Re Privatbank

The Bank applied for the sanction of a scheme of arrangement under section 899 of the Companies Act 2006 to restructure two series of subordinated loan notes (the 2016 Notes and the 2021 Notes). The court accepted that the holders of the Notes were creditors for the purposes of the Companies Act, having regard to (i) a deed poll executed by the Bank which rendered the noteholders contingent creditors and (ii) rights under the security arrangements permitting direct recourse against the Bank.

The court held there was a sufficient connection with England to enable the English court to consider and sanction the scheme because the relevant instruments were governed by English law, the English courts had jurisdiction clauses or London law seats, and expert evidence indicated Ukrainian law would recognise contractual variations made under governing English law. The meeting of noteholders had been properly convened and the class composition was appropriate.

The scheme was found fair and appropriate to sanction: there was an overwhelming statutory majority in favour (98.95% in value), high turnout, no opposing creditors at the sanction hearing, no material unfairness from vote‑for‑fee agreements given their availability to all creditors until a late stage, and a pressing commercial necessity because without sanction the Bank faced likely temporary administration in Ukraine with almost certain loss to subordinated creditors. The court therefore sanctioned the scheme.

This is an application for the sanction of a scheme of arrangement under section 899 of the Companies Act 2006 in relation to two series of subordinated loan notes issued in connection with a Ukrainian bank. The Bank sought court sanction to cancel the existing 2016 and 2021 Notes and replace them with New Notes issued by an English special purpose vehicle, with an extended maturity (9 February 2021) and an increased coupon.

Background and parties: the Bank is incorporated in Ukraine and is the largest Ukrainian bank by retail deposits. Its financial position had been weakened by political and economic deterioration in Ukraine and by significant deposit outflows. The Bank had obtained liquidity support from the National Bank of Ukraine (NBU) and faced regulatory pressure to extend note maturities and inject capital. The 2016 Notes had previously been the subject of a vote to extend maturity which failed to reach the required 75% by value. The Bank thereafter issued the 2021 Notes to a shareholder and agreed that any restructuring would apply equally to both series.

Procedural posture: Asplin J ordered a single meeting of the holders of the 2016 and 2021 Notes (order dated 23 October 2015). The meeting approved the scheme by very large majorities (98.26% in number of voting creditors and 98.95% in value). The sanction hearing was before Mr Justice David Richards on 13 November 2015.

Issues framed by the court: (i) whether the noteholders were creditors for the purposes of sections 895–899 of the Companies Act 2006; (ii) whether there was a sufficient connection with England and jurisdiction to sanction the scheme (including the application of Article 8 of Regulation (EU) No 1215/2012); (iii) whether the two series of Notes could properly form a single class; and (iv) whether the scheme was fair and appropriate in all the circumstances, including consideration of fee agreements under which some noteholders agreed to vote in favour in return for a fee.

Court reasoning: the court accepted Asplin J's conclusions that the deed poll and the security arrangements rendered the noteholders contingent creditors within the scope of the Companies Act and that the Bank, though Ukrainian, could be wound up under section 221 of the Insolvency Act 1986. The agreements and trust deeds were governed by English law and contained English jurisdiction or London seat clauses; expert evidence indicated Ukraine would recognise contractual variations governed by English law. The substantial majority in favour of the scheme, the high turnout, the lack of opposing creditors at the sanction hearing, and the commercial necessity (risk of irreversible temporary administration or liquidation in Ukraine if the scheme were not sanctioned) supported sanction. The court considered but did not find material unfairness in the vote‑for‑fee arrangements, noting their availability to all relevant creditors until shortly before the meeting.

Relief sought: sanction of the proposed scheme of arrangement. Outcome: the court sanctioned the scheme, concluding it was appropriate to do so.

The application for sanction of the scheme of arrangement was allowed. The court accepted that the holders of the 2016 and 2021 Notes were creditors for the purposes of sections 895–899 of the Companies Act 2006, that there was a sufficient connection with England to permit the English court to assume jurisdiction (including under Article 8 of Regulation 1215/2012), that the two series could properly form a single class, and that the scheme was fair and appropriate given the overwhelming majority in favour, the absence of opposition at the hearing, the availability of vote‑for‑fee agreements to all creditors until a late stage, and the imminent risk of temporary administration or liquidation if the scheme were not sanctioned.

Asplin J made an order on 23 October 2015 directing a single meeting of the holders of the 2016 and 2021 Notes, at which the scheme was overwhelmingly approved. The sanction application was heard before Mr Justice David Richards on 13 November 2015. No further appellate history is stated in the judgment.