Azevedo & Anor v Imcopa Importacao, Exportacao E Industria De Oleos Ltd & Ors

This appeal concerned whether a company may lawfully solicit votes in support of a debt-restructuring resolution by offering cash payments (consent payments) only to those members of the relevant class who vote in favour, excluding those who vote against or do not vote. The court held that such consent solicitations and payments are not, of themselves, unlawful under English company law where the offer is made openly to the whole class and accepted by individual noteholders by conduct. The judge’s conclusion that the funds used to make the consent payments were not held by the trustee and thus were not caught by the Trust Deed pari passu clause (clause 6.1.2) was upheld.

The court rejected arguments that the payments amounted to bribery, a fraud on the minority or a breach of pari passu obligations in the Trust Deed or the terms and conditions of the notes. The judge’s dismissal of the claim and his costs order were upheld.

Background and parties: The defendants (the Imcopa group) had issued US$100 million guaranteed notes governed by a 2006 Trust Deed and English law. The claimants were holders of a small parcel of those notes. In 2009–2010 the issuer sought to restructure obligations and convened meetings of noteholders, offering cash consent payments to those who gave valid voting instructions in favour of proposed extraordinary resolutions that required a special quorum.

Nature of the claim: The claimants sought repayment or damages alleging the consent payments (paid only to consenting noteholders) were unlawful: (a) contrary to a pari passu obligation in the Trust Deed and the notes; and (b) akin to bribery or otherwise unlawful under English company law. They also sought declarations that three resolutions were invalid and money had and received, among other reliefs. The claim included a factual allegation (admitted in part) that the trustee had been put in funds to make the payments.

Procedural posture: The case reached the Court of Appeal on appeal from the Commercial Court (Hamblen J) which had rejected the claim on summary determination ([2012] EWHC 1849 (Comm)). The Court of Appeal heard the appeal and a costs challenge.

Issues framed: (i) Whether the consent payments infringed the pari passu contractual obligation in the Trust Deed or the notes; (ii) whether offering and making consent payments to consenting noteholders only was unlawful under English company law (including whether the payments amounted to bribery or a fraud on the minority); (iii) whether the payments passed through the trustee so as to engage clause 6.1.2; and (iv) ancillary issues including the validity of substitution of issuers and the costs order.

Reasoning and decision: The court accepted the judge’s factual analysis that the consent payments were paid by the issuer/solicitation agent and did not pass through the trustee, so clause 6.1.2 (requiring pari passu distribution of moneys held by the trustee) did not apply. As to company law, the court analysed authorities (including Goodfellow v Nelson Line and British American Nickel) and held that a majority-binding power may be exercised subject to being bona fide and in the interests of the class, but that there is nothing unlawful in a scheme openly offering benefits available to all members of the class who take a particular step (here, voting in favour). The court distinguished Menier and held that the open offer of consent payments available to any noteholder was not a secret bargain or bribery and did not amount to a fraud on the minority. The judge’s conclusion that the consent solicitation and payments were lawful and that Imcopa U had been validly substituted and released as issuer was upheld. The appeal and the challenge to the costs order were dismissed.

Appeal dismissed. The Court of Appeal upheld the judge’s conclusion that offering and paying consent payments to noteholders who vote in favour of a restructuring resolution is not, in itself, unlawful under English company law where the offer is openly made to the whole class and accepted by individual noteholders by conduct. The court also accepted the judge’s factual finding that the payments did not pass through the trustee and so were not caught by the Trust Deed pari passu trust clause; and it upheld the judge’s conclusion that the original issuer had been validly substituted and released. The costs order below was not disturbed.

Appeal from the Commercial Court, High Court of Justice Queen's Bench Division (Mr Justice Hamblen) [2012] EWHC 1849 (Comm); permission to appeal granted by Sir Richard Buxton; appeal heard in the Court of Appeal, neutral citation [2013] EWCA Civ 364, where the judge’s decision was upheld and the appeal dismissed.