HSE Finance SÀRL, Re

At the convening stage of a scheme under Companies Act 2006 Part 26, the court does not decide the scheme’s merits or fairness. It considers notice, jurisdictional or other potentially insuperable obstacles, the constitution and conduct of creditor meetings, and the adequacy of the explanatory material.

Class composition requires a two-stage inquiry. The court must identify differences in existing and scheme rights, assessed against the appropriate comparator, and then ask whether those differences make it impossible for creditors to consult together in their common interest. The decisive question is whether there is more to unite than divide them. Beneficial noteholders may be treated as contingent creditors, and collateral arrangements must be considered where they may affect class composition.

HSE Finance S.à r.l., a Luxembourg holding company, applied under Part 8 for an order convening a single meeting of beneficial holders of two series of English-law governed notes. The proposed scheme formed part of a wider restructuring and would compromise approximately €630 million of note debt in exchange for new notes and contingent value rights. The application was opposed by no creditor.

The central issues were whether the court should convene one meeting, whether the two note series had sufficiently similar rights, whether beneficial noteholders were the appropriate scheme creditors, and whether excluded facilities, lock-up arrangements, adviser fees or other collateral arrangements created class-fracturing concerns.

1. Order made. The court acceded to the application and directed a single meeting of the relevant scheme creditors. The convening-stage jurisdiction is limited. The court must consider notice, potentially insuperable objections to jurisdiction, the proposed meeting constitution and procedure, and whether the explanatory statement and related documents appear to be in proper form. It must not determine the merits or fairness of the scheme, which are matters for the sanction hearing if the statutory majority approves it (paras [73]-[76]).
2. Jurisdiction and notice. Twenty-one days’ notice was adequate in the circumstances, having regard to the sophistication of the noteholders and prior updates. Prima facie, the applicant was a company within section 859(2)(b) of the Companies Act 2006, the proposal was a compromise or arrangement with creditors, and the expert evidence established sufficient jurisdictional connection, recognition prospects and prospect that the scheme would take effect (paras [77]-[84]).
3. Class composition. The inquiry has two stages. First, the court identifies differences in the creditors’ existing rights and the rights conferred by the scheme. Secondly, it asks whether those differences make it impossible for the creditors to consult together in their common interest. The proper comparator is what would happen if the scheme failed. It may be central, and sometimes determinative, because it identifies the relevant non-scheme rights and permits a fair assessment of the practical effect of the scheme (paras [85]-[91]).
4. The fixed-rate and floating-rate noteholders had different coupons and payment dates. Nevertheless, the scheme conferred identical rights, the proposed comparator involved a prompt sale or insolvency, principal and interest would broadly be treated alike, and the possible difference in interest recovery was immaterial. There was therefore more to unite than divide the two groups, so one meeting was appropriate (paras [96]-[107]).
5. Beneficial noteholders were properly treated as contingent creditors because the indenture conferred direct rights against the issuer. The trustee and common depository were also creditors, but agreed not to vote to avoid double-counting (paras [92]-[94]). Entry into the lock-up agreement and payment of adviser fees did not fracture the class. Excluding the largely undrawn revolving facility and other business-critical arrangements was supported by sufficient commercial reasons (paras [108]-[115]).
6. The court must examine collateral arrangements as well as the scheme itself. Any further fracturing concern arising from the wider restructuring could be revisited at sanction (paras [116]-[118]). The release of guarantor obligations was permissible because it was necessary to give legal and commercial effect to the compromise and avoid ricochet claims (para [65]).