Obrascon Huarte Lain, SAV, Re

At a scheme sanction hearing, the court must be satisfied that the statutory requirements and convening order have been complied with, the class was fairly represented, the majority acted bona fide, the scheme is one which a creditor could reasonably approve, and there is no technical or legal defect. Where international elements exist, the court must also identify a sufficient connection with the jurisdiction and consider whether the scheme will have substantial effect in key foreign jurisdictions. An overwhelming vote supports, but does not determine, sanction, which remains a discretionary decision.

Obrascón Huarte Laín, S.A., a Spanish construction group holding company, applied under Part 26 of the Companies Act 2006 for sanction of a scheme compromising the rights of certain beneficial owners of unsecured notes. The notes would be cancelled and replaced with new secured notes issued by a Spanish subsidiary as part of a wider financial restructuring.

A convening order had been made by Mr Justice Adam Johnson, directing a single class meeting. The scheme was subsequently approved by 99.8 per cent by value of those voting, with 90.7 per cent participation by value. No creditor opposed sanction. The central issues were whether the statutory and procedural requirements were met, whether the scheme was fair and free from any blot, and whether it had sufficient jurisdictional connection and likely international recognition.

1. The scheme was sanctioned. The court was satisfied that the statutory majorities had been obtained, the meeting had been properly convened, and the class was properly constituted. In the absence of further argument, it was inappropriate to revisit the convening judge’s conclusions.
2. The class had been fairly represented and the majority had acted bona fide. The explanatory statement contained the required information. Administrative failures preventing a small number of creditors from voting were not attributable to the company and did not impede sanction.
3. The scheme was one which a scheme creditor could reasonably approve. The overwhelming majority created a strong presumption of fairness, although the court retained a discretion and was not bound simply to accept the majority’s verdict. The expected return under a formal Spanish insolvency was substantially lower than the anticipated recovery under the restructuring, which also provided security and guarantees.
4. The lock-up fee was not objectionable. It had been fully disclosed, was available to all creditors who acceded by the deadline, and was unlikely materially to have influenced voting in the circumstances.
5. There was no blot, meaning no technical or other legal defect in the scheme. The English-law governing provisions and asymmetric jurisdiction clauses supplied a sufficient connection with England. The court need not be satisfied that the scheme would be effective worldwide, but could consider effectiveness in key jurisdictions. The English-law governing law made recognition abroad inherently likely, the strong creditor support provided evidence of substantial effect, and expert evidence supported recognition in Spain.

This was a first-instance scheme sanction application. Mr Justice Adam Johnson made the convening order on 18 March 2021, directing a single class meeting. The meeting was held on 9 April 2021, and Mr Justice Miles sanctioned the scheme on 15 April 2021.