of the scheme process preferable. The judge approved the convening documents and meeting regulations to permit the scheme meetings to proceed, reserving issues of fairness and any detailed challenge to the sanction hearing.

The court granted the application to convene the scheme meetings and approved the explanatory statement, notices, proxy and meeting regulations, and refused the adjournment application. Rationale: the English court has jurisdiction under section 895/related provisions because the relevant finance and inter-creditor documents are governed by English law; the proposed class constitution satisfies the rights-focused test for aptness to consult together; recognition in Germany was sufficiently likely that the scheme should proceed. Issues of fairness, possible modification limits and enforceability were reserved for the sanction hearing.