Vietnam Shipbuilding Industry Group

The court granted an order under section 896 of the Companies Act 2006 permitting the convening of a meeting of the scheme creditors to consider a proposed scheme of arrangement. The court held that it had jurisdiction to sanction the scheme because the facility agreement between the Company and the lenders was governed by English law and contained a written non-exclusive jurisdiction clause in favour of the English courts, such that Article 23 of Council Regulation (EC) No 44/2001 operated to confer jurisdiction. The court proceeded on the assumption that the Judgments Regulation applied but did not finally decide whether Article 2.1 covers schemes of arrangement. The proposed class (all loan creditors under the facility agreement) was properly constituted as a single class because their rights were homogeneous and irrevocable undertakings did not require creation of a separate class. The court was satisfied the procedural requirements (including the Hawk practice direction notifications) had been met and made the order to convene the meeting, to be held in Singapore.

Background and parties:

• The applicant was Vietnam Shipbuilding Industry Group, a Vietnamese state-owned shipbuilding company which was insolvent and had defaulted under facility agreements governing loans totalling US$600 million.
• The proposed scheme of arrangement related only to the lenders under that facility agreement and would replace their existing claims against the Company and group guarantors with state-issued replacement notes guaranteed by the Government of Vietnam (which would waive sovereign immunity for that purpose), carrying rolled-up interest and a later maturity date.

Nature of the application: This was a first-instance application under section 896 of the Companies Act 2006 for an order convening a meeting of scheme creditors to consider and, if thought fit, approve the proposed scheme of arrangement.

Issues framed by the court:

1. Whether the English court had jurisdiction to sanction the proposed scheme, having regard to the Company’s lack of connection with England, the English governing law clause and non-exclusive jurisdiction clause in the facility agreement, and the possible impact of Council Regulation (EC) No 44/2001 (the Judgments Regulation) given some lenders were domiciled in other EU member States and had commenced enforcement proceedings in the Commercial Court.
2. Whether the proposed class of creditors was properly constituted as a single class for the scheme meeting.
3. Whether procedural requirements under the Hawk practice direction had been met and whether the proposed meeting venue (Singapore) was appropriate.

Court’s reasoning and conclusions:

• The court concluded the Company was a company "liable to be wound up" by the English court and that the English governing law in the facility agreement provided a sufficient connection for the English court to consider and, if appropriate, sanction the scheme (following Re Drax and Re Primacom). The non-exclusive jurisdiction clause was also sufficient and Article 23 of the Judgments Regulation applied to confer jurisdiction even though the clause was non-exclusive.
• The court noted uncertainty about whether Article 2.1 of the Judgments Regulation applies to schemes of arrangement but, for this application, proceeded on the assumption that the Regulation applied and relied on Article 23.
• On class composition, the court applied the test whether creditors’ rights were so dissimilar that they could not consult together; it held the loan creditors’ rights were homogeneous and unanimously treated under the scheme, and that irrevocable undertakings did not create a separate class (following Re Telewest).
• Procedural steps required by the Hawk practice direction had been taken (letters and explanatory material sent to scheme creditors). Although two creditors had begun Commercial Court proceedings and reserved rights, the Company had obtained stays of those actions and the court considered the onus would be on those creditors to explain any late objections to jurisdiction at a later sanction hearing.
• Given these matters, and that the meeting venue in Singapore was appropriate, the court granted the order to convene the scheme meeting with the standard directions for notice, explanatory statements and proxy forms.

Wider context: The court observed that issues under the Judgments Regulation and the precise scope of Article 2.1 as applied to schemes could be left for another day; the decision focused on the practical question of whether it was appropriate to permit the convening of the creditor meeting.

The court made the order sought under section 896 Companies Act 2006 permitting the convening of a meeting of the loan creditors to consider the proposed scheme of arrangement. The court held it had jurisdiction to sanction the scheme because the facility agreement was governed by English law and contained a written non-exclusive jurisdiction clause; Article 23 of Council Regulation (EC) No 44/2001 supported jurisdiction. The proposed single class of loan creditors was properly constituted and procedural requirements had been satisfied, so the convening order (with attendant directions) was made and the meeting was to be held in Singapore.