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NN2 Newco Ltd, Re Companies Act 2006

[2019] EWHC 2532 (Ch)

Case details

Neutral citation
[2019] EWHC 2532 (Ch)
Court
High Court
Judgment date
26 July 2019
Subjects
CompanyRestructuringInsolvency
Keywords
scheme of arrangementPart 26sanctionvoting by valuework feeconsent feeChapter 15disclosurefairness
Outcome
allowed

Case summary

The Court dealt with a sanction application under Part 26 of the Companies Act 2006 for a scheme of arrangement that formed part of a wider restructuring of the company, including reduction of circa

The judge held that the proposal was an "arrangement" within Part 26 and that the Part 26 statutory requirements had been complied with. The convening order and the constitution of the court meetings were correct, and the requisite majorities voted in favour such that there was actual or virtual unanimity.

The court examined whether specific benefits (the "work fee" and the "consent fee") meant those voting did not fairly represent the class; it concluded those benefits did not materially affect the result. The judge accepted that the scheme was fair compared with the alternative of insolvency and that concerns about international effectiveness (including the intended Chapter 15 application in New York) did not prevent sanction because that relief was a waivable condition and the restructuring was likely to achieve its aim.

An objection by COMIMET alleging unfair process and inadequate disclosure was considered and rejected as based on misunderstanding; the judge concluded there was full disclosure and no oppression of a minority and granted sanction, ordering the scheme to be sanctioned in the form sought.

Case abstract

This is the sanction hearing for a Part 26 Companies Act 2006 scheme of arrangement for NN2 Newco Limited, supplemental to an earlier convening judgment ([2019] EWHC 1917 (Ch)). The scheme formed part of an overall restructuring to reduce principal debt (circa

Parties and posture: The applicants were the company seeking sanction of the scheme; the sanction hearing followed the court27s earlier convening order. Counsel for the applicants appeared and the hearing addressed whether the scheme should be sanctioned.

Nature of the application: An application for the court to sanction a scheme of arrangement under Part 26 of the Companies Act 2006 implementing a significant debt reduction and a transfer of ownership to Trafigura, as part of a wider restructuring. The relief sought was an order sanctioning the scheme in the form previously directed to be put to creditors.

Issues framed by the court: (i) whether the proposal constituted an "arrangement" within Part 26 and compliance with Part 26 formalities; (ii) whether the court meetings were properly convened and constituted; (iii) whether the scheme was approved by the requisite majorities and whether those voting fairly represented the classes, including whether particular payments (the "work fee" and "consent fee") distorted representation; (iv) whether the scheme was fair when weighed against the alternative of insolvency; (v) whether any defect in international effectiveness (notably the position of New York domiciled creditors and the intended Chapter 15 recognition application) or a persistent objector (COMIMET) prevented sanction; and (vi) whether disclosure was adequate.

Reasoning and outcome: The judge found the proposal to be an arrangement under Part 26 and that statutory requirements had been complied with. The meetings, convened on 22 July 2019, produced overwhelming approval by value and number. The court examined the effect of the work and consent fees and concluded those benefits did not explain or distort the result; non-entitled holders overwhelmingly supported the scheme. The scheme produced materially better returns to creditors than the realistic insolvency alternative (expected returns c.43-51% versus 0.9-11.6%), so an ordinary class member could properly support it. Concerns about the need for Chapter 15 recognition in New York were treated as a waivable condition of the wider restructuring and not a bar to sanction, adopting reasoning consistent with Re Magyar Telecom BV. COMIMET27s objections, based on perceived penalisation by the account-holder letter and alleged lack of disclosure, were found to rest on misunderstanding; the judge held there had been appropriate disclosure and that the majority27s properly informed view must prevail. The sanction was granted and an order made in the form sought.

Wider context: The judgment records the court27s supervisory role at sanction hearings but recognises the weight to be given to the informed views of scheme members; it notes that the Chapter 15 step is common in cross-border restructurings and that waiver of such conditions has been treated as not fatal to sanction in comparable cases.

Held

The court granted the sanction order. The judge held that the proposal was an "arrangement" under Part 26, statutory requirements were met, the meetings were properly constituted and overwhelmingly approved the scheme, the work and consent fees did not distort representation, the scheme was fair compared with the insolvency alternative, concerns about New York recognition (Chapter 15) did not prevent sanction as that relief was waivable, and the objection by COMIMET did not disclose unfairness or oppression.

Cited cases

Legislation cited

  • Belgian Companies Code: Article 524
  • Companies Act 2006: Part 26