Light SA, Re

This is an application under Part 26 of the Companies Act 2006 for the sanction of a scheme of arrangement by Light SA (the Scheme Company) in respect of two series of notes issued by its subsidiaries, Light Energia SA and Light Serviços de Eletricidade S.A., for which the Scheme Company is guarantor. The court found that the statutory requirements (including the explanatory statement requirement in section 897 and the voting majorities in section 899(1)) had been sufficiently complied with or that any non-compliance could be waived. The single class composition determined at the convening stage was upheld. The court concluded that the very large majority voting in favour and the commercial benefits of the Scheme satisfied the test that it was one which an intelligent and honest man might reasonably approve.

The court considered potential defects including late circulation of some documents, postponement of the meeting, and the inclusion of third-party releases. The judge waived procedural deficiencies, approved the use of a deed of contribution to make third-party releases necessary and lawful in the circumstances, and rejected the contention that the Scheme lacked sufficient connection with the jurisdiction. Expert evidence established the change of governing law to English law was effective under New York law and that recognition in Brazil was likely. For these reasons the court sanctioned the Scheme.

The Scheme Company, Light SA, applied for an order under Part 26 Companies Act 2006 sanctioning a scheme of arrangement which effects an exchange of two series of notes issued by Light Energia and Light SESA and a release of rights under those Notes. The Scheme is part of a wider Brazilian judicial restructuring (the RJ) and follows a change of the indenture governing law from New York law to English law effected to facilitate the Scheme.

• Nature of the application: sanction of a scheme of arrangement under Part 26 CA 2006 to implement an exchange of notes, a pass-down of proceeds of an equity raise, and release of claims against the Note Issuers and professional advisors.
• Parties and procedure: the Scheme Company is the guarantor of stapled notes due 2026 ($200m Light Energia, $400m Light SESA). Richards J made a convening order on 29 July 2024 ([2024] EWHC 2097 (Ch)). The Scheme meeting was held on 17 October 2024 and was approved by 99.44% by value of those voting (96.38% of all Scheme Creditors). The change of governing law was supported by expert evidence from Mr Daniel Glosband and recognition evidence in Brazil was provided by Mr Antonio Reinaldo Rabelo Filho.
• Issues framed by the court: (i) compliance with the statutory and convening order requirements (including section 897 and the timing of disclosure), (ii) class composition and fair representation, (iii) whether the Scheme met the ‘‘reasonable man’’ test, (iv) whether there was any blot on the Scheme (principally the lawfulness and necessity of third-party releases), and (v) jurisdictional connection and international effectiveness, especially in Brazil and the United States.
• Court’s reasoning and conclusions: the judge waived defects in the timing and form of certain circulations because the changes were not materially adverse and sufficient explanation was provided. The postponements of the meeting were held to be either within the convening order or properly waivable. The single class determined at the convening stage remained appropriate. The overwhelming creditor support and the commercial benefits (including the option for creditors to elect New York law instruments and the avoidance of continued litigation risk) satisfied the sanction test that an intelligent and honest man might reasonably approve. On third-party releases the court accepted that a deed of contribution between the Scheme Company and the Note Issuers made releases necessary to achieve the Scheme’s purpose and that such devices are established practice. The change of governing law was accepted as effective under New York law and evidence was sufficient to show a real prospect of effectiveness in Brazil; the risk of non-recognition in the United States was noted but did not prevent sanction. Overall the court concluded the Scheme should be sanctioned.

The court sanctioned the scheme of arrangement. The judge concluded statutory requirements under Part 26 (including section 897 and section 899(1)) had been met or relevant deficiencies could be waived; the single class composition was appropriate; the Scheme met the ‘‘reasonable man’’ test; the third-party release mechanism (supported by a deed of contribution) was necessary and not a blot; and there was a sufficient connection with England and credible evidence of international effectiveness, in particular in Brazil.

Convening order and convening judgment by Richards J on 29 July 2024; convening judgment reported at [2024] EWHC 2097 (Ch). The present hearing was the sanction hearing before Trower J on 28 October 2024.