Algeco Scotsman PIK S.A.

The court’s sanction of a scheme of arrangement is not a ministerial exercise. The court must examine jurisdiction, class constitution, statutory compliance, fairness, information provided to creditors and any jurisdictional or enforcement “blots”.

A foreign company may use the English scheme jurisdiction where it is liable to be wound up in England and has a sufficient connection with England. Relevant connections may include a company’s centre of main interests and effective amendments to governing-law and jurisdiction clauses. A change made to obtain access to the scheme jurisdiction is not automatically improper, but the court must scrutinise its purpose and likely effectiveness abroad.

Overwhelming creditor approval is highly significant, but does not remove the court’s independent duty to assess fairness.

Algeco Scotsman PIK S.A., a Luxembourg finance company within the Algeco Scotsman Group, sought sanction under section 899 of the Companies Act 2006 for a scheme proposed under section 895. The scheme restructured approximately US$699 million of PIK loans through cash consideration, equity interests and related releases.

The company’s creditors approved the scheme unanimously among those voting, representing approximately 98.97 per cent by value and 97.56 per cent by number of all creditors entitled to vote. The scheme had previously been convened by Barling J after consideration of class and cross-border jurisdiction issues.

The principal questions were whether the English court had jurisdiction, whether the scheme had a sufficient connection with England, whether it was likely to be recognised and effective in relevant foreign jurisdictions, whether the restructuring involved improper forum shopping, and whether an early tender fee affected fairness or class composition.

1. The scheme was sanctioned. The court was satisfied that the statutory requirements had been met, the class was properly constituted and convened, the majority had acted bona fide in the interests of the class, and the scheme was one which an intelligent and honest creditor, acting in his own interest while considering the class as a whole, might reasonably approve.
2. The court’s role at the sanction stage is independent and substantive. It must investigate the process and the scheme for misinformation, defects, impediments and other “blots”, even where creditor support is overwhelming. Although the court will rarely question the commercial judgment of an informed and overwhelming majority, creditor approval does not make sanction automatic.
3. The company was liable to be wound up under the Insolvency Act 1986 and therefore satisfied the strict jurisdictional requirement for a scheme. Under Drax Holdings Ltd [2004] 1 WLR 1049, a sufficient connection with England was additionally required.
4. The court accepted that the company’s COMI was in England, having regard to the location of negotiations, management functions, directors, employee and UK establishment. A COMI shift undertaken to facilitate a scheme may itself establish sufficient connection. The amendments changing the governing law and jurisdiction clauses from New York law and jurisdiction to English law and non-exclusive English jurisdiction provided an additional connection.
5. The scheme process was not an insolvency process for the purposes of the European insolvency legislation. On the pragmatic approach adopted in the authorities, it was unnecessary to decide whether the Brussels regulation recast applied because jurisdiction existed on the assumption that it did, under Article 8 and/or Article 25.
6. The court considered the likely effectiveness and recognition of the scheme in the United States and Luxembourg. Expert evidence supported the conclusion that the amendments and the English sanction order were likely to be recognised. Resort to the English jurisdiction in these circumstances was permissible “good forum shopping”, but the court would scrutinise any such arrangement to ensure that it was not inappropriate or oppressive.
7. The early tender fee did not undermine class composition or fairness. It was available generally, rather than only to selected creditors, and its level was not outside the range of commercial experience. That did not mean that similar fees would be automatically acceptable in every case.