Stemcor (SEA) Pte Ltd & Anor, Re

The court was asked under section 899 of the Companies Act 2006 to sanction two schemes of arrangement under Part 26, to implement a group refinancing and restructuring for Stemcor Trade Finance Limited (STFL) and Stemcor (S.E.A.) Pte Limited (SEA). The judge confirmed jurisdiction, finding the convening orders and creditor meetings complied with the court's directions and the statutory voting thresholds were met.

The court applied the established test that an arrangement must be such as an intelligent, honest person acting in respect of his own interests might reasonably approve and concluded that the restructuring, which provided new trade finance (TFBB), converted revolving facilities into term loans and preserved value by enabling the group to continue as a going concern, met that standard.

The judge addressed subsidiary issues including class composition, the effect of incentives tying higher priority to participation in the TFBB, differential benefit to certain lenders (Nedbank and ICICI), legacy trade finance arrangements, amendments to the finance documents and cross-border effectiveness (Singapore law risk and the US Securities Act). Each point was held not to render the schemes unfair or ineffective, and the schemes were sanctioned.

This is an application for sanctioning two schemes of arrangement under Part 26 of the Companies Act 2006, to implement a negotiated refinancing and restructuring of the Stemcor group. The companies concerned were STFL (the group structured finance and offset vehicle) and SEA (the group Asian trading business). The restructuring envisaged a US$1.15 billion trade finance and borrowing base facility (TFBB), conversion of existing European and Asian revolving facilities into term loans with extended maturities, common security and guarantees and an "equity fee" payable on certain future events.

The matter came to the court after Rose J ordered meetings of creditors on 29 January 2014; the creditor meetings were held on 19 February 2014 and approved the schemes by the requisite majorities. The sanction hearing was the third stage and was before Birss J. The companies sought orders under section 899 to sanction the schemes.

The court framed and decided the issues as: (i) whether the convening and voting formalities required by section 899 had been observed and the creditors were correctly classed; (ii) whether the arrangement was one which an intelligent, honest person acting in his own interest might reasonably approve; and (iii) whether the schemes would be effective in practice, including cross-border recognition and any securities law obstacles.

The judge found (i) the meetings had been properly convened and held and the statutory majorities had voted in favour; (ii) placing all European facility creditors in a single class was appropriate and the terms, including the incentive to increase participation in the TFBB in return for higher priority, were fair given the alternative of insolvency; (iii) specific concerns about differential treatment of Nedbank and ICICI and the refinancing of certain legacy trade finance transactions did not create unfairness because the core rights of STFL scheme creditors were not altered and a sufficient majority of non-legacy creditors voted in favour; and (iv) effectiveness issues were addressed by expert opinions: English law governed the relevant obligations, Singapore counsel opined the Singapore courts would recognise the SEA scheme, and a US opinion advised reliance on section 3(a)(10) of the US Securities Act of 1933 for the equity fee. The judge therefore sanctioned the schemes.

The court sanctioned the schemes of arrangement for Stemcor Trade Finance Limited and Stemcor (S.E.A.) Pte Limited. Birss J held that the convening of meetings, the statutory majorities, and class composition requirements under section 899 and Part 26 were satisfied; the arrangements met the test that an intelligent, honest person acting in his own interests might reasonably approve; and the schemes would be effective in practice, including cross-border recognition and in relation to the US securities issue.

Rose J (29 January 2014) ordered that meetings of scheme creditors be convened and held. The creditor meetings took place on 19 February 2014 and approved the STFL and SEA schemes by the requisite majorities. The present sanction hearing before Birss J followed those steps. No further appellate history is stated in the judgment.