Re Syncreon Group BV

The court granted an application under section 896 of the Companies Act 2006 to convene creditor meetings to consider schemes of arrangement under Part 26. The primary legal issues were proper class composition and whether there were any obvious "roadblock" issues affecting the court's jurisdiction or exercise of discretion to sanction the schemes.

The judge applied the established test for class composition—whether creditors' legal rights are so dissimilar as to make consultation with a view to their common interest impossible (Sovereign Life v Dodd)—and relevant subsequent authorities including Re DX Holdings and Re Lehman Bros. The court held that: (a) PCF lenders form a single class and Noteholders form a single class in respect of each scheme; (b) cross-holdings and differences such as varying interest rates, inter-creditor arrangements involving CayCo, backstop and liquidity incentives, and lock-up payments did not, on the material before the court, fracture the classes because those differences were collateral or not legally dissimilar in relation to the scheme companies; and (c) the contractual change to English governing law and submission to the English jurisdiction provided a sufficient connection for the English court to permit convening meetings in respect of the Dutch-incorporated syncreon Group for present purposes.

The court also authorised a declaration as to the appointment of an officer as a proposed "foreign representative" for use in Chapter 15 (United States) or Canadian CCAA proceedings, noting that whether that person qualifies as a foreign representative is for the foreign court to decide.

Background and parties. Syncreon Group BV (Dutch incorporated) and Syncreon Automotive (UK) Ltd (English incorporated) are members of a group operating specialised contract logistics. The Group was substantially over-leveraged and proposed a cross-border debt restructuring. The proposed restructuring relied on English schemes of arrangement under Part 26 of the Companies Act 2006 affecting debts under a Parent Credit Facility (PCF) and issued notes (the Notes).

Nature of the application. The application sought an order under section 896 of the Companies Act 2006 convening meetings of classes of creditors to consider and, if thought fit, approve the proposed schemes of arrangement. The convening stage focuses on class composition and obvious "roadblock" issues, not the merits of the schemes.

Key factual features. The PCF (approximately US$680m outstanding) and the Notes (US$225m) had experienced defaults. Amendments converting governing law and jurisdiction clauses to English law and submission to English jurisdiction had been effected shortly before the application. An RSA and related backstop and lock-up arrangements had been entered into with substantial majorities of PCF lenders and Noteholders; certain affiliates (notably CayCo) hold material positions and had provided or turned over collateral and security in various inter-creditor arrangements. Recognition in the United States and Canada was anticipated and required for implementation; expert advice as to recognition had been obtained.

Issues framed by the court. (i) Whether the proposed classes (PCF lenders and Noteholders for each scheme company) were properly constituted; (ii) whether differences between creditors (interest rate variances, security/turnover rights, lock-up and backstop payments, cross-holdings) were sufficiently material to require separate classes; (iii) whether the English court had a sufficient connection to exercise jurisdiction in respect of the Dutch-incorporated syncreon Group; and (iv) ancillary directions including a declaration as to a proposed foreign representative.

Reasoning and findings. The court applied the legal test that class division depends on the similarity of legal rights against the company, not on private commercial interests. It found that PCF lenders and Noteholders each enjoyed sufficiently similar rights against the scheme companies and would receive the same entitlements under the schemes, such that the proposed four classes were appropriate. Differences in interest rates and inter-creditor arrangements did not create materially dissimilar legal rights against the scheme companies. Lock-up and backstop payments were collateral arrangements, available to participants by prior election or negotiated as consideration for new funding, and were not provisions of the schemes; their existence did not on the evidence fracture the classes, although any fairness concerns could be addressed at the sanction stage. Cross-holdings were not a barrier to class composition. The change to English governing law and the parties' submission to English jurisdiction gave a sufficient connection so as not to create an obvious jurisdictional roadblock at the convening stage. The court therefore exercised its discretion to permit the convening of meetings and made the ancillary declaration concerning appointment of an officer as a proposed foreign representative for recognition proceedings abroad.

Procedural posture. This is a first instance Companies Court decision granting the convening order. The court emphasised that more substantive challenges to class composition or fairness may be raised at sanction.

The court allowed the application and made an order under section 896 Companies Act 2006 convening meetings of the proposed creditor classes to consider the schemes of arrangement. Reason: the proposed four classes (PCF lenders and Noteholders for each scheme company) were properly constituted because their legal rights against the scheme companies were sufficiently similar; collateral arrangements (lock-up and backstop payments), inter-creditor differences and cross-holdings did not, on the evidence, make consultation with a view to common interest impossible; and the contractual change to English governing law and submission to English jurisdiction provided a sufficient connection such that no obvious jurisdictional "roadblock" existed at the convening stage. The court also made a declaration as to the appointment of an officer as the companies' proposed foreign representative for foreign recognition proceedings.