Corporate insolvency – schemes of arrangement – jurisdiction – contingent creditors
The largest bank in Ukraine – with a market share of around 34% of retail deposits – applied to the High Court to sanction a scheme of arrangement in respect of two series of subordinated loan notes. The agreements and trust deeds connected with the notes were expressed to be governed by English law with jurisdiction being given to the English courts or an English law arbitration in London. Under the proposed scheme, the notes would be discharged, released and cancelled and the noteholders issued new notes by an English SPV.
The structure of the notes was complex and the noteholders were not direct creditors of the bank. The bank executed a deed poll by which it agreed that if it failed to make any payments pursuant to the terms of the notes, it would be liable directly to the noteholders as if it were the original debtor.
In the event, at the hearing of an application to convene the meeting of creditors, Asplin J was content that the deed poll and provisions in the terms of the notes themselves that allowed the noteholders to proceed against the bank in specific circumstances were sufficient to constitute the noteholders contingent creditors of the bank. Asplin J was also content that she had jurisdiction on the basis that the Bank was capable of being wound up in England and Wales as an unregistered company under section 221 of the Insolvency Act 1986.
Considering afresh whether there was a sufficient connection with England to approve the scheme, David Richards J regarded as critical the fact that the notes were governed by English law and that variations to the rights of parties to the notes made in accordance with English law would be recognised as valid by most countries, including (on expert evidence) Ukraine. He also agreed with Asplin J that given 12% of the noteholders by value were domiciled in the UK, the English courts could assume jurisdiction under Article 8 of the Brussels I Regulation (recast).
A further issue concerned an offer made by the bank to noteholders to pay 2% of the outstanding principal on each note held in consideration for binding themselves to vote in favour of the scheme. This was found not to constitute the scheme unfair to those creditors who did not take up the offer.
Along with some useful remarks on the approach to contingent creditors in relation to schemes, this judgment indicates that when an English court is asked to approve a scheme of arrangement in relation to a foreign company, a choice of English law as that governing the relationship with the company’s creditors points to jurisdiction being assumed.
