Re Port Finance Investment Ltd

This is an application under Part 26 Companies Act 2006 for an order convening a meeting of creditors to consider a scheme of arrangement which would cancel existing unsecured US$250m notes and substitute new notes with amended terms. The court considered (i) whether the English-incorporated scheme company fell within Part 26, (ii) whether a scheme could comprise a compromise with creditors in circumstances where the scheme company had only recently assumed the relevant liabilities by way of a supplemental indenture and a deed of contribution, and (iii) class composition and disclosure issues arising from a consent fee, a cash tender option and payments of advisers’ fees to advisers of an ad hoc group of noteholders.

The judge concluded there was no obvious jurisdictional "roadblock" to convening meetings: the Scheme Company is an English company for Part 26 purposes and the issues as to the efficacy of the Supplemental Indenture and Deed of Contribution under New York law can be determined at the sanction hearing with expert evidence. On class composition the court ordered a single class of scheme creditors: the 1% consent fee, the cash option and the proposed advisers’ fees did not, on the evidence, fracture the class. Revisions to the explanatory statement addressing advisers’ fees and the conduct of a virtual meeting were required and provided. The application to convene a meeting was granted, subject to the court’s directions and with issues of jurisdiction and sanction reserved to the sanction hearing.

Background and parties: Port Finance Investment Limited (the "Scheme Company") sought an order under Part 26 CA 2006 to convene a meeting of holders of US$250m unsecured notes issued by a related Turkish subsidiary (the "Existing Notes") so that a compromise could be effected by exchanging the Existing Notes for New Notes issued by a newly formed English parent (the "New Issuer"). The Group was experiencing severe COVID-19 related revenue decline and sought refinancing relief.

Nature of application: Application to convene creditor meetings under Part 26 to approve a scheme of arrangement that (inter alia) (a) cancelled the Existing Notes and granted entitlements to New Notes, (b) provided a cash option funded from a disposal, (c) included guarantees and a pledge, and (d) released or varied rights of Scheme Creditors against third parties (the Original Issuer and a guarantor Ege Liman) by reason of the Scheme Company having entered a supplemental indenture and a deed of contribution.

Issues identified by the court:

• whether the Scheme Company was a "company" for Part 26 purposes;
• whether there was a sufficient legal basis for a "compromise or arrangement" between the Scheme Company and its creditors given the recent unilateral assumption of liability by the Scheme Company;
• whether the scheme could properly include releases or variations of rights against third parties;
• whether the single class proposed for Noteholders was appropriate given the Consent Fee, the Cash Option and proposed payment of advisers’ fees to advisers to an ad hoc group;
• whether notice and the explanatory statement were adequate (including disclosure of advisers’ fees and arrangements for a remote meeting); and
• practical arrangements for a virtual meeting and recognition steps in the United States (Chapter 15).

Court’s reasoning and findings: The judge accepted that the Scheme Company is an English company and therefore a company for Part 26. Because the question whether the Scheme Company had assumed enforceable liabilities to Noteholders depended on New York law, that factual and legal question would be addressed at sanction with expert evidence; there was no clear jurisdictional obstacle at the convening stage on the authorities cited. The judge reviewed authorities dealing with co‑obligor structures and third‑party releases and concluded that while artificiality and commercial justification are important at the sanction stage, they did not prevent convening meetings. On class composition, the court applied the well‑established "similar rights" test: the 1% Consent Fee was available to all holders and was modest relative to the benefit of the Scheme and the comparator outcome, and therefore did not fracture the class; the Cash Option, though potentially producing differing outcomes, was open to all and practically difficult to subdivide, so any challenge could be pursued at sanction; reimbursement of legal advisers’ fees to the ad hoc group was acceptable as independent reimbursement, while the proposed arrangement to pay a Financial Adviser (including a potential success fee) was unusual but adequately disclosed and, on the evidence, did not by itself fracture the class provided relevant information and any improvements would be offered to all creditors.

Outcome: The court made the order convening a single creditors’ meeting, subject to specified modifications and disclosure, reserved the substantive jurisdictional and sanction issues (including New York law questions and international effectiveness) to the sanction hearing, and authorised steps for US recognition under Chapter 15.

The court granted the application to convene a meeting under Part 26 CA 2006 (the convening order was made). The judge held that the Scheme Company is an English company for Part 26 purposes, that there was no obvious jurisdictional "roadblock" to convening meetings despite the artificial co‑obligor structure, and that issues as to the effectiveness of the Supplemental Indenture and Deed of Contribution under New York law should be determined at the sanction hearing with expert evidence. The court directed disclosure improvements to the explanatory statement and accepted that a single class of scheme creditors should be convened, reserving contested matters for the sanction hearing.