Apcoa

This case concerned applications by nine members of the Apcoa group for the convening and sanction of inter-conditional creditors' schemes of arrangement under Part 26 of the Companies Act 2006 to effect a group-wide restructuring and avoid imminent insolvency. The court applied the established Bowen test (as explained in Re Hawk and later authorities) for class composition: a class must be confined to those whose legal rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. The court held that the Turnover Agreement did not, as a matter of substance, alter the legal rights of Consenting Lenders against the companies and that the subsequent Lock-Up Agreement did not require Treating Consenting Lenders as a separate class. The court accepted that imminent insolvency was the appropriate comparator for testing whether creditors had more to unite than divide.

The judge identified a novel jurisdictional issue (the attempted imposition of new obligations on creditors by means of the Restructuring/Implementation documents) and expressed concern that the court’s Part 26 jurisdiction is principally to vary existing rights rather than to impose new freestanding obligations on creditors; the Schemes were therefore amended to allow elections by creditors as to those obligations. The court also scrutinised cross-border aspects: it found the change of governing law and jurisdiction to English law valid under the Rome I framework and that there was a sufficient connection to England, and that recognition and enforcement in the relevant foreign jurisdictions was likely. Expert evidence on German law did not establish a clear risk that German courts would refuse recognition or treat the release of security as unlawful. After limited amendments and safeguards the court sanctioned the Schemes.

The applications were for orders under CPR Part 49 and Part 26 CA 2006 to convene creditor meetings and, after creditor approval, for the court to sanction schemes of arrangement to effect a restructuring of the Apcoa group. The Schemes were inter-conditional and supported by a substantial majority of creditors under lock-up arrangements but opposed by FMS Wertmanagement (FMS) and supported by Centerbridge and the Scheme Companies. The restructuring involved de-leveraging by hiving up certain indebtedness to a holding company level and providing new facilities, including repayment of an existing super-senior facility and provision of new money by Deutsche Bank.

• Nature of application: sanction of interconnected creditors' schemes of arrangement under Part 26 CA 2006 and directions to implement a multi-jurisdictional corporate restructuring.
• Principal issues before the court: (a) proper composition of creditor classes (whether FMS and Litespeed required a separate class because of the Turnover Agreement and Lock-Up Agreement); (b) whether the Turnover Agreement and Lock-Up Agreement altered legal rights or merely commercial interests; (c) whether the court could, under Part 26, approve the Schemes insofar as they appeared to impose new obligations on creditors (the "New Obligations" point); (d) whether there was a sufficient connection with England to permit the English court to exercise its Part 26 jurisdiction after a change of governing law and jurisdiction to English law; and (e) whether recognition and implementation would be thwarted by German law (including the effect of the Existing Intercreditor Agreement and security arrangements).
• Court's reasoning: (i) on class composition the court applied the two-stage modern approach: first compare legal rights; only if rights differ materially ask whether those differences prevent sensible consultation (Bowen test as refined in Re Hawk, Re Telewest etc.). The judge concluded the Turnover Agreement did not alter the Consenting Lenders' legal rights against the companies (it was a behind-the-scenes turnover arrangement) and that the Lock-Up Agreement did not create a conflict of interests requiring a separate class; imminent insolvency weighed strongly in favour of a single class. (ii) on the New Obligations point the judge regarded the imposition of brand new creditor obligations to third parties as a materially different and novel step from varying existing rights; he expressed doubt as to jurisdiction to impose such obligations but, in deference to commercial urgency, accepted amendments that enabled creditors to elect whether to assume those obligations (and protective arrangements to safeguard possible appeals). (iii) on cross-border jurisdiction the judge accepted that the change of governing law/jurisdiction to English law (implemented by the lenders' vote) was effective under Rome I and provided a sufficient connection with England to permit Part 26 jurisdiction, particularly given the contractual architecture, the agent and security trustee in England, and the likely recognition under EU instruments. (iv) on German law and security the court heard expert evidence and concluded it was unlikely that German courts would treat the Schemes as unlawful or refuse recognition in a way that would make sanctioning futile.

The court therefore sanctioned the Schemes as amended, having declined earlier to sanction them in unamended form because of the New Obligations issue and a perceived overreach on two features, and after the Scheme Companies made the amendments required by the judge.

Sanction granted (with amendments). The court concluded that the proposed class composition was correct: the Turnover Agreement did not alter the Consenting Lenders' legal rights against the companies and the Lock‑Up Agreement did not necessitate a separate class. The court was concerned that Part 26 should not be used to impose wholly new obligations on creditors; the Schemes were therefore amended to allow creditor election on those provisions. The change of governing law and jurisdiction to English law was valid and provided a sufficient connection to England; expert evidence did not show a realistic risk that German law would prevent recognition or implementation of the restructuring. For these reasons the court sanctioned the Schemes as amended and subject to protective measures to preserve appellate remedies.