Syncreon Group BV, Re

At the convening stage of a scheme of arrangement, the court principally determines whether the proposed creditor classes are properly constituted. Creditors form a single class where their rights are not so dissimilar as to make consultation impossible with a view to their common interest. The comparison concerns legal rights against the scheme company, including rights in the likely insolvency or enforcement alternatives, and the rights created by the scheme. Differences arising from collateral arrangements, lock-up payments, backstop payments or cross-holdings will not necessarily fracture a class. The court may also address obvious jurisdictional or discretionary obstacles, but issues of fairness and the merits ordinarily belong at the sanction stage. A change to English governing law and submission to the English jurisdiction may provide a sufficient connection for an English scheme.

Syncreon Group BV and Syncreon Automotive (UK) Ltd applied under section 896 of the Companies Act 2006 for orders convening meetings of creditors to consider schemes under Part 26. The schemes formed part of a proposed restructuring of substantial secured and unsecured debt owed under a parent credit facility and notes indenture.

The proposed classes comprised PCF lenders and Noteholders in relation to each scheme. Issues arose concerning differences in interest rates, collateral security, lock-up payments, backstop payments, cross-holdings and the jurisdictional connection of the Dutch scheme company. The court also considered a proposed declaration concerning a foreign representative.

1. Application granted. Meetings of the proposed creditor classes were ordered to be convened, with related directions and orders.
2. The court’s role at the convening stage is principally to give directions for calling meetings and to determine whether the classes are properly constituted. It is not ordinarily a hearing on the merits or fairness of the schemes. The court may address a “roadblock” issue where it is obvious that it has no jurisdiction or should refuse to exercise its discretion to sanction the scheme: Re Hawk Insurance Co Ltd and Re Noble Group Ltd.
3. The class test is whether creditors’ rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. The relevant comparison is between legal rights against the scheme company, not divergent private interests. The focus is on rights released or varied by the scheme and rights given in substitution: Sovereign Life Assurance Co v Dodd and Re UDL Holdings Ltd.
4. A difference requires a separate class only if it is sufficiently material to make consultation impossible. The assessment involves a value judgment and requires a robust approach: Re DX Holdings Ltd and Re Lehman Bros International (Europe) (in admin). The relevant existing rights included rights in the likely insolvency or enforcement alternatives: Re Telewest Communications plc (No 1).
5. The differences relied on did not fracture the classes. Interest-rate differences were insufficiently material. Security and turnover rights granted by CayCo were collateral arrangements against a non-scheme company. Lock-up and backstop payments were outside the schemes and had been offered or provided for distinct commercial reasons. Any materiality or fairness issue could be considered at sanction. Cross-holdings likewise did not create additional rights in a creditor’s capacity as a member of another class: Re Lehman Bros International (Europe) (in admin).
6. Syncreon Group had a sufficient connection with England because the relevant documents had been changed to English law and the parties had submitted to the English courts. Such a change was permitted by article 3(2) of the Rome I Regulation (593/2008). The court relied on Re Vietnam Shipbuilding Industry Groups and Mauritius Commercial Bank Ltd v Hestia Holdings Ltd. The ultimate effect of the changes and recognition of the schemes were matters for sanction, not the convening stage. No roadblock issue was established.
7. The order declared that the proposed individual had been validly appointed to represent and act as agent for the scheme companies. Whether that individual qualified as a foreign representative was for the relevant foreign court: Re Noble Group Ltd.