NEF Telecom Co BV, Re

The court considered two applications under s.899 Companies Act 2006 for the sanction of schemes of arrangement proposed by NEF Telecom Company BV (Holdco) and Bulgarian Telecommunications Company AD (Opco). The principal legal issues were (i) whether the English court had jurisdiction to sanction schemes affecting foreign companies and creditors in other Member States, given the Judgments Regulation (Council Regulation (EC) No 44/2001), and (ii) whether the statutory tests for sanctioning a scheme under Part 26 of the Companies Act 2006 were satisfied.

The judge applied the established three-fold and reasonableness tests derived from Re National Bank, Buckley on the Companies Acts, Telewest (No.2) and Re Hawk Insurance: compliance with statutory formalities, fair representation of classes and that the arrangement is one which an intelligent and honest member of the class might reasonably approve. The court held that it had jurisdiction. It accepted authorities (notably Rodenstock and Primacom) and reasoned that either (a) Article 2 of the Judgments Regulation does not apply because there is no defendant to scheme-sanctioning proceedings, or (b) if the Regulation applies, jurisdiction was nonetheless established by Article 23 (valid exclusive English jurisdiction clauses and choice of English law), Article 6 (some creditors domiciled in the United Kingdom), Article 4 by analogy, and/or Article 24 (submission to jurisdiction).

Applying the statutory tests, the court found that the meetings were properly convened, the classes were fairly represented, the statutory majorities had acted bona fide, and an intelligent and honest creditor might reasonably approve the proposals. No blot was found on the schemes and the exercise of discretion favoured sanction. The court therefore sanctioned the Holdco and Opco schemes.

Background and parties: NEF Telecom Company BV (Holdco), a Dutch company, and Bulgarian Telecommunications Company AD (Opco), a Bulgarian listed company, proposed coordinated schemes of arrangement as part of a group debt restructuring. The group had sustained large losses and substantial net liabilities and the proposed restructuring involved third-party investment by CCB and VTB and a compromise of over €1 billion of indebtedness.

Nature of the application: Two applications under s.899 Companies Act 2006 seeking court sanction for the Holdco scheme and the Opco scheme. The schemes would bind dissenting creditors and restructure priority among senior, second lien and mezzanine creditors, allocate equity and options, and require recognition across jurisdictions.

Procedural posture: Scheme meetings were ordered by Hildyard J and held under that order. Large majorities of creditors approved the schemes: notably over 90% by value and number in the principal classes. KDB Bank (Hungary) opposed sanction on jurisdictional and fairness grounds and contended contractual protections (clause 41.2.7) required unanimous lender consent for the structural changes.

Issues framed: (i) Does the English court have jurisdiction to sanction schemes affecting foreign companies and creditors in light of the Judgments Regulation? (ii) Are the statutory prerequisites and equitable considerations under Part 26 satisfied so as to justify sanction? (iii) Do contractual provisions (including clause 41.2.7) or lack of recognition abroad constitute a bar to sanction?

Court’s reasoning: On jurisdiction the court surveyed recent authorities (Rodenstock and Primacom). It concluded that either the Judgments Regulation does not apply to scheme-sanctioning proceedings because there is no defendant, or, if it does, jurisdiction is nonetheless available in the present case by reason of Article 23 (exclusive English law and jurisdiction clauses in the facility agreements), Article 6 (some affected creditors domiciled in the United Kingdom), Article 4 by analogy, and possibly Article 24. The court also accepted expert evidence that the Netherlands and Bulgaria would recognise the sanctioning order and rejected as premature KDB's contention that recognition abroad had not been proved.

Application of statutory tests and discretion: The court found compliance with the Companies Act procedures, that classes were properly constituted and fairly represented, and that an intelligent and honest creditor might reasonably approve the schemes. The contractual consent provision was not a bar because Part 26 permits binding dissenting creditors; the existence of such contractual protections was precisely the rationale for the statutory scheme remedy. No 'blot' was identified on the proposals. In the exercise of discretion the court sanctioned the Holdco and Opco schemes and invited submissions on the form of order.

Wider context: The court noted the importance of schemes of arrangement as a restructuring tool and the undesirability of unduly restricting English jurisdiction for such schemes.

The court sanctioned the Holdco and Opco schemes. Mr Justice Vos held that the English court had jurisdiction to sanction schemes affecting foreign companies either because the Judgments Regulation does not apply to scheme-sanctioning proceedings or, alternatively, because jurisdiction was established by Article 23 (choice of English law and exclusive jurisdiction clauses), Article 6 (creditors domiciled in the United Kingdom), Article 4 by analogy and/or Article 24. The statutory tests in Part 26 (s.895 and s.899 Companies Act 2006) were satisfied: procedures complied with, classes fairly represented, the majority acted bona fide, and the arrangements were such that an intelligent and honest creditor might reasonably approve. No objection or blot of sufficient weight was found and the schemes were approved in the court’s discretion.