Gategroup Guarantee Ltd, Re

A restructuring plan under Part 26A of the Companies Act 2006 falls within the bankruptcy exclusion in the Lugano Convention. It is a collective insolvency-related proceeding, notwithstanding that it seeks to rescue a debtor before formal insolvency and leaves it in possession of its assets.

An assetless co-obligor may propose a plan affecting creditors’ rights against primary obligors. The arrangement need not alter rights against the plan company itself. Artificiality and the connection with the creditors’ relationship with that company are ordinarily matters for sanction discretion, rather than jurisdiction.

For class composition, the court compares existing rights in the relevant alternative with rights under the plan. Creditors with rights against different obligors, and materially different continuing credit risks, could not consult together with a view to their common interest.

The applicant was an English incorporated, assetless company created within an international airline-catering group. It had assumed co-extensive liabilities to the group’s senior lenders and bondholders under a deed poll, supported by a contribution-payment mechanism.

The proposed Part 26A plan would extend the maturity of the group’s senior facilities and bonds by five years, enabling an agreed injection of new money. Without it, the group was likely to enter a liquidating insolvency process. The senior lenders supported the restructuring, while the bondholders had not participated in the negotiations.

At the convening hearing, Zacaroli J considered jurisdiction under the Lugano Convention, the statutory threshold conditions, whether the proposal was a compromise or arrangement, and whether the two creditor groups could meet in one class. The central issue was whether meetings should be convened to consider the plan.

1. The application was granted. The court directed separate meetings of the senior lenders and bondholders to consider the plan.

2. Proceedings under Part 26A of the Companies Act 2006 fell within the bankruptcy exclusion in Article 1(2)(b) of the Lugano Convention. The absence of Part 26A from Annex A to the Insolvency Regulation had no probative value because the procedure was enacted after the United Kingdom had ceased participating in the EU legislative process. Part 26A proceedings possessed the collective and insolvency-related features which justified the exclusion. They also satisfied Article 1(1) of the Insolvency Regulation: they were collective, based on laws relating to insolvency, pursued rescue or debt adjustment, and were subject to sufficient court supervision. Accordingly, the Zurich exclusive-jurisdiction clause in the bonds did not prevent the English court exercising jurisdiction.

3. The statutory threshold conditions were satisfied. The plan company was insolvent as a result of liabilities assumed under the deed poll. Its purpose was to facilitate the group restructuring, thereby addressing those financial difficulties and enabling the company’s assumed liabilities to be met. A Part 26A arrangement need not alter creditors’ rights against the plan company. It could affect rights against third parties where, in substance, the proposal was an arrangement with the company’s creditors. The artificial co-obligor structure created no jurisdictional impediment; its fairness and foreign effectiveness were matters principally for sanction.

4. The established class-composition test applied. Existing rights had to be assessed against the relevant alternative, together with rights conferred by the plan. Looking through the artificial structure, the senior lenders and bondholders had rights against different obligors. The plan also exposed them to different credit risks and contained further material differences concerning interest, maturity and the bondholders’ change-of-control protection. Those differences made it impossible for them to consult together with a view to a common interest, so separate classes were required.

5. Notice was adequate. One further month’s notice, following earlier communications, was sufficient. Remote meetings were appropriate, subject to the evidence required at sanction.

not stated in the judgment.