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Is one English creditor enough for English court to sanction scheme of arrangement for a foreign company?

 

30 September 2015

The English court has jurisdiction under Regulation (EU) 1215/2015 (the Recast Regulation) to sanction a scheme of arrangement for a foreign company under the Companies Act 2006 (the CA).  In Van Gansewinkel Groep BV & ors [2015] EWHC 2151 (Ch), 22 July 2015, it was held that the domicile of just one creditor in England and Wales may be enough to meet the "sufficient connection" with the jurisdiction test, for the purposes of sanctioning a scheme of arrangement. The scheme of arrangement regime is not available in many countries, making England an appealing place to seek such a scheme.

The court considered whether Regulation (EC) 1346/2000 (the Insolvency Regulation) or the Recast Regulation restricted the English courts' jurisdiction to approve a scheme of arrangement for a foreign company. For the Insolvency Regulation, the court held it did not impose any such limitation.

Previous position: 50% of creditors domiciled in England

Under the predecessor to the Recast Regulation (Council Regulation (EC) 44/2001), the English court had determined that it jurisdiction to sanction a scheme of arrangement for a company that did not have its centre of main interest (COMI) in England, or any establishment or significant assets in England, as long as: (i) there was exclusive English jurisdiction conferred by the dispute resolution provisions of the finance documents affected by the proposed scheme; and (ii) at least 50% of the creditors under those finance documents were domiciled in England.1 In Van Gansewinkel the question was whether the English court had jurisdiction to sanction such a scheme under the Recast Regulation.

Van Gansewinkel Group scheme

The Van Gansewinkel Group (the Group) consisted of waste disposal companies incorporated, and carrying on their business, in Belgium and the Netherlands. Under the terms of the Group financing arrangements, each Group company had agreed to the exclusive jurisdiction of the English courts for any disputes relating to the financing.

The Group suffered financial difficulties and, following restructuring negotiations, proposed to re-organise by way of scheme of arrangement under English law. The proposal was approved by the requisite number of creditors and the English court's sanction of the scheme was sought. The Group submitted that the scheme was necessary to avoid liquidations in Belgium and the Netherlands, as there was no equivalent procedure available under the laws of those Member States. Could the English court sanction the scheme?

Can the English court sanction a scheme for a foreign company? 

Applying Re Rodenstock, the court found the creditors affected by the scheme could be regarded as "defendants" for the purpose of Article 8(1) of the Recast Regulation.2 The court held that, on the assumption that the Recast Regulation applies, Article 8(1) would potentially be engaged, provided that: (i) at least one creditor is domiciled in England and Wales; and (ii) it is expedient to hear the "claims" against all the other scheme creditors together with the "claim" against that creditor.

As the number of creditors affected by the scheme domiciled in England was deemed "not insignificant", the court held that the second limb of the test was also satisfied and therefore it was entitled to regard all creditors as falling under the jurisdiction of the English court under Article 8(1), for the purposes of exercising scheme jurisdiction.

The court rejected an alternative argument concerning the exclusive jurisdiction agreements in the financing agreements. Although the borrower had submitted to exclusive jurisdiction, the creditors affected by the scheme had not. Therefore, without more, such a clause would not provide a sufficient connection with the jurisdiction of England and Wales.

Comment: Snowden J's decision has clarified several points in relation to schemes of arrangement in the context of the Recast Regulation: 

  1. There is now English authority for the proposition that the Recast Regulation does apply to schemes of arrangement of non-UK domiciled companies before English courts (ie it is not covered by the insolvency exclusion).
  2. A single UK domiciled scheme creditor may be sufficient to confer jurisdiction on the English courts under Article 8(1) of the Recast Regulation, if the creditor's holding is "not insignificant", though the court did not address whether there was a percentage threshold to meet this requirement. The test put forward in Re Rodenstock requiring 50% of the creditors to have a domicile in the jurisdiction was not followed in Van Gansewinkel, and so it remains to be seen how the court will apply its jurisdiction in future cases.

An exclusive jurisdiction clause in a financing agreement in its usual form (ie with only the borrower(s) submitting to jurisdiction) will not, without more, be sufficient to bring a proposed scheme within the jurisdiction of the English court for the purpose of a scheme of arrangement, as it does not bind the creditors to the jurisdiction. However, such a clause may be indicative of, and help to prove, a "sufficient connection" with the jurisdiction.

Footnotes:

1. Re Rodenstock GmbH [2011] EWHC 1104 (Ch).

2. Article 8(1) (Article 6(1) of the old Brussels Regulation) provides that a person domiciled in a Member State may also be sued where he is one of a number of defendants "in the courts for the place where any one of theme is domiciled provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings". Article 8(1) (Article 6(1) of the old Brussels Regulation) provides that a person domiciled in a Member State may also be sued where he is one of a number of defendants "in the courts for the place where any one of theme is domiciled provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings". 

 

 

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