Arvos BidCo Sarl, Re

The court may sanction a scheme of arrangement where the statutory requirements have been satisfied, the creditor classes have been fairly constituted and represented, the voting majorities have acted bona fide, and the scheme is one which an intelligent and honest creditor might reasonably approve.

In assessing that question, the court may give substantial weight to informed and rational voting, particularly where creditors have compared the scheme with the likely outcome of default and an accelerated sale. The court must also consider whether the scheme contains any blot or other defect, including whether it is capable of recognition and implementation internationally.

Arvos BidCo S.à.r.l., a Luxembourg company within a group marketing heat-exchanging solutions, applied for sanction of a restructuring scheme under Companies Act 2006, Part 26. The scheme concerned approximately €532 million of liabilities under English-law governed credit facilities.

The restructuring introduced new capital, extended maturities, amended certain facilities, partially waived term-loan debt, and gave relevant lenders an equity interest in a new holding company. At the convening hearing, two creditor classes had been approved: creditors under the revolving credit, letter of credit and ancillary facilities; and creditors under the term loan B facilities.

The sanction hearing concerned whether the statutory requirements were met, whether the classes were fairly represented and had voted bona fide, whether the scheme was one that creditors might reasonably approve, and whether any blot or other defect prevented sanction.

1. Statutory compliance. The meetings had been properly convened and held in accordance with the convening order. The statutory majorities were comfortably achieved. The court endorsed the previously determined two-class structure.
2. Representation and voting. Each class was effectively fully represented. There was no evidence that the majorities had acted otherwise than in a bona fide and rational manner.
3. Commercial judgment. The scheme was one which an intelligent and honest creditor acting in its own interests might reasonably approve. The revolving credit and ancillary creditors were largely unaffected. The term-loan creditors were materially affected, but their informed voting showed a rational assessment that the scheme offered a better outcome than default followed by an accelerated sale at a substantial discount. The court therefore had no good reason to look behind the strong evidence of rationality supplied by the voting patterns.
4. No blot or other defect. The English-law governing provisions and exclusive English jurisdiction clause justified the court exercising jurisdiction in the international sense. The compromise was also expected to be recognised under generally accepted private international law principles, supported in any event by opinions from lawyers in Germany, Luxembourg, Japan and the United States.
5. The scheme was sanctioned and the order sought by the company was made.