Re Codere Finance 2 (UK) Limited

The court sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 proposed by Codere Finance 2 (UK) Limited. The judge found that statutory requirements had been complied with, that the single class of Scheme creditors was properly constituted and fairly represented, and that the statutory majorities at the meeting (over 99% by value and 94.76% turnout) acted bona fide. The court held that an intelligent and honest member of the class could reasonably approve the Scheme, having regard to the contrast with likely liquidation recoveries and to commercial benefits and services supplied by ad hoc committee members (for example, subscription for Interim Notes, backstop underwriting and related fees).

On jurisdiction, the court concluded it had jurisdiction over the Company (incorporated in England) and, assuming application of the Recast Judgments Regulation (Regulation (EU) 1215/2012), that Article 8 applied because a sufficient number and value of creditors were domiciled in England. The court accepted expert evidence that the Scheme was likely to have a substantial cross-border effect and to obtain recognition in key foreign jurisdictions (including by Chapter 15 recognition in the United States). For these reasons the court ordered the Scheme sanctioned.

Background and parties. The Company, part of the Codere group, faced a COVID-19 driven liquidity crisis. The Group's financing included two series of Existing Notes (€500m and US$300m). The Company applied for an order to sanction a Scheme under Part 26 of the Companies Act 2006 to implement a restructuring including extending maturities, increasing interest, altering covenants and providing for the issue of New Notes and New Super Senior Notes, with a backstop provided by members of an ad hoc committee (AHC).

Nature of the application. The Company sought an order sanctioning the Scheme. The convening order to hold a single meeting of Scheme creditors had been the subject of earlier litigation in which the court decided class composition (convening judgment [2020] EWHC 2441 (Ch)). Kyma Capital Limited opposed treating all Scheme creditors as a single class but subsequently withdrew its active opposition.

Issues framed by the court.

• Whether statutory requirements under Part 26 and s.897 Companies Act 2006 had been complied with;
• whether the single class of Scheme creditors was properly constituted and fairly represented at the meeting;
• whether the Scheme was one that an intelligent and honest member of the class could reasonably approve (fairness), taking account of benefits to AHC members such as Interim Notes, backstop fees and consent/work fees;
• whether the court had jurisdiction over the Company and, assuming the Recast Judgments Regulation applied, over Scheme creditors (Article 8); and
• whether the Scheme would have a substantial effect in relevant foreign jurisdictions (recognition, including Chapter 15 in the United States).

Court's reasoning and conclusions. The court was satisfied that statutory requirements were met and that required majorities were achieved at the meeting (approval by 249 of 250 creditors present, representing 99.99% by value; turnout 94.76% by value). The judge accepted that, although AHC members received particular commercial benefits (Interim Notes, backstop underwriting fee of 2.5%, work fee of 1% and consent fees), those differences related to interests rather than rights and reflected services and new money advanced; the cumulative enhancement for participating AHC members was quantified in the explanatory materials (around 5.1% including fees, 4.2% excluding certain items). The court found there was no coercion of a minority and that even excluding AHC members the Scheme would have been overwhelmingly approved.

On jurisdiction the court concluded it had jurisdiction over the Company (English incorporation) and, on the assumption the Recast Judgments Regulation applied, Article 8 was satisfied because a material proportion of creditors were domiciled in England. Expert evidence supported a real prospect of recognition in the United States (Chapter 15) and other key jurisdictions, and the high level of creditor lock-up (82.8% by value) reinforced the prospect of substantial effect.

Result. The court exercised its discretion to sanction the Scheme and ordered it sanctioned.

The court ordered the Scheme sanctioned. The judge found statutory requirements satisfied, the single class fairly represented and the Scheme one which an intelligent and honest member of the class could reasonably approve; the court also found it had jurisdiction (including under Article 8 of the Recast Judgments Regulation on the assumed basis that it applied) and that the Scheme was likely to have a substantial cross-border effect.

The application followed an earlier convening hearing in which the court determined class composition; that decision was given in the convening judgment [2020] EWHC 2441 (Ch). The present judgment sanctions the Scheme. No appeal history is stated in the judgment.