Re DTEK Finance plc

The court considered an application under section 896 of the Companies Act 2006 for an order convening a meeting of creditors to consider a proposed scheme of arrangement to restructure two series of notes into a single new note. The judge addressed the composition of creditor classes, concluding that the holders of the two series could properly be treated as a single class given the practical effect of a likely insolvency and the immateriality of the differences in maturity and interest rates. The judge examined the significance of fees proposed in the documentation (a work fee, a restructuring fee and a lockup fee) and concluded the amounts were unlikely to exert a material influence on creditor voting. The court also considered whether the recast Judgments Regulation (in particular article 8(1)) posed any obstacle to the exercise of the scheme jurisdiction, taking account of domiciled creditors, submissions to jurisdiction and the company’s incorporation and centre of main interests. A minor drafting defect in the scheme documentation was noted and accepted as correctable. The judge ordered that a meeting of scheme creditors be convened.

Background and parties. DTEK Finance plc (the company), a wholly owned subsidiary of DTEK Energy BV and incorporated in England, issued two series of notes in 2013 and 2015. The company experienced severe financial difficulties due to operational and economic developments in Ukraine and sought to restructure the 2013 and 2015 notes by exchanging them for a single new note with an extended maturity date.

Nature of the application. The company applied under section 896 of the Companies Act 2006 for an order convening a meeting of creditors to consider and, if thought fit, approve the proposed scheme of arrangement implementing the note restructuring.

Issues before the court.

• Whether the two series of noteholders should be treated as a single class for convening one meeting of scheme creditors (class composition).
• Whether fee provisions in the documentation (work fee, restructuring fee and lockup fee) were of such significance as to affect class composition or voting fairness.
• Whether the court’s exercise of the scheme jurisdiction could be impeded by the recast Judgments Regulation, in particular article 8(1), given the domiciles of scheme creditors and other factors such as submission to jurisdiction and the company’s COMI.
• Whether any drafting defects in the scheme documents prevented the convening order.

Court’s reasoning and conclusions. The judge held that the different maturity dates and differing interest rates between the two series were of no practical significance for class composition, particularly given the likelihood of insolvency in the absence of restructuring which would render nominal interest rate differences immaterial. The three fees were considered in turn: the work fee and restructuring fee were of no real significance because of their limited nature; the lockup fee, although capable of attracting more argument, was small (approximately 0.76 per cent of principal) and unlikely to materially affect voting. On the recast Judgments Regulation, the judge declined to decide finally whether the Regulation applies to schemes but gave a provisional view that article 8(1) did not present an obstacle to proceeding. The judge accepted that article 8(1) requires only that "any one" defendant be domiciled in the jurisdiction and that assessment of whether it is "expedient" to hear claims together should focus on how closely connected the claims are; factors such as the company’s incorporation and COMI in England and the fact that many creditors had submitted to the English jurisdiction supported expediency. Finally, the judge noted a minor documentation defect (an undefined "noteholder terms sheet") which was accepted would be corrected. On that basis the court ordered that a meeting of scheme creditors be convened in the terms of the draft provided.

The application for an order convening a meeting of creditors under section 896 of the Companies Act 2006 is granted. The court held that the two series of noteholders could properly be treated as a single class because the differences between the series were immaterial in the context of the company’s likely insolvency position; the fees identified were unlikely to materially influence creditor voting; and article 8(1) of the recast Judgments Regulation did not present an obstacle to the exercise of the scheme jurisdiction on the facts. A minor drafting defect in the scheme documentation was to be corrected and did not prevent the convening order.