Re Lecta Paper UK Ltd

The court considered an application under Part 26 of the Companies Act 2006 to convene a meeting of creditors to consider a scheme of arrangement in respect of two series of senior secured notes. The principal legal issues were (i) whether sufficient notice of the convening hearing had been given, (ii) the correct composition of class or classes of scheme creditors, and (iii) whether the English court had international jurisdiction to sanction the proposed scheme.

The judge concluded that notice was adequate in all the circumstances, including prior public announcements, a high level of lock-up accedence, and urgency caused by imminent cashflow difficulties. On class composition, the court applied the established test whether the rights of creditors were so dissimilar as to prevent their consultation together; it held that the two series of noteholders should form a single class because the differences in interest rates and maturities were immaterial given the insolvency comparator and the identical ranking and security. The court also held that consent fees, committee reimbursement and restrictions on holding new instruments did not fracture the class.

On jurisdiction, the judge found that the company was liable to be wound up under the Insolvency Act 1986 and so met the Part 26 requirement; he rejected the argument that jurisdiction acquired by recent amendment of the indentures should negate jurisdiction at the convening stage. The court treated the Recast Judgments Regulation and concluded Article 8 and Article 25 exceptions were engaged. The application to convene a single class meeting was allowed and directions for the meeting were made.

Background and parties. The Company is an English-incorporated co-issuer within the Lecta group, which faced substantial group indebtedness including two series of senior secured notes (aggregate €600 million) and other facilities. The proposed scheme concerned holders of beneficial interests in the senior secured notes; the Company had only recently assumed co-issuer liability under the indentures for the purpose of the proposed restructuring.

Nature of the application. The Company applied for directions to convene a meeting (single class) of scheme creditors under Part 26 of the Companies Act 2006 to consider a scheme of arrangement forming part of a wider group restructuring involving new notes, equity in a new holding company and new super‑senior facilities.

Issues framed by the court.

• Whether sufficient notice had been given to creditors of the convening hearing;
• Whether the creditors should be treated as a single class or divided into multiple classes;
• Whether the English court had jurisdiction in the international sense to sanction a Part 26 scheme (including the effect of the Recast Judgments Regulation and recent amendments to the indentures).

Court’s reasoning and findings. The court found notice adequate having regard to prior public announcements, the practice statement letter and documents uploaded to the website, notifications through clearing systems, extensive lock-up accedence and the urgency of an imminent cashflow crisis. On class composition the judge applied the familiar test whether rights (existing and those conferred by the scheme) were so dissimilar as to preclude collective consultation: differences in coupon and maturity were immaterial against an insolvency comparator because interest beyond the commencement of a liquidation would be unlikely to be recovered and all notes rank pari passu and share security; the scheme confers the same rights on all scheme creditors. Ancillary matters (a modest consent fee, reimbursement of coordinating committee disbursements, and restrictions on certain holders holding the new instruments) did not fracture the class given the ability to nominate custodians or brokers and the small size of the consent fee.

On international jurisdiction the court held that English incorporation meant the Company met the Part 26 jurisdictional requirement of being liable to be wound up under the Insolvency Act 1986. The judge rejected the argument that jurisdiction obtained by amendment of the indentures negated jurisdiction at the convening stage, noting such issues are typically considered at sanction if relevant to fairness. The court concluded that the exceptions in the Recast Judgments Regulation (particularly Article 8 and Article 25) operated such that there was no insuperable jurisdictional obstacle. Expert evidence on effectiveness in other jurisdictions did not reveal any insuperable difficulty at the convening stage.

Decision. The application to convene a single class meeting of scheme creditors was allowed and the proposed directions for convening the meeting were made.

The court ordered that a meeting of a single class of scheme creditors be convened and made directions for the convening of that meeting. The judge held that notice of the convening hearing was adequate, that the two series of noteholders should form a single class because their differences were immaterial in the insolvency comparator and the scheme conferred the same rights on all creditors, and that there was no insuperable objection to English jurisdiction including under the Recast Judgments Regulation (Article 8 and Article 25).