Zodiac Pool Solutions SAS, Re

The court considered an application under Part 26 of the Companies Act 2006 for orders directing the convening of creditors' meetings in relation to six proposed creditors' schemes of arrangement. The court held that it had jurisdiction because the companies were liable to be wound up under the Insolvency Act 1986 and there was a sufficient connection with England by reason of English governing law and English jurisdiction clauses.

Applying the principles in Re UDL Holdings Ltd, the court distinguished the legal rights which are the subject of the schemes from other interests or motives that might influence voting. It held that the Senior Scheme Creditors have the same or similar rights and therefore should, in general, be placed in a single class for the purposes of convening meetings; for the company abbreviated ZPS the Mezzanine Scheme Creditors and the Second Lien Scheme Creditors must be separate classes.

The court rejected submissions that connected parties, revolving facility lenders or arrangements between ING and third parties required subdivision of the Senior class, treating those considerations as matters going to interests or motives rather than the rights that the scheme affects. The court declined to decide at this stage the question of enforceability in the United States under section 1502 of the US Bankruptcy Code, leaving that for the sanction stage if necessary.

This was a first instance application for directions to convene meetings of classes of creditors in respect of six proposed creditors' schemes of arrangement under Part 26 of the Companies Act 2006 affecting companies in the Zodiac Group (companies incorporated in France, the United States (Delaware) and Finland). The applicants sought orders directing the convening of meetings of the relevant creditor classes; the Bank of Ireland supported the application and Avenue (and associated parties) opposed aspects of it.

Nature of the application: an order to convene scheme meetings under Part 26 for six companies, being creditors' schemes.

Issues before the court:

• whether the English court had jurisdiction to entertain the proposed schemes given the companies' foreign incorporation, and
• how the classes of creditors should be constituted for the convening of meetings (in particular whether the Senior Scheme Creditors should be a single class or subdivided, and whether particular groups such as mezzanine, second lien, revolving facility and creditors connected with the group should be split out).

Court's reasoning and conclusions: The court accepted the jurisdictional test that companies are within the court's Part 26 jurisdiction if they are liable to be wound up under the Insolvency Act 1986 and there is a sufficient connection with England; here the governing law and English jurisdiction clauses provided that connection. On class composition the court applied the principles explained in Re UDL Holdings Ltd, emphasising that the proper inquiry is whether creditors' legal rights affected by the scheme are the same or sufficiently similar, not whether some creditors have other interests or motives. The court rejected the opposing creditor's three principal grounds for subdividing the Senior class: (1) creditors connected with the group having other equity-related interests; (2) creditors under the Revolving Credit Facility allegedly advanced to facilitate the schemes; and (3) ING's arrangements with third parties. Those matters were treated as going to interests or motives rather than to the legal rights that the scheme affects. The court therefore directed that Senior Scheme Creditors should, in general, form a single class, while recognising that for ZPS the Mezzanine and Second Lien creditors must be separate classes. Finally, the court noted evidence and submissions about whether a sanctioned scheme would be enforceable in foreign jurisdictions (notably the United States under section 1502 of the US Bankruptcy Code) but declined to determine that issue at the convening stage, leaving it for the sanction hearing if necessary.

The court granted the application in part. It held that the English court had jurisdiction (the companies are liable to winding up under the Insolvency Act 1986 and there is a sufficient connection by reason of English governing law and jurisdiction clauses). Applying the principles in Re UDL, the court directed that the Senior Scheme Creditors should, for the purposes of convening meetings, be treated as a single class (subject to the already accepted requirement that Mezzanine and Second Lien creditors for ZPS be separate classes). The court rejected arguments that connections to the group, revolving facility participation or ING's arrangements necessitated further subdivision. The question of enforceability in the United States under section 1502 of the US Bankruptcy Code was left undecided for the sanction stage if required.