Re Apcoa Parking Holdings GmbH

For class composition in a creditors’ scheme, the court first compares creditors’ legal rights against the company. Differences in personal interests or motives do not create separate classes. Where rights differ, separate meetings are required only if sensible consultation in the common interest is impossible.

A valid change to English governing law may provide a sufficient connection for an English scheme concerning foreign companies, even where the change was intended to facilitate restructuring. The court must nevertheless scrutinise the proposed compulsion, fairness and foreign effectiveness with particular care.

The scheme jurisdiction probably permits variation of creditors’ existing rights but not the imposition of substantive new obligations. A provision permitting creditors to elect whether to assume the proposed obligation avoids that difficulty.

Nine companies in a pan-European parking group applied under Part 26 of the Companies Act 2006 for schemes restructuring approximately €764 million of debt. The schemes were interdependent and intended to avoid imminent group insolvencies. FMS, an assignee of senior debt, opposed both the convening of meetings and sanction.

The court ordered meetings in the proposed classes. Every creditor voted, and the schemes obtained majorities by value ranging from 86.9% to 97.3%. At the sanction stage FMS challenged the classes, representativeness and fairness of the votes, the alleged manipulation of classes, the imposition of new indemnity obligations and the sufficiency of the schemes’ connection with England. It also argued that releasing security could contravene German law.

The central questions were whether the court had jurisdiction, whether the creditor meetings fairly represented each class, and whether the cross-border schemes should be sanctioned in the exercise of the court’s discretion.

1. The schemes, as amended, were sanctioned. The proposed creditor classes were properly constituted. Class composition depends principally upon legal rights against the company, rather than private interests or motives. The turnover arrangements operated substantially between creditors and did not alter their rights against the scheme companies. The lock-up agreement affected the exercise or enjoyment of voting and enforcement rights, but did not create different rights requiring separate meetings.

2. Even if relevant differences in rights existed, the prospect of imminent insolvency supplied the proper comparator. Rational creditors had substantially more to unite than divide them. The benefit of preserving the group and improving overall recoveries outweighed FMS’s limited relative advantage under the pre-existing priority arrangements. Imminent insolvency is not a universal solvent of class differences, but it supported a common class on these facts.

3. The meetings were representative and their decisions were commercially rational. All creditors voted, the majorities were substantial, and members of each relevant class received identical treatment. The court found no coercion of the minority to promote an adverse collateral interest. The termination and replacement of the turnover arrangements did not constitute objectionable class manipulation.

4. The schemes originally purported to impose a new indemnity obligation in favour of third-party issuing banks. The court declined to approve that feature. Although no final jurisdictional ruling was necessary, the judge considered that Part 26 probably permits the variation of creditors’ rights in that capacity but not the imposition of substantive new obligations. The schemes were amended to permit each affected creditor to elect whether to assume the obligation.

5. The foreign scheme companies were companies liable to be wound up for the purposes of Part 26. Their arrangements had a sufficient connection with England. The effective change of the facilities agreement to English law and English jurisdiction was entitled to the same respect as an original choice, although its restructuring purpose called for careful scrutiny. Further connections included English-incorporated scheme companies, an English agent and security trustee, London-managed lenders and existing contractual links with English law.

6. The evidence established that the schemes would be recognised in the relevant foreign jurisdictions. The German-law objections did not disclose a sufficiently clear risk of illegality or ineffectiveness. The existing intercreditor agreement was unlikely to extend to the entirely new refinancing obligations, and the alleged German civil-law partnership was unlikely to be implied. An overbroad restriction on foreign proceedings was amended by agreement.

The judgment was a composite first-instance judgment explaining the court’s decisions at the convening and sanction stages. On 29 September 2014 the court ordered the proposed creditor meetings. On 29 October 2014 it declined to sanction the schemes in their original form because of two provisions. Following amendments, it sanctioned all nine schemes on 30 October 2014. Permission to appeal was refused, while arrangements were required to preserve the effectiveness of any subsequent appeal.