Stemcor (SEA) Pte Ltd & Anor, Re

On an application to sanction a scheme of arrangement, the court must first establish jurisdiction by verifying compliance with the convening order, the statutory voting majority and the appropriate constitution of creditor classes. It must then decide whether to exercise its discretion to sanction the scheme.

The central question is whether the arrangement is one which an intelligent and honest person, acting in his own interests, might reasonably approve. Creditors are generally the best judges of their commercial interests. A scheme may fairly give enhanced priority to creditors who provide essential new funding where participation is open to all creditors on equal terms and the incentive is reasonable and proportionate. The court must also be satisfied that the sanctioned scheme will be effective in practice.

Stemcor Trade Finance Ltd and Stemcor (S.E.A.) Pte Ltd applied under Companies Act 2006 Part 26 for sanction of schemes restructuring substantial European and Asian lending facilities. The schemes followed creditor meetings convened by Rose J, who had determined the court’s jurisdiction and directed the meetings.

The schemes had been approved unanimously by those present and voting, and were intended to refinance the group, extend maturities and avoid likely insolvency proceedings. Anadolubank Nederland N.V. objected that the proposed priority for creditors participating in new trade finance altered the pari passu relationship. The issues were whether the statutory and class requirements were met, whether the schemes were fair and commercially justifiable, whether post-meeting amendments were material, and whether the schemes would be effective in England, Singapore and the United States.

1. Jurisdiction. The court held that the statutory and procedural requirements for sanction were satisfied. The meetings had been properly convened and held, the schemes had obtained the requisite majority under section 899, and the creditor classes were appropriate. The class issue had already been considered at the convening hearing and no basis existed to revisit it in depth: Re Hawk Insurance Co. Ltd [2001] 2 BCLC 480.
2. Discretion to sanction. The schemes were arrangements which an intelligent, honest person acting in respect of his interests might reasonably approve. The likely alternative was insolvency with materially lower returns. The court treated creditors as generally the best judges of their commercial interests: Re National Bank Ltd [1966] All ER 1006; Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385.
3. The enhanced priority available to creditors contributing to the new trade finance facility was a reasonable and proportionate incentive. It was open equally to all relevant European facility creditors and was justified by the need for new funding. The different benefit arising for Nedbank and ICICI from the common security package did not make the scheme unfair. Nor did refinancing legacy trade-finance transactions create a class issue, because those transactions concerned separate lending rights outside the scheme.
4. The objection based on alteration of the pari passu relationship did not justify refusal. The scheme as a whole improved the position of the creditors, participation in the new facility was available to all relevant creditors, and the objecting creditor’s vote could not have altered the result.
5. The amendments made after the convening hearing and meetings were non-material and had no adverse effect on scheme creditors. The court also had to be satisfied that the schemes would have substantive practical effect: Re Rodenstock GmbH [2012] BCC 459; Re Magyar Telecom BV [2013] EWHC 3800 (Ch). The schemes were effective in practice and were sanctioned.

This was a first-instance sanction hearing. On 29 January 2014, Rose J ordered meetings of the scheme creditors and determined that the court had jurisdiction to deal with both schemes. The meetings approved the schemes on 19 February 2014. Mr Justice Birss subsequently sanctioned both schemes.