Lecta Paper UK Ltd, Re

On an application to convene a scheme meeting, creditors may form a single class where their rights, viewed against the appropriate comparator, are not so dissimilar as to prevent consultation in a common interest. The comparator may be an insolvent liquidation where there is a sufficiently high likelihood of insolvency, even without certainty that liquidation will occur. Differences in interest and maturity may be immaterial if liquidation would accelerate the debt and eliminate recovery of further interest. Differences in scheme rights may also be immaterial where affected creditors can nominate a third party to hold replacement instruments. A company’s recent assumption of liability to attract scheme jurisdiction does not negate jurisdiction, although it may remain relevant to fairness at sanction. Jurisdiction may also be established through applicable regulatory exceptions.

Lecta Paper UK Ltd applied under Part 26 of the Companies Act 2006 to convene a meeting of holders of beneficial interests in two series of senior secured notes. The company was incorporated in England and Wales, had assumed joint and several liability for the notes shortly before the application, and proposed a debt-for-equity restructuring.

The application raised questions about notice, the appropriate comparator and class composition, the court’s international jurisdiction, the effect of the company’s recent assumption of liability, and the treatment of beneficial noteholders as contingent creditors. The court ordered a single class meeting and gave directions for convening it.

1. Notice. Adequate notice had been given. Relevant matters included prior announcements, the high level of creditor support, the availability of scheme documents, the urgency arising from an impending cash-flow crisis, and the relative simplicity of the class-composition issues.
2. Class composition. The test was whether the creditors’ rights, including existing rights and rights conferred by the scheme, were so dissimilar as to make consultation in a common interest impossible. The appropriate comparator was an insolvent liquidation. Certainty that liquidation would occur was unnecessary; a sufficiently high likelihood of insolvency was enough, consistently with Re Cooperative Bank PLC [2013] EWHC 4072 (Ch). Differences in interest rates and maturities were immaterial because further interest would not ordinarily be recovered and liquidation would accelerate the notes. The consent fee, reimbursement of coordinating-committee disbursements, and regulatory restrictions on holding new instruments did not require separate classes. Nomination of a broker, custodian or other third party removed any material difference caused by the restrictions.
3. Jurisdiction. Incorporation in England and Wales satisfied the relevant Part 26 jurisdictional requirement because the company was liable to be wound up under the Insolvency Act 1986, following Re Magyar Telecom BV [2013] EWHC 3800 (Ch). The recent assumption of liability for the notes did not negate jurisdiction, although it might be relevant to overall fairness at sanction. The court relied on Re Codere Finance (UK) Limited [2015] EWHC 3206 (Ch) and [2015] EWHC 3778 (Ch).
4. The court assumed that the Recast Judgments Regulation applied where an exception could readily be shown. Article 8 applied because four creditors were domiciled in England, and the court followed Re DTEK Finance plc [2016] EWHC 3562 (Ch) and [2016] EWHC 3563 (Ch) in holding that the number and size of creditors in the jurisdiction need not be considered. Article 25 was also engaged by the jurisdiction clauses in the amended indentures.
5. The proposed directions were appropriate. Beneficial holders were entitled to vote as contingent creditors because the indentures enabled them, in specified circumstances, to call for definitive notes.