Re Stripes US Holdings Inc

This is an application under section 896 (and the sanctioning provision in section 899) of the Companies Act 2006 for the court's sanction of a scheme of arrangement proposed by Stripes US Holdings Inc (the "Company"). The court applied the established three-stage approach: (1) compliance with the statutory requirements (including that the required majorities voted in favour at the convened creditors' meeting); (2) whether the class was fairly represented and the statutory majority acted bona fide and without coercion; and (3) whether an intelligent and honest member of the class might reasonably approve the Scheme.

The court found that the statutory majorities were obtained, that the convening order had been complied with and that there was no evidence of coercion or oppression by the majority. The Scheme was assessed as likely to improve creditors' prospects (by replacing the existing US$200m facility with New Debt and facilitating wider group restructuring and exit financing for Mattress Firm). The court further held that it had jurisdiction: jurisdiction over the Company exists because a foreign company can be wound up under the Insolvency Act 1986 and jurisdiction over the Scheme Creditors could be founded under Article 8 of the Recast Judgment Regulation given a sufficient number of creditors domiciled in the jurisdiction. The court was satisfied the order would likely be given effect in the United States and that the exercise of discretion favoured sanctioning the Scheme. Consequently the Scheme was sanctioned.

Background and parties:

• The Company is incorporated in Delaware, has a UK establishment and is the parent of Mattress Firm Holding Corp, whose subsidiaries trade as Mattress Firm in the United States. The Company's immediate parent is Steinhoff Europe AG and the ultimate parent is Steinhoff International Holdings NV.
• The Scheme concerns creditors under a US$200 million revolving credit facility dated 5 August 2015 (governed by English law), under which the Company is borrower and Steinhoff/SEAG are guarantors. The facility was in default with default interest accruing.

Nature of the application:

• The Company applied, pursuant to section 896 of the Companies Act 2006, for the court's sanction of a proposed scheme of arrangement (to be sanctioned under section 899) that would transfer creditors' rights to SEAG in exchange for new debt (the "New Debt"); SEAG would then contribute to the Company's capital and the existing facility would be cancelled. The Scheme formed part of a wider restructuring including an Exit Facility and Chapter 11 proceedings in the United States for the Mattress Firm subgroup.

Procedural posture and meeting:

• A convening order was made by Zacaroli J on 24 October 2018 ([2018] EWHC 2912 (Ch)). A creditors' meeting was held and the requisite statutory majorities (by number and value of those present and voting) approved the Scheme: those voting constituted 92.46% by value and 61.29% by number of all Scheme Creditors entitled to vote; no creditor voted against the Scheme.

Issues framed by the court:

1. Whether statutory requirements (including class constitution and compliance with the convening order) were met;
2. Whether the statutory majority acted bona fide and without coercing the minority;
3. Whether an "intelligent and honest man" of the class might reasonably approve the Scheme;
4. Jurisdiction: whether the court had jurisdiction over the foreign Company and over Scheme Creditors (including the application of the Recast Judgment Regulation / Article 8) and whether the court should exercise that jurisdiction, having regard to comity and effectiveness in the United States.

Court's reasoning and conclusions:

• Statutory compliance: the court found the statutory majorities obtained and the convening order complied with; there was no challenge to the class constitution and the court was reluctant to revisit Zacaroli J's earlier, reasoned decision.
• Bona fides: the court found no evidence of oppression or coercion. The presence of consenting creditors not participating in the Exit Facility (notably nine creditors representing 22.9% by value) and the absence of any articulated dissent supported the bona fides of the majority despite consent fees and lock-up arrangements.
• Whether an intelligent, honest creditor would approve: given the improved prospects under the restructuring and the unanimous approval at the meeting, the court concluded the Scheme met this test.
• Jurisdiction and exercise of discretion: the court accepted it had jurisdiction over the Company (ability to be wound up under the Insolvency Act 1986) and, adopting Article 8 of the Recast Judgment Regulation as a basis, had jurisdiction over the creditors because a sufficient number were domiciled in the jurisdiction. The governing law of the facility (English law) and expert evidence that a sanction would likely be recognised in the United States satisfied the court that sanctioning the Scheme would not affront comity or improperly interfere with US proceedings. The court exercised its discretion to sanction the Scheme.

Wider context:

• The Scheme was part of an urgent and time-sensitive cross-border restructuring aimed at enabling Exit Facility financing and a prepackaged Chapter 11 plan for Mattress Firm.

The court sanctioned the Scheme. The judge concluded that the statutory requirements under sections 896 and 899 Companies Act 2006 had been met (the requisite majorities voted and the convening order was complied with), the statutory majority acted bona fide without coercion, and the arrangement was one that an intelligent and honest member of the class might reasonably approve. The court also concluded it had jurisdiction over the Company and the Scheme Creditors (including on the basis of Article 8 of the Recast Judgment Regulation) and that sanctioning the Scheme would likely be effective and not contrary to comity with US courts; accordingly the court exercised its discretion to sanction the Scheme.

The matter was previously before Zacaroli J who made a convening order to summon a single meeting of Scheme Creditors on 24 October 2018; his short judgment is reported at [2018] EWHC 2912 (Ch). The present judgment is a first instance sanction application by the Company under sections 896 and 899 Companies Act 2006.