Mab Leasing Ltd, Re Companies Act 2006

When sanctioning a scheme under Companies Act 2006 Part 26, the court must consider statutory compliance, class representation and voting, whether an intelligent and honest creditor might reasonably approve the scheme, and whether it contains any defect or “blot”. International schemes also require a sufficient connection with England and consideration of likely international effectiveness. English-law obligations will generally provide a sufficient connection. Very high creditor support, contractual lock-up arrangements and evidence of recognition abroad may establish international effectiveness. The court may sanction a scheme despite all creditors ultimately consenting, where consent was obtained late and the scheme remains practically useful. A question concerning the interaction between Part 26 schemes and the Cape Town Convention was left undecided because every creditor had consented.

MAB Leasing Limited, a Malaysian aircraft-leasing company, applied under Part 26 of the Companies Act 2006 for sanction of a scheme compromising the rights of lessors under 52 English-law operating lease agreements. The scheme offered revised rental arrangements or termination and return of the aircraft, against the alternative of an imminent insolvent liquidation producing very low recoveries.

Mr Justice Zacaroli had previously ordered a single class meeting. The Scheme Creditors unanimously approved the scheme, and the only creditor which had not voted subsequently consented. The principal issues were whether the scheme should be sanctioned despite unanimous consent and whether the Cape Town Convention created a defect by restricting modification of aircraft lease obligations without creditor consent.

1. The scheme was sanctioned. The court applied the established Part 26 questions identified in Re Telewest Communications plc (No. 2) [2005] BCC 36: statutory compliance; fair representation and proper voting; whether an intelligent and honest creditor might reasonably approve the scheme; and whether there was any defect or “blot”. Each question was answered affirmatively.

2. The court also required a sufficient connection with England and consideration of international effectiveness. The English governing law of the lease liabilities provided the necessary connection. The overwhelming creditor support, the lock-up arrangements and expert evidence concerning Malaysian recognition supported the conclusion that sanction would have substantial international effect. The approach was consistent with Re Rodenstock GmbH [2011] Bus LR 1245, Re Vietnam Shipbuilding Industry Group [2014] BCC 433 and Re KCA Deutag UK Finance plc [2020] EWHC 2977 (Ch).

3. The scheme’s power-of-attorney structure was a recognised method of implementing a compromise, as illustrated by Re ColourOz Investment 2 LLC [2020] BCC 926.

4. The court declined to decide whether a Part 26 scheme constituted an “insolvency-related event” under the Aircraft Protocol or the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015. The issue did not affect the result because every Scheme Creditor had consented to modification of its rights. The court nevertheless rejected the suggestion that it could simply disregard the issue in relation to a non-consenting creditor.

5. Although 100% consent is not ordinarily a reason to use Part 26, the circumstances were materially different from those discussed in Re Virgin Atlantic Airways Limited [2020] EWHC 2376 (Ch). Consent had been obtained only at a late stage, and abandoning the scheme would cause further work, expense and delay. Following Re Dundee Pikco Limited [2020] EWHC 1059 (Ch), the court held that it retained jurisdiction and discretion to sanction the scheme where it served a sufficient practical purpose.

First-instance sanction application. No appellate history was stated in the judgment.