Zlomrex International Finance SA

The court was asked to convene a meeting of one class of creditors to consider a scheme of arrangement under section 895 of the Companies Act 2006. The judge found jurisdiction on the basis of a sufficiently close connection with England and, alternatively, that the company's centre of main interests (COMI) had been moved to England and Wales. The proposed scheme treats beneficial holders (including contingent creditors) as the relevant class, substitutes future-dated notes and a new English debtor, and contains conditions addressing recognition in New York (including a Chapter 15 option) but also a waiver by the company of that condition. The court authorised the convening of the meeting subject to addressing drafting of the convening order (removal or amendment of a paragraph which purports to "approve" documentation) and left the narrower issue of allowing a waiver of the New York recognition condition to be examined further at the sanction stage.

The applicant company, a French-registered finance subsidiary of a Polish scrap-metal group, moved its principal place of business and office to London in August with the stated aim of obtaining an English scheme of arrangement. The company is insolvent and its Loan Notes (secured for c118 million, repayable 1 February 2014) are governed by New York law and the New York courts have non-exclusive jurisdiction.

The company applied for an order to convene a single class meeting of the beneficial holders of the Notes under section 895 Companies Act 2006 to consider a scheme which would (i) treat beneficial holders (including contingent holders) as the creditors for voting purposes, (ii) replace the existing indebtedness with new notes repayable in 2020 or 2021, (iii) substitute a new English company as debtor and alter guarantor arrangements.

Issues framed by the court included:

• whether the English court had jurisdiction to order convening of the meeting (the judge applied the older English test of a "sufficiently close connection" but also concluded COMI had been moved to England for purposes of the Insolvency Regulation),
• whether the class of creditors was properly constituted (the court accepted the beneficial holders as the single class and that the trustee would not vote),
• whether the scheme would be effective in foreign jurisdictions, principally New York and Poland, and the practical/legal consequences of any non-recognition, and
• the propriety of certain drafting in the proposed convening order, notably a paragraph purporting to "approve" the scheme documentation, and the inclusion of a company waiver of a condition requiring Chapter 15 recognition in the United States.

The court's reasoning: jurisdiction was established both by the sufficient connection test (assets and central activities now in England) and, alternatively, by COMI being in England and Wales at commencement. The court accepted that the scheme was a proper one to be put before creditors and that the class had been properly constituted. As to foreign recognition, the company produced a New York counsel's opinion that Chapter 15 relief would likely be available but acknowledged material uncertainty; the scheme therefore included a condition requiring adequate Chapter 15 recognition, subject to a trustee-consented waiver. The judge expressed concern at leaving a waiver (which might allow the scheme to proceed without US recognition) but declined to insist on removing the waiver at this stage, reserving the point for the sanctioning hearing. The court also required amendment/removal of the convening-order provision which used the word "approved" in relation to the documentation, declining to give the court the imprimatur suggested by that wording.

The court granted the application to convene the class meeting under section 895 Companies Act 2006, concluding there was jurisdiction (sufficient connection with England and, alternatively, that the company's COMI was in England and Wales). The court approved running the scheme process subject to (i) further consideration at sanction of the waiver permitting the company to dispense with Chapter 15 recognition in the United States and (ii) amendment or removal of the convening-order paragraph that purported to "approve" the scheme documentation.