Re Gategroup Guarantee Ltd

The court ordered the convening of two meetings of creditors under section 901C of the Companies Act 2006 to consider a restructuring plan under Part 26A. The judge held that the English court has jurisdiction notwithstanding an exclusive jurisdiction clause in the Bonds because the Lugano Convention's bankruptcy exclusion covers Part 26A plans. He concluded that Part 26A plans fall within the purpose and scope of insolvency proceedings for the relevant instruments and that the Threshold Conditions A and B in section 901A were satisfied. The court accepted the use of an artificial co-obligor structure (the Plan Company and its Deed Poll) to enable amendment of the Bonds and the Senior Facilities Agreement, but noted that the artificiality is a discretionary factor to be considered at the sanction hearing. Finally, the judge determined that the appropriate creditor classes were two separate classes (Senior Lenders and Bondholders) and that adequate notice had been given to Plan Creditors.

This is a first instance judgment in which the applicant, Gategroup Guarantee Limited (the Plan Company), sought directions to convene meetings of creditors to consider a restructuring plan under Part 26A of the Companies Act 2006 (implemented by CIGA 2020). The Plan would extend the maturities of a senior facilities agreement (the SFA) and CHF bonds and make ancillary amendments as part of a global restructuring to address severe Covid-19 driven liquidity shortfalls in the gategroup group.

The main factual and procedural background was:

• The Plan Company had been incorporated on 8 December 2020 and executed a Deed Poll under which it undertook primary obligations to Senior Lenders and Bondholders; the Deed Poll was supported by a Contribution Payment Agreement;
• The Plan relates to two principal debt classes: the Senior Loans under the SFA and CHF350 million Bonds; the Senior Lenders had entered a lock-up agreement but the Bondholders had not;
• The Restructuring was inter-conditional and the economics were that without the Plan the Group was likely to enter value-destructive insolvency and recoveries for creditors would be materially worse than under the Plan.

The court identified and decided the following legal issues at the convening hearing:

• Jurisdiction: whether the Lugano Convention applied and, if so, whether the bankruptcy exclusion in Article 1(2)(b) extended to Part 26A plans; the judge concluded Part 26A plans fall within that exclusion (on both purposive and Article 1(1) Recast Insolvency Regulation analysis) and so the exclusive jurisdiction clause in the Bonds did not oust the English court;
• Threshold conditions under section 901A: the judge found Threshold Conditions A (financial difficulties affecting going concern) and B (purpose to mitigate those difficulties) were met for the Plan Company given the Deed Poll structure and the Group’s distress;
• Whether the proposal amounted to a compromise or arrangement: relying upon and distinguishing authorities under Part 26, the court held the Plan did constitute an arrangement within the meaning of Part 26A, including where rights against third parties are varied so long as the variation is within the scope of an arrangement and will be considered at sanction;
• Class composition: the court applied the conventional test and determined that Senior Lenders and Bondholders must be in separate classes because their rights were materially different (different obligors, different contractual features), while noting that cross-class cram-down under section 901G remains available at sanction;
• Adequacy of notice and practical arrangements for remote meetings: the court found notice adequate and the explanatory statement acceptable for convening purposes.

The judge emphasised that many discretionary and recognitional issues, including detailed foreign-law effectiveness of the Plan, and the appropriateness of any cross-class cram-down, remained open to fuller consideration at the sanction hearing.

The court made an order directing the convening of two meetings of creditors under section 901C of the Companies Act 2006 (one for Senior Lenders and one for Bondholders). Rationale: the court has jurisdiction because Part 26A plans fall within the bankruptcy exclusion of the Lugano Convention; Threshold Conditions A and B are satisfied; the Plan constitutes an arrangement for Part 26A purposes; the proposed classes are correctly composed as separate classes for Senior Lenders and Bondholders; and adequate notice and documentation have been provided. The discretionary merits and foreign recognition issues were reserved for the sanction hearing.