Colouroz Investment 2 LLC & Ors, Re

At a convening hearing under Companies Act 2006 Part 26, the court determines class and jurisdictional issues, not the scheme’s merits, fairness or the discretionary question of sanction. Adequate notice must give creditors a real opportunity to consider and challenge those issues. Support from creditors already bound by a lock-up agreement does not justify short notice to uncommitted creditors.

Classes depend on the similarity of legal rights, rather than divergent commercial interests. Differences in priority and proposed treatment required separate first-lien and second-lien meetings, but did not require further subdivision within either facility. A scheme may vary creditors’ rights against guarantors where necessary to make the debtor’s compromise effective, and may appoint an attorney to execute the necessary documents.

Seven companies in the Flint group applied to convene creditors’ meetings for seven linked schemes of arrangement under Companies Act 2006 Part 26. The schemes would extend the maturity dates of first-lien and second-lien term loans and alter interest, prepayment, covenant and jurisdiction terms.

The companies had recently changed the governing law and jurisdiction clauses of the credit agreements to English law and English exclusive jurisdiction. Most lenders had entered a lock-up agreement supporting the restructuring and were eligible for consent fees. The issues concerned notice of the convening hearing, jurisdiction, class composition, third-party guarantee rights, consent fees and virtual meetings.

1. The applications were granted. Meetings were convened for the proposed schemes. Because the notice of the convening hearing was inadequate in the circumstances, the order allowed Scheme Creditors until 17 July 2020 to apply to vary or discharge it.

2. A convening hearing determines issues affecting jurisdiction, including class composition. It does not determine the merits or fairness of the scheme, or ordinarily the discretion whether to sanction it. The court may, however, identify an obvious roadblock to sanction. Notice must enable uncommitted creditors to obtain advice and participate effectively. The extent of support from creditors already locked up is irrelevant to that protection. The group was not in immediate financial distress, and the schemes were substantial and non-routine. A longer notice period should therefore have been given, although the further opportunity to challenge the meetings order made an adjournment unnecessary.

3. The companies were companies liable to be wound up and hence fell within Part 26. The questions of a sufficient English connection and international effectiveness were matters for sanction, not for the existence of jurisdiction at the convening stage. Assuming that the Recast Judgments Regulation applied, the valid amendments conferring English exclusive jurisdiction satisfied article 25(1).

4. The proposed maturity extensions and reciprocal amendments involved sufficient give and take to constitute arrangements. The schemes could require creditors to vary rights against group guarantors because that was necessary to prevent ricochet claims defeating the compromise. They could also give Holdco authority to execute the amendment agreements: a statutory scheme need not satisfy the ordinary deed formality for a power of attorney.

5. First-lien and second-lien lenders to Flint GmbH required separate meetings because their ranking and scheme treatment differed materially. Within each facility, however, lenders shared the same legal rights, security, ranking, alternative and proposed treatment. Cross-holdings, tranche-rate differences and lock-up participation did not require further classes. Although the consent fees might have affected voting incentives, a separate class for the small uncommitted first-lien minority would improperly create a veto; the effect of the fees could instead be considered at sanction.

6. A virtual meeting could be directed where it enables a collective consultation in which participants can hear, ask questions and express views. At sanction, evidence would be needed that the technology permitted effective participation.

not stated in the judgment.