Codere Finance (UK) Ltd, Re

The court may sanction a scheme of arrangement where the statutory requirements have been met, the class was fairly represented, the statutory majority acted bona fide without coercing the minority, and an intelligent and honest class member could reasonably approve the arrangement.

A company’s recent acquisition or voluntary assumption of liabilities to obtain access to the English scheme jurisdiction does not itself require refusal. The court may regard such forum shopping as legitimate where the scheme seeks to maximise creditor recoveries rather than evade debts. Relevant discretionary considerations include creditor consultation and support, the absence of opposition, the availability of alternatives, the likely loss of value without the scheme, the company’s centre of main interests, other connections with England and the scheme’s likely effectiveness abroad.

Codere Finance (UK) Ltd applied for sanction of a scheme of arrangement under Part 26 of the Companies Act 2006. It was an English subsidiary recently acquired by a Spanish gaming group and made jointly and severally liable for notes governed by New York law. Those steps were taken to enable use of the English scheme jurisdiction.

The insolvent group proposed to cancel the existing notes in exchange for shares and replacement notes, obtain €400 million of new funding and reorganise its corporate structure. The scheme was expected to produce recoveries of at least 47%, whereas failure could reduce recoveries to zero. Creditors representing 98.78% of the indebtedness voted in favour, and none opposed it.

The principal discretionary issue was whether the company’s recent acquisition and assumption of substantial liabilities for the purpose of invoking the English scheme jurisdiction should prevent sanction.

1. Application granted; scheme sanctioned. The court was satisfied that the requirements identified in Re National Bank Ltd [1966] 1 WLR 819 had been met. The requirements of Part 26 of the Companies Act 2006 had been complied with. The creditors attending the meeting fairly represented the class, and the majority had neither acted otherwise than bona fide nor coerced a minority. The arrangement was one which an intelligent and honest class member could reasonably approve.

2. The company’s recent acquisition and assumption of the note liabilities for the purpose of using the English scheme jurisdiction did not justify refusing sanction. The scheme concerned an English company whose centre of main interests was in England. Applying the line of authority culminating in Re Van Gansewinkel Groep BV [2015] EWHC 2151 (Ch), neither the Insolvency Regulation nor the recast Judgments Regulation obstructed the order. A substantial body of creditors was domiciled in England, and the evidence indicated that the scheme would probably be effective in relevant foreign jurisdictions, directly or following recognition under Chapter 15 of the US Bankruptcy Code.

3. The English connections were not confined to incorporation. They included an English-law intercreditor agreement, the English domicile of a significant proportion of noteholders, submission to the English court by about 97% of noteholders by value, trustees operating from London and other transaction documents governed by English law.

4. The courts had become comfortable exercising the scheme jurisdiction for companies without longstanding English connections. Re A I Scheme Ltd [2015] EWHC 2038 (Ch) demonstrated that a company’s voluntary assumption of liabilities to enable a scheme did not itself prevent sanction.

5. Although the arrangements could be described as forum shopping, that description was not decisive. Forum shopping may be objectionable when used to evade debts. It may be legitimate where access to a particular restructuring law is sought to secure the best available outcome for creditors.

6. Sanction was appropriate because the scheme had been devised in close consultation with creditors, had overwhelming support, attracted no opposition and offered a materially better result than the available alternatives. Refusal could destroy approximately €600 million of value. The court therefore ordered sanction in the form requested.

This was a first-instance sanction application. At the convening stage on 29 October 2015, Nugee J expressed concern that the recent incorporation and assumption of substantial liabilities appeared to be an extreme form of forum shopping. On fuller submissions at the sanction hearing, Newey J concluded that this concern did not justify refusing sanction.