Zlomrex International Finance S.A., Re

The court granted the company's application to convene a meeting of one class of creditors to consider a Companies Act 2006 scheme of arrangement under s.895. The judge applied the traditional English test of a "sufficiently close connection" with England for scheme jurisdiction and, alternatively, found that the company's centre of main interests (COMI) had been moved to England and Wales. The Notes in question were governed by New York law and the court took into account the international and cross-border implications, including the desirability of obtaining recognition in New York under Chapter 15 of the US Bankruptcy Code.

The court identified two principal practical concerns which had to be addressed before sanctioning: (i) the draft Scheme made implementation subject to a condition that appropriate Chapter 15 recognition be obtained, but that condition could be waived by the company with the trustee's consent; and (ii) the proposed form of order contained a paragraph purportedly "approving" the Scheme documents which the court considered inappropriate because it gave the documents a degree of judicial imprimatur the court had not read. The judge permitted the meeting to be convened but required the issues about the waiver and the wording of the order (paragraph 7) to be addressed at a later stage, leaving open the requirement for amendment at sanction stage.

The applicant, Zlomrex International Finance S.A., applied for an order convening a meeting of the beneficial holders of certain Loan Notes in order to promote a scheme of arrangement under s.895 of the Companies Act 2006. The company, the finance arm of a Polish scrap metal group, issued Loan Notes governed by New York law and repayable on 1 February 2014. The scheme proposed to substitute new indebtedness, transfer the debtor position to a newly constituted English company and implement various guarantor changes.

Background and parties:

• The company is French-registered but moved its principal place of business, office, bank account and most board meetings to London in August 2013 with the express aim of establishing a close connection with England and, if necessary, its COMI here.
• The Loan Notes have a single technical note-holder but the beneficial owners trade internationally and may be treated as creditors for the purposes of the Scheme.
• The company is insolvent and will be unable to repay the Notes in full at maturity; the proposed Scheme is intended to avoid insolvency proceedings.

Nature of the application: The application sought an order to convene a meeting of one class of creditors to vote on the proposed statutory Scheme of Arrangement under s.895 Companies Act 2006.

Issues framed by the court:

• Whether the English court had jurisdiction to order the convening of a meeting and, potentially, to sanction the Scheme, given the company's French registration and the cross-border elements.
• Which test applied for jurisdiction: the older English "sufficiently close connection" test for schemes under s.895, or the COMI test from the Insolvency Regulation applicable to insolvency proceedings.
• Whether the proposed Scheme and accompanying draft order were appropriate in form, particularly regarding a condition requiring Chapter 15 recognition in the United States that could be waived, and the use of wording in the draft order that purported to "approve" Scheme documents.

Court's reasoning and conclusions:

• On jurisdiction the judge accepted that the correct test for a statutory scheme under s.895 is the traditional English test of a sufficiently close connection, usually shown by assets in the jurisdiction. On the facts the recent relocation of the company's principal place of business, officers, bank account and meetings to London gave a sufficient connection to England to found jurisdiction. The judge also found, alternatively, that the company's COMI had been moved to England and Wales at the commencement of the proceedings.
• The court was satisfied that the class of creditors (the beneficial noteholders) had been properly constituted and that a single class was appropriate.
• Given that the Notes were governed by New York law, and that New York courts might be asked to give effect to the Scheme, the company obtained a New York opinion and proposed making Chapter 15 recognition a condition of the Scheme. The court accepted that seeking Chapter 15 recognition was a sensible way to reconcile jurisdictions but expressed concern about the company's ability to waive that condition with the trustee's consent because waiver could leave unresolved uncertainty as to the Scheme's effect in New York. The court nevertheless declined to insist on removal of the waiver at this stage, preferring to leave the matter to be addressed at the sanction hearing with further evidence if necessary.
• The court would not make an order in terms that the court had "approved" the Scheme documentation, because the judge had not read all of the extensive explanatory material and did not wish to give the documents an undue judicial imprimatur. The proposed paragraph 7 in the draft order therefore required amendment or deletion and would be the subject of further discussion.

Procedural outcome: The judge ordered that the Scheme may proceed to the stage of convening the meeting subject to resolving the drafting of the order (especially paragraph 7) and left issues arising from the Chapter 15 waiver to be addressed at the sanction stage.

The court granted the application to convene a meeting of the beneficial holders to consider the proposed scheme under s.895 Companies Act 2006, finding there was jurisdiction by virtue of a sufficient connection with England and, alternatively, because the company's COMI was in England and Wales. The court accepted the international steps proposed to obtain recognition in New York under Chapter 15 but expressed concern about a condition in the Scheme which could be waived; the judge allowed the meeting to proceed but required the parties to address the waiver concern and to amend or remove paragraph 7 of the proposed order which purported to "approve" the Scheme documentation.