Zodiac Pool Solutions SAS, Re

For creditors’ schemes, class composition depends on whether creditors’ rights, viewed as the rights affected by the scheme, are the same or sufficiently similar. The court must distinguish those rights from other interests, rights or motives which may influence voting but are not altered by the scheme. Creditors with different commercial motivations may therefore belong to one class if their scheme rights are substantially similar. The convening-stage assessment also differs from the later sanction-stage assessment, particularly regarding the treatment of minorities. A sufficient connection for the English court’s jurisdiction may arise where the debtor-creditor relationships are governed by English law and subject to an English jurisdiction clause.

The applicants sought orders convening creditor meetings for six proposed schemes under Companies Act 2006 Part 26. The companies were incorporated in France, Finland and Delaware, but their debtor-creditor relationships were governed by English law and subject to English jurisdiction clauses.

The application was opposed by Avenue Capital. The principal dispute concerned whether senior scheme creditors should be divided into separate classes because some creditors had connections with the corporate group, some had advanced funds under a revolving credit facility, and ING had arrangements with third parties participating economically in its lending.

The central issue was whether those matters affected the creditors’ scheme rights or merely their interests and voting motives.

1. The court had jurisdiction to convene the meetings. The companies were liable to be wound up under the Insolvency Act 1986, and the English-law governing provisions and English jurisdiction clauses supplied a sufficient connection with England. No conclusion was reached at this stage on whether any sanctioned scheme would be enforceable in the United States.

2. Mr Justice Morgan gratefully followed the principles stated by Lord Millett in Re UDL Holdings Ltd [2002] 1 HKC 172, concerning statutory provisions materially identical to Part 26. The court must identify the legal rights which are the subject of the scheme and ask whether they are the same or sufficiently similar. The question is whether the rights are so dissimilar that the creditors cannot reasonably consult together in their common interest.

3. Other rights, interests or motives may significantly influence voting, but they do not require separate classes where they do not affect the rights dealt with by the scheme. Accordingly, creditors connected with the group, revolving credit facility creditors, and ING could remain in the same senior creditor class. ING was the creditor of record; third parties with arrangements with ING were not creditors of the scheme companies.

4. The court distinguished the convening stage from the later sanction stage. The approach to minority interests is different at those stages. It was unnecessary on the facts to identify a comparator between an insolvent and solvent group, since the creditors’ rights were sufficiently similar in either event. If necessary, the evidence concerning the alternatives to the schemes would have supplied the appropriate comparator.

5. The proposed senior creditor class was approved, with separate classes for the mezzanine and second lien creditors where required. The court proceeded to the detailed drafting of the convening order.