Lecta Paper UK Ltd, Re

The court may sanction a scheme of arrangement where the statutory requirements are met, the class is fairly represented, the majority acts bona fide without coercing the minority, and an intelligent and honest creditor could reasonably approve the scheme.

Beneficial owners of global notes may be creditors for Companies Act 2006 purposes where the instruments give them a contingent right to require definitive notes. A scheme may release claims against guarantors, co-obligors and persons involved in preparing or implementing the scheme where the releases are necessary to make the arrangement effective and are properly disclosed.

An English-law governing clause, English jurisdiction clause, English incorporation or English COMI may establish sufficient connection. The court must also be satisfied that the scheme is likely to have substantial effect through recognition in relevant jurisdictions.

Lecta Paper UK Ltd applied under Part 26 of the Companies Act 2006 for sanction of a scheme restructuring €600 million of senior secured notes. The company had become a co-issuer of the notes, which had been amended from New York law to English law and subjected to non-exclusive English jurisdiction.

The scheme creditors were beneficial owners of notes held through clearing systems. The scheme involved debt reduction, new notes and an equity allocation. The meeting approved the scheme unanimously among those voting, representing 96.79 per cent by value.

The issues included creditor status, class constitution, third-party releases, fairness, sufficient connection with England, international jurisdiction, recognition and proposed modifications to the scheme.

1. Sanction. The scheme was sanctioned. The statutory requirements were satisfied, the meeting was properly constituted and convened, and the statutory majorities were obtained.
2. Sanction test. The court applied the principles stated in Re Telewest Communications (No 2) Ltd and Re National Bank Ltd: statutory compliance; fair representation and bona fide voting without coercion; and whether an intelligent and honest member of the class could reasonably approve the arrangement.
3. Creditors and releases. The beneficial owners of the notes were creditors because the indentures gave them a contingent right to require definitive notes. The releases of claims against the parent, guarantors and co-obligor were within the scheme jurisdiction because they were necessary to prevent contribution or ricochet claims from defeating the restructuring. Releases benefiting persons involved in preparing, negotiating or implementing the scheme were also permissible, provided they were fully disclosed.
4. Class and fairness issues. A sanction judge should ordinarily not reconsider class constitution decided at the convening hearing in the absence of creditor opposition, material non-disclosure or a relevant change of circumstances. The high turnout, overwhelming support, better anticipated returns than insolvency, consultation and adequate disclosure supported fairness. Consent and advisory fees were not inherently unfair, but fee issues remained fact-sensitive.
5. Jurisdiction and recognition. The English incorporation of the company and English governing law of the notes supplied sufficient connection. The changes to the co-issuer and governing law were effective under New York law and constituted permissible good forum shopping aimed at improving creditor recoveries. The court assumed, without deciding, that Chapter II of the Recast Judgments Regulation applied. Jurisdiction existed under Article 25 through the non-exclusive English jurisdiction clauses and independently under Article 8(1), because some scheme creditors were domiciled in England and it was expedient to hear the claims together.
6. Substantial effect and modifications. Expert evidence established likely recognition in Luxembourg, Spain, Italy and France, with further anticipated recognition in the United States under Chapter 15. The court approved three modifications under clause 8.13 because they could not materially adversely affect scheme creditors.