Algeco Scotsman PIK S.A.

The court granted sanction under section 899 of the Companies Act 2006 to a scheme of arrangement under section 895 to restructure PIK loan indebtedness. The judge was satisfied that the statutory requirements were met, the relevant class was fairly represented and the requisite majorities had voted in favour. Key jurisdictional foundations were the company’s centre of main interests (COMI) in England and amendments to the PIK Loan Agreement changing governing law and jurisdiction to England, which were considered effective in the circumstances.

The court addressed cross-border constraints by adopting the pragmatic approach of assuming the Brussels Regulation Recast might apply and finding, on that hypothesis, jurisdiction under Article 8 and/or Article 25. Expert evidence (including a New York judge’s view and Luxembourg expert opinion) supported the likely recognition and effectiveness of the English sanction abroad. The court also considered and approved an early tender fee as commercially normal and not unfair.

Background and parties. The applicant company is Algeco Scotsman PIK S.A., a Luxembourg-incorporated finance company within the Algeco Scotsman group. The scheme sought to restructure PIK loans (originally US$400m, with accrued amounts bringing the sum due in May 2018 to approximately US$868m) by cancelling PIK debt in exchange for cash and equity-like rights in a new intermediate entity, and to enable a wider group restructuring and an equity commitment.

Procedural posture. This was a first instance application in the Chancery Division for sanction of a scheme under sections 895 and 899 of the Companies Act 2006. A convening order had been made by Barling J to hold a single class meeting on 8 June 2017; the scheme creditors present and voting approved the scheme by very large majorities (about 98.97% by value and 97.56% by number of those entitled to vote).

Issues framed. The court was asked to consider (i) statutory compliance and whether the class and voting requirements were met, (ii) fairness under the Re Telewest test (whether an intelligent and honest man might reasonably approve), and (iii) cross-border jurisdictional and discretion issues: the company’s COMI, effectiveness of amendments to choice of law and jurisdiction in the PIK Loan Agreement (originally New York law and New York jurisdiction), and whether European instruments (the insolvency regulation of 29 May 2000 and the Brussels Regulation Recast) or foreign courts would prevent or undermine recognition and effect of the English sanction.

Court’s reasoning and subsidiary findings. The judge accepted that the company’s COMI was in England on the evidence (directors’ residence, UK tax residence, UK establishment registration, principal negotiations in England and head‑office functions). He accepted the statutory voting majorities and that the class had been properly represented. He applied the established two-stage practical approach to cross-border schemes: assume the Brussels Regulation Recast applies and test whether Chapter II jurisdiction can be found; if so, no further argument on applicability is necessary. On that assumption he was satisfied jurisdiction would exist under Article 8 and/or Article 25. The judge accepted expert opinion (including from a retired US bankruptcy judge) that amendments to governing law/jurisdiction in the PIK Loan Agreement were effective under New York law and that US and Luxembourg courts would likely recognise and give effect to the English sanction. The court scrutinised an early tender fee (2%) and found it was offered generally, not to a selective few, and was commercially within normal bounds so as not to render the scheme unfair. The judge emphasised that resort to the English jurisdiction was not improper forum shopping in the circumstances and that sanction was not a formality but required careful scrutiny.

Result. The scheme was sanctioned because the court was satisfied as to statutory compliance, fairness, sufficient connection with England and likely effectiveness across relevant foreign jurisdictions.

The court sanctioned the scheme. The judge concluded that statutory requirements under sections 895 and 899 Companies Act 2006 had been satisfied, the relevant class was properly constituted and had approved the scheme by the requisite majorities, the company’s COMI was in England, and amendments to the PIK Loan Agreement together with expert evidence meant the English order would be likely to be effective and recognised in the United States and Luxembourg. The early tender fee was examined and held not to render the scheme unfair. Accordingly the scheme was approved and an order in standard form was to be made.