Codere Finance

The court was asked to sanction a scheme of arrangement under Part 26 of the Companies Act 2006 proposed by Codere Finance (UK) Ltd to restructure substantial noteholder indebtedness. The judge applied the established test in Re National Bank Ltd (as summarised from Buckley on the Companies Acts): (1) statutory compliance, (2) that the class was fairly represented and the statutory majority acted bona fide and without coercion, and (3) that the arrangement was one an intelligent and honest member of the class might reasonably approve. The court was satisfied on all three points and addressed concerns about the companys recent incorporation and forum shopping by examining connections with England, the likely cross-border effectiveness of the scheme and relevant authority including Re Van Gansewinkel and Re AI Scheme Ltd. Taking into account overwhelming creditor support, the absence of opposition, the risk of a severe loss of value if the scheme failed, and the condition precedent of Chapter 15 recognition in the United States, the court exercised its discretion to sanction the scheme.

This was an application for an order sanctioning a scheme of arrangement under Part 26 of the Companies Act 2006 brought by Codere Finance (UK) Ltd, an English incorporated subsidiary in a multinational gaming group. The scheme was designed to cancel existing Luxembourg-issued notes in exchange for equity and other instruments, to secure 400 million of new money, and to reorganise the groups structure. Implementation was conditional on recognition under Chapter 15 of the United States Bankruptcy Code.

The principal issues before the court were:

• whether the statutory requirements for sanctioning a scheme under Part 26 had been complied with;
• whether the class of creditors was fairly represented at the meeting, the statutory majority had acted bona fide and were not coercing a minority, and whether the scheme was such that an intelligent and honest creditor might reasonably approve it (the threefold test derived from Re National Bank Ltd/Buckley);
• whether the recent acquisition of the English company and the evident forum shopping justified refusing to sanction the scheme, including consideration of centre of main interests, the Insolvency Regulation and the recast Judgments Regulation and the likely cross-border effectiveness of the scheme;
• the practical commercial consequences for creditors if the scheme were not sanctioned.

The court noted overwhelming creditor support (98.78% by value voted in favour, none against), the potential for a materially worse recovery if the scheme failed, and a range of connections with England (an English-law intercreditor agreement, a significant proportion of creditors domiciled in England, trustees operating from London and English-law governed documents). The judge applied the authorities including Re Van Gansewinkel and Re AI Scheme Ltd to conclude that recent incorporation for the purpose of invoking the scheme jurisdiction was not decisive and that there can be "good forum shopping" where the aim is to secure the best outcome for creditors. On that basis the court was satisfied the formal requirements had been met and that it was appropriate to exercise its discretion to sanction the scheme. The application was granted, with the sanction being conditional on Chapter 15 recognition in the United States as required by the scheme.

Application for an order sanctioning the scheme of arrangement under Part 26 of the Companies Act 2006 granted. The court was satisfied that the statutory requirements identified in Re National Bank Ltd (compliance with the statute; fair representation and bona fides of the majority; that the arrangement a reasonable creditor might approve) had been met. Concerns about the companys recent acquisition and forum shopping were addressed by reference to the companys connections with England, authorities permitting sanction in analogous circumstances, the likely cross-border effectiveness of the scheme and the overwhelming creditor support and commercial benefits of the restructuring; accordingly the court exercised its discretion to sanction the scheme subject to the Chapter 15 condition precedent.