Magyar Telecom B.V.Magyar Telecom B.V., Re

A foreign-incorporated company may use a scheme under Companies Act 2006 Part 26 if it is liable to be wound up in England. The court will sanction the scheme only where there is a sufficient English connection and it will substantially achieve its purpose.

The connection is assessed practically. An English centre of main interests, coupled with a realistic prospect that relevant foreign courts will recognise the scheme, may justify an English scheme altering rights governed by foreign law. A commercially integral release of creditors’ rights against guarantors may form part of the scheme. Where the statutory majorities are overwhelmingly achieved by a well-represented class, the court will ordinarily respect creditors’ commercial assessment absent a reason to differ.

Magyar Telecom B.V., a Dutch financing company in a Hungarian telecommunications group, sought an order sanctioning a restructuring scheme under Companies Act 2006 Part 26. Its principal liabilities were New York law-governed notes which it could not service.

The scheme exchanged the noteholders’ existing rights, including rights against guarantors, for new notes and equity. The note creditors approved it by more than 97% in number and more than 99% in value of those voting.

The principal issues were whether an English court should sanction a scheme proposed by a Dutch company affecting New York law rights, whether it would be effective internationally, whether the scheme could release guarantor liabilities, and whether the court should accept the creditors’ commercial approval.

1. The application was granted and the scheme was sanctioned. The company was a “company” for Part 26 because it was liable to be wound up under the Insolvency Act 1986. Its foreign incorporation did not prevent that conclusion, even though the English court might not then exercise winding-up jurisdiction.

2. The court should not sanction a foreign company’s scheme without a sufficient connection with England. That requirement and the need for the scheme to have substantial practical effect are closely related. The company’s centre of main interests had moved to England, so an alternative insolvency process would proceed there. Expert evidence also established a reasonable likelihood of recognition in the United States, the Netherlands and Hungary. Those matters gave the scheme the necessary English connection and practical efficacy.

3. The possibility that the company could waive the condition requiring United States recognition did not prevent sanction. Even without an order of recognition, the exceptional creditor support and the securities-confirmation arrangements meant that the scheme would very largely achieve its purpose. Creditors had voted knowing that the waiver provision remained.

4. An application to sanction a scheme was a civil and commercial matter within article 1.1 of the Judgments Regulation. In the absence of formal insolvency proceedings, a scheme for an insolvent company did not fall within article 1.2(b). The court therefore considered that the sanction order would be entitled to recognition and enforcement under that Regulation.

5. The releases of rights against the guarantors were commercially integral to the restructuring and could properly be included in the scheme. The represented class had voted by overwhelming majorities, and nothing suggested that the court should depart from its commercial assessment.

The judge added, obiter, that the appearance of independence would be enhanced if foreign-law experts in unopposed scheme applications were unconnected with the solicitors acting for the company.

not stated in the judgment.