Mr Justice Hildyard :
- Nine bodies corporate (each a "Scheme Company" and together "the Scheme Companies") in a group called the Apcoa Group, a leading pan European car park operator with (as at the end of July 2014) some 5,000 employees, have applied to this court for the purposes of obtaining its sanction to schemes of arrangement to effect a restructuring which is considered essential to enable the Apcoa Group to avoid formal insolvencies and their associated value destruction for all creditors.
- The applications are in the case of each Scheme Company made by a Claim Form issued on 18 September 2014 pursuant to CPR Part 49 and seeking (1) orders convening meetings of certain of its creditors for the purpose of considering and, if thought fit, approving a scheme of arrangement under Part 26 of the Companies Act 2006 ("Part 26") and, if so approved, (2) the Court's sanction of such scheme (together "the Schemes") and further requisite directions.
- The Schemes are inter-conditional: if one fails they all fail. Their sanction has throughout been presented as a matter of great urgency. The repayment date of the facilities sought to be reconstructed was 25 October 2014, and although a short extension was agreed when it became clear that the matter could not be concluded, it cannot be extended for long. Further, on 25 November 2014, the offer of new facilities on which the Apcoa Group reconstruction depends expires.
- At each stage of the court process the Schemes have been opposed by an assignee of a creditor of the Scheme Companies under a facilities agreement originally dated 23 April 2007 and entered into by the Apcoa Group's holding company, Apcoa Parking Holdings GmbH ("APHG"), Mizuho Bank, Ltd and Royal Bank of Canada as mandated lead arrangers, Mizuho Bank, Ltd as agent ("the Existing SFA Agent") issuing bank and security trustee ("the Security Trustee") and the lenders named therein ("the Existing SFA Lenders" as amended and/or restated from time to time ("the Existing SFA")). The opposing creditor by assignment is FMS Wertmanagement Anstalt öffentlichen Rechts ("FMS").
- On 29 September 2014, after a contested hearing in the long vacation which lasted nearly three days, I made orders convening meetings of creditors in each case as proposed by the relevant Scheme Company. I gave a short ex tempore ruling. I indicated that I would amplify my reasons in a reserved judgment.
- The class meetings convened and held pursuant to my order duly took place on 13 October 2014 and approved the Schemes by the requisite majorities.
- The matters came back before the court on 20 October 2014 for the purpose of obtaining the court's sanction for each Scheme. That contested hearing spanned four days, and included a day of cross-examination of two expert witnesses on German law for reasons I shall later explain.
- By reference to commercial exigencies of which I was assured (but which were not explained) I was pressed to provide a determination on or before 29 October 2014, on the basis that if necessary my full reasons would be provided in a reserved judgment later. Accordingly, on 29 October 2014 I gave my determination. I declined to approve the Schemes in their then form, because of two features I considered beyond my jurisdiction to approve, and which in any event (if I was wrong about the extent of the court's jurisdiction) I was not content to approve in the exercise of my discretion. However, I indicated that but for those two features I would sanction the Schemes.
- On 30 October 2014, after amendments had been made to the proposed Schemes to address the two matters that had caused me to decline my sanction, I sanctioned all the Schemes. I indicated that I would provide my reasoned judgment explaining my decisions at each stage of the court process. In view of the continuing urgency the parties politely and understandably asked me to deliver it as soon as possible. This is my reasoned composite judgment.
- Although I should acknowledge regret in my own case that pressures of time have probably led to an excessively long judgment, it will also be apparent from the length of the hearings (as well as the number of files, including four of authorities) that these Schemes raise issues of complexity and importance, and some novelty. There are issues raised which seem to me to go both to the root of the jurisdiction and its availability and exercise in a cross-border context.
- It is unusual also that a scheme should be contested at every stage; and the adversarial process inevitably shines light on issues that in unopposed matters may not have been so sharply exposed. In refusing permission to appeal I do not wish to be understood to underestimate the importance of the points: I considered as a pragmatic matter that in the urgent circumstances the future conduct of the matter should be left to the Court of Appeal to determine.
- Although I refused permission to appeal largely for pragmatic reasons (which I sought to explain in a separate ruling), I required the parties to develop mechanisms to ensure that any appeal would not be rendered nugatory, and that my decision to sanction, if found to be in error, could fully be reversed. I much appreciated their cooperation in this.
- The persons interested and represented in court were as follows.
- The nine Scheme Companies who have sought to restructure their indebtedness under the Schemes and pursuant to Part 26 are:
(1) APHG and
(2) Apcoa Parking Deutschland GmbH ("APD"), both incorporated in Germany;
(3) Apcoa Parking Austria GmbH, which is incorporated in Austria;
(4) Apcoa Parking Belgium N.V, which is incorporated in Belgium;
(5) Apcoa Parking Holding Danmark ApS, which is incorporated in Denmark;
(6) Apcoa Parking Holdings (UK) Limited and
(7) Apcoa Parking (UK) Limited ("APL"), both companies incorporated in England and Wales;
(8) EuroPark Holdings AS and
(9) EuroPark Scandanavia AS, both of which are incorporated in Norway.
- The Scheme Companies have been represented throughout the court process by Mr William Trower QC and Mr Adam Goodison, instructed by Clifford Chance.
- As well as FMS, another body corporate appeared at both stages of the court process, namely Centerbridge Partners ("Centerbridge"), which is the largest creditor of the Apcoa Group. Centerbridge appeared at the first stage of the court process by Mr David Allison QC, and at the second stage by Mr Jeremy Goldring QC, instructed by Kirkland & Ellis International LLP.
- In contrast to FMS, Centerbridge has throughout been highly supportive of the Schemes. Indeed, FMS contends that Centerbridge is the real mastermind and driving force of the Schemes, and that it has contrived them and their urgency in pursuit of its own commercial objectives as a specialist in distressed debt investment with a "loan to own" strategy or model of buying distressed loans at a significant discount and then seeking to swap the debt for equity in a restructuring which enables a profit to be made on the exit from its equity investment. FMS depicts the reconstruction in this case as exemplifying that model.
- FMS itself is a German company which was established in 2010 by the German Federal Government to wind-up the affairs of the nationalised Hypo Real Estate Holding AG ("the HRE Group"). It operates under the supervision and control of an agency of the German Government. In its skeleton argument for the sanction hearing, its role and objectives were described as follows:
"FMS has the task of determining the most appropriate wind-down strategy in each individual case, as part of its activities to stabilise the German financial markets. It has a statutory duty to seek the best possible outcome for the German tax payer and to unwind the portfolio of assets which have been transferred to it in accordance with sound business principles and to achieve the best possible realisations from those assets as the individual circumstances of each case dictate. It is not within FMS's mandate to finance or invest in new growth opportunities."
- FMS was represented throughout by Mr Richard Snowden QC and Mr Daniel Bayfield, with Mr Adam Al-Attar at the second stage of the process, instructed by Jones Day.
- FMS has been supported in its opposition to the Schemes by another Scheme Creditor, Litespeed Master Fund Limited ("Litespeed"). Litespeed did not appear at any stage; but it set out its position in a letter to the court dated 19 September 2014 which was written on its behalf by its manager, Litespeed Management LLC, based in New York. That letter is exhibited to evidence filed on behalf of FMS. In essence, Litespeed adopted the reasoning of FMS for opposing the Schemes.
The broader contest
- As will be inferred and is later explained, FMS and Litespeed have an interest in common which is not shared by any of the other Scheme Creditors. It is the protection and vindication of this different interest which FMS (and Litespeed) contends required a separate class meeting (comprised only of those two).
- The Scheme Companies and Centerbridge, on the other hand, contend that FMS and Litespeed are only deploying that interest to justify a fragmentation of classes that would destroy both the Schemes and the reconstruction and to gain leverage to obtain what they really want. This is that the whole or a major part of the debt should not be hived up from the operating companies. Thus, whilst FMS depicts Centerbridge as a "loan to own" vulture, Centerbridge depicts FMS as a "hold-out creditor". In that context I was provided with an extract of FMS's publicity on the internet, which in explaining its activities and objectives states as follows:
"The experts from FMS…are always on the lookout for opportunities to accelerate the unwinding of the portfolio. In restructuring work in particular they implement strategies in ongoing negotiations that improve FMS's position, examples include early repayment, an improved margin, higher collateral or a less complex financing structure…
…FMS has particular leverage in cases when a borrower is under pressure, either because there is a threat of insolvency or because a refinancing is imminent and at risk. The portfolio managers identify such exposures at the earliest possible juncture, before approaching the borrower and informing the latter that FMS is a public winding-up institution and – unlike a bank in a financing syndicate – neither engages in new business nor is interested in extending the loan. In a number of cases, this has allowed FMS to withdraw from syndicates, resulting in the discharge of the outstanding loan. FMS's portfolio managers approve loan extensions only in exceptional cases, only for limited periods of time and only providing these substantially improve the winding-up institution's risk exposure…"
- These traits and tactics appear to be reflected in FMS's stance in relation to the refinancing and restructuring of the Apcoa Group. In this case, as is now often the case, the difficulty is in discerning between legitimate interests and opportunistic leverage strategies.
- Thus, those objecting to the Schemes present Centerbridge as a specialist in distressed debt pursuing a well-honed and self-interested "loan to own" strategy; whereas Centerbridge (and the Scheme Companies, who fear being shot dead in the cross-fire) depict FMS as a "hold-out" creditor wishing to exploit for its own advantage its leverage in a position where the borrowers are under pressure to extract improvements. The struggle in substance and name-calling is not unfamiliar.
- What is clear is the jockeying for position, and that neither of the contestants is probably interested in long-term investment. I mention this as background, and to set the scene; but it is also relevant, to my mind, in reminding the court that (as I elaborate later) it must test class issues by reference to legal rights and legitimate interests, and what objectively should inform the discussions between persons with different interests acting reasonably.
The facilities and indebtedness sought to be restructured
- The existing facilities comprise the following:
(1) The Existing SFA, pursuant to which the Scheme Companies are borrowers and guarantors of the liability, with the following priority rights:-
a) First in priority are lenders together referred to as "the Existing Priority Senior Lenders", namely:-
i) lenders pursuant to a tranche A facility and a revolving credit facility ("the Non Guarantee Senior Facilities" and such lenders are referred to as "the Non Guarantee Lenders"); and
ii) lenders pursuant to a bank guarantee facility ("the Bank Guarantee Facility", and such lenders are referred to as "the Bank Guarantee Facility Lenders");
b) Second in priority are lenders pursuant to a subordinated term loan facility ("the Second Lien Facility" and such lenders are referred to as "the Second Lien Lenders").
(2) Facilities under a Super Senior Facility Agreement made on 29 November 2013 ("the Existing SSFA"), which provided emergency lending to allow for the restructuring negotiations to continue by tiding the Apcoa Group over cash flow difficulties. The SSFA lenders ("the Existing SSFA Lenders") granted the facility to APD as borrower, with APHG and Apcoa Parking Aktiengesellschaft as guarantors. Although the Existing SSFA is unsecured as against the Apcoa Group companies, various of the creditors under the Existing SFA who were also lenders under the Existing SSFA made turnover arrangements to agree to turnover any proceeds received under the Existing SFA to the Existing SSFA Lenders on the terms as set out in a Turnover Agreement dated 29 November 2013 ("the Turnover Agreement").
(3) The Turnover Agreement was amended on 25 March 2014, when clause 4.1 was deleted. The Turnover Agreement was then terminated on 26 August 2014. A further Turnover Agreement ("the new Turnover Agreement") was then entered into by certain of the Scheme Creditors; but none of the Scheme Companies is or is intended to become a party to it
- The Security Trustee holds security over certain assets of the Apcoa Group for and on behalf of the Priority Senior Lenders and the Second Lien Lenders. Pursuant to clause 15 of the German law governed Intercreditor Agreement ("the Existing ICA"), dated 23 April 2007 (as amended and restated on 21 May 2008), the sums owed under the Second Lien Facility rank behind the sums owed under the Priority Senior Facilities.
- In outline summary, the restructuring proposes that the Existing Priority Senior Lenders will be repaid or prepaid the amounts outstanding to them under the Existing SFA (i.e. €660m) by:-
(1) the issue of €275m of new debt to be owed by APHG and its subsidiaries (i.e. at the operating group level ("Opco Level")); this is the amount of debt that is considered sustainable and serviceable at the Opco Level;
(2) the grant of a new €50m bank guarantee facility at Opco Level; this will be used to repay the principal facilities under the Bank Guarantee Facility;
(3) the issue of new debt in repayment of the remaining amounts outstanding under the Existing SFA to the Existing Priority Senior Lenders (being the remaining principal under the Non Guarantee Facility and interest and fees under the Bank Guarantee Facility), such new debt to be owed by Luxco 2 under the Holdco Facilities Agreement. These hived up amounts, repaid and re-granted are therefore not on the Opco Level balance sheets, thus allowing for the de-leveraging.
(4) The Second Lien Lenders will transfer their claims to the Senior Allocation Lenders (who are Existing Priority Senior Lenders to the extent of some but not all of their claims) in return for a cash sum of about 7.5% of their commitments or the right to be issued warrants in Luxco 3. Once transferred, the Second Lien debt will be hived up to Luxco 2.
(5) The liabilities under the Existing SSFA, being the new-money facility that was made available after the restructuring negotiations had commenced in November 2013 in order to avoid formal insolvencies, will be repaid out of new monies to be advanced by Deutsche Bank.
(6) Approval of the remaining parts of the restructuring will enable some €82m to be injected by way of a new facility from Deutsche Bank, to introduce new working capital (in addition to the €34m to effect the repayment of the Existing SSFA). The directors of each of the Scheme Companies consider that this injection of new money is crucial to the ongoing stabilisation and growth of the Apcoa Group and to assist in resolving the difficulties the Apcoa Group presently has in bidding for new or renewed contracts.
- The restructuring proposals also include:-
(1) By way of the Schemes, a proposal to extend the 25 October 2014 Maturity Date to the earlier of the date when the proposed repayments (as referred to above) have taken place, or 31 December 2014, so as to deal with the imminent maturity date and to allow the various transactions proposed by the proposed Schemes to take place without any trigger of the imminent maturity date.
(2) Re-allocation of each Senior Allocation Lender's total claims, so as to pool and re-allocate claims and thereby treat the Lenders fairly and give them equal claims to reflect the principal and guarantee claims held at present.
(3) Transfers of the shares in APHG from the current shareholders to Luxco 2, which then becomes the new holding company of APHG and its subsidiaries for the ultimate benefit of the electing Lenders of the Senior Allocation Lenders.
(4) The New SFA as referred to in the Practice Statement Letter (paragraph 24 (m)), and a new inter-creditor agreement ("the New ICA") to be governed by English law, such that the Existing ICA, governed by German law, shall no longer be operative and the security shall be released. The New SFA shall provide for the new facilities as set out in the Practice Statement Letter (paragraph 24 (m)) with the New ICA providing for the priorities as set out in the Practice Statement Letter (paragraph 24 (n)).
- The "Implementation Documents", which include a "Restructuring Deed" are authorised to be executed by clauses 7 and 8 of the proposed Schemes. Clause 6 of the Restructuring Deed then effects the various restructuring steps to achieve the overall restructuring.
- It is the perception and avowed intention of the Scheme Companies that the restructuring proposals will have clear benefits for both the Scheme Companies and their Scheme Creditors. They will allow stabilisation of the business and, through a de-leveraging of debt, will enable the Scheme Companies to grow sales and improve EBITDA for the benefit of Scheme Creditors.
Commercial pressures and timing of the Schemes
- As mentioned above, the immediate time pressures are (a) the maturity date for the existing facilities of 25 October 2014, which has been extended but only for a short time and (b) the fact that the offer of new facilities on which the Scheme Companies' future depends expires on 25 November 2014.
- Subject to paragraph  below, I think I can gratefully adopt for these purposes the description of the immediate background and context of the Schemes set out in the Scheme Companies' skeleton argument for the second stage of the proceedings (the "Sanctions Stage") and the circumstances in which the Schemes are considered necessary are as follows:
(1) The Scheme Companies' outstanding liabilities under the Existing SFA and the Existing SSFA total some €764m.
(2) The Existing SFA governs the facilities that were made available to the Scheme Companies before the commencement of the restructuring negotiations which have culminated in this application.
(3) The total debt outstanding under the Existing SFA is some €730m, comprising some €660m owed to the Existing Priority Senior Lenders and some €68m owed to the Second Lien Lenders. Of the some €660m owed to the Existing Priority Senior Lenders, some €598m is owed under tranche A and the revolving credit facility to the Non Guarantee Lenders, some €48m is owed under a €50m bank guarantee facility to the Bank Guarantee Facility Lenders and some €15m is owed as interest and PIK interest.
(4) It has been obvious since September 2013 that a restructuring of the liabilities under the Existing SFA was necessary and would have to be pursued to resolve the over-leveraged position of the Scheme Companies.
(5) The Existing SSFA governs the facility that was made available to APD after the restructuring negotiations had commenced in November 2013, and was advanced by the Existing SSFA Lenders so as to avoid formal insolvencies. This is the facility to which the turnover arrangements apply.
(6) The total debt outstanding under the Existing SSFA is some €34m.
(7) The outstanding liabilities under the Existing SFA and the Existing SSFA are repayable on 25 October 2014 and the Scheme Companies cannot repay them.
(8) The presently proposed restructuring is the result of almost a year of difficult and at times fractious negotiations between a large constituency of creditors.
(9) The Directors of the Scheme Companies have concluded that if this restructuring cannot proceed then the alternative is to recognise the clear fact that the Scheme Companies are insolvent and put them into local processes, with the value destruction and loss of jobs that will result. The evidence of Mr Neil Jonathan Robson ("Mr Robson"), APHG's appointed Chief Restructuring Officer, is:
"The directors of the Scheme Companies face real dangers (especially in Germany) and in my view the directors would have little option but to file for insolvency if this restructuring does not proceed."
(10) Insolvencies would be extremely damaging in value terms for creditors, as it is estimated that on a formal insolvency (depending on the scenario which unfolded) realisation values would be between some €78m and some €170.2m.
- To this description I should add these reservations to capture the position of FMS. FMS considers and contends that (a) the imminence of insolvency is less immediate than the Scheme Companies have suggested; (b) the immediate threat of insolvency is being wielded in order to present the court with the starkest possible choice and the need to make it as matter of extreme urgency; that in truth (c) Centerbridge has driven the structure of the Schemes and contrived their presentation as the only realistic option, whereas in truth (d) there is no reason why the repayment date should not be extended to facilitate negotiation of fairer Schemes and their adjudication in less frantic circumstances.
- Inevitably (given the opposing arguments) the protagonists have provided somewhat different accounts of the background to the Schemes and their immediate context. I take the following summary from FMS's skeleton argument for the first hearing with the immediate caveat that I am not to be taken as agreeing with the descriptions of the motivation and objectives of the Scheme Companies and Centerbridge; it is simply a reasonably practical way, in urgent circumstances, of describing the perception of the battleground which has given rise to the objections with which I have been concerned:
(1) Over the past 12 months or so, the Companies debt has been heavily traded (at below par). In or about September 2013, Centerbridge increased its holding of the Priority Senior Liabilities from approximately 20% to over 50%.
(2) On behalf of FMS, the evidence of one of its directors, Mr Daniel Sander ("Mr Sander") is that it was evident to FMS, even at that stage, that Centerbridge was pursuing a "loan to own" strategy, seeking to put itself into a position where it could start dictating proceedings with a view to obtaining an equity position in a restructured Group which it could then realise at a substantial profit.
(3) An ad-hoc group of Lenders (including FMS) was formed in response to this and other developments. The ad-hoc Group held a (substantial) blocking minority of approximately 35% of the Total Commitments under the Existing SFA.
(4) It is FMS's case that at that time the commercial bank Lenders believed that a simple extension of the maturity date of the Facilities would have been sufficient to ease any immediate liquidity concerns and to give the Scheme Companies a stable platform to propose a consensual restructuring with the Lenders.
(5) However, all proposals made by the commercial banks in this regard were rejected by Centerbridge. Mr Sander considers that Centerbridge's rejection of the proposals was motivated by its desire to acquire an equity position which has the potential to deliver higher returns for its investors than long term debt.
(6) On 15 November 2013, at the instigation of Centerbridge, APHG invited its Lenders to provide, on a super-priority basis, new funding under one or more new term loan facilities. FMS understood that Centerbridge was to provide the majority of the new money, although all of the Lenders were invited to contribute their pro rata share.
(7) The new term loan facilities could only be introduced with the support of all of the Lenders, because it would have required amendments to be made to the Existing ICA which is governed by German law and requires the unanimous consent of the Lenders to any variations of its terms. FMS and others did not support the proposal.
(8) On 22 November 2013, in response, APHG made another consent request. It was for the introduction of new money facilities coupled with the introduction of a turnover agreement whereby the Lenders under the new money facilities would benefit from each "Consenting Lender" to the turnover agreement being contractually obliged to turn over proceeds received by it under and in connection with the Existing SFA to the Lenders under the new money facilities (until the Lenders under the new money facilities had been repaid in full). It is FMS's case that the turnover agreement concept was designed by Centerbridge to give the Lenders under the new money facilities (principally itself), in substance, super-priority over all of the Consenting Lenders whilst circumventing any requirement to amend the Intercreditor Agreement.
(9) On 29 November 2013, the Existing SSFA and the Turnover Agreement (both drafted by Centerbridge's lawyers, Kirkland & Ellis International LLP) were entered into. Although the Super Senior Facilities were "Super Senior" in name, the Lenders under the Existing SSFA had no security and no priority over the claims of the Lenders under the Existing SFA. Further, at no time have the Lenders under the Existing SSFA had any priority over FMS and Litespeed.
(10) By entering into the Turnover Agreement, however, the Consenting Lenders agreed (in economic effect) to subordinate their right to prepayment or repayment under the Existing SFA, their right to receive proceeds from the enforcement of any Transaction Security and their right to receive any realisations resulting from an insolvency of the Companies in favour of the Lenders under the Super Senior Facilities Agreement until such time as all sums due to the latter under the Super Senior Facilities had been repaid in full.
(11) FMS and any other Priority Senior Lenders that did not sign the Turnover Agreement were entitled to, and did, retain their existing rights of prepayment and repayment under the Existing SFA and their existing rights to receive proceeds from the enforcement of security. Their rights were wholly unaffected by the Turnover Agreement.
(12) Following its acquisition (FMS presumes at a significant discount) of the majority of the Senior Priority Debt and its lending of the majority of the debt under the Super Senior Facilities Agreement, Centerbridge has embarked upon a strategy which is designed to consummate its "loan to own" strategy (by obtaining a majority of the equity in the restructured Group) and also, by use of an English scheme of arrangement, to deprive FMS and Litespeed of the superior (i.e. secured and unsubordinated) rights they had maintained when the Turnover Agreement was entered into.
(13) On 3 March 2014, APHG made a request to the Lenders for a three month extension of the "Termination Date" under the Existing SFA and to amend the governing law and jurisdiction clauses in the Existing SFA from German law and jurisdiction to English law and jurisdiction. The latter request was made with a view to giving the English court jurisdiction over the Schemes of Arrangement to be proposed by the Companies in the event that all Lender consent to the extension request was not achieved.
(14) The requisite support was not obtained for the extension of the maturity date (which required unanimous Lender support) but it was obtained for the amendments to the governing law and jurisdiction clauses (which required the support of only two thirds by value of the Lenders).
(15) On 19 March 2014, FMS received a practice statement letter giving it notice of an "Amend and Extend" scheme of arrangement. That scheme (which was not ultimately opposed, though there were rumblings of discontent from FMS and Litespeed, who abstained at the class meetings) was sanctioned on 14 April 2014. The Facilities were originally due to mature on 25 April 2014 but the termination date was extended: (i) pursuant to the Amend and Extend Scheme, to 25 July 2014; and, further, (ii) pursuant to a "Majority Lender" decision, to 25 October 2014 (an option that was made available pursuant to the "Amend and Extend Scheme").
(16) Following the extension of the maturity date of the Facilities, the terms of a broader restructuring were discussed with the Lenders but they were not acceptable to FMS and Litespeed, because the terms proposed sought to give the Super Senior Debt that had already been advanced, mainly by Centerbridge, on an unsecured basis priority over the secured Senior Priority Debt. From their perspective, the proposals thereby sought in this regard to treat FMS and Litespeed as if they had agreed to subordinate their rights as (secured) Senior Priority Lenders in the same way as the Consenting Lenders had done.
(17) The Consenting Lenders who were already bound by the Turnover Agreement entered into a further "Lock-Up Agreement" which became effective on 15 August 2014. The Lock-Up Agreement requires them to vote in favour of the Schemes. The Lock-Up Agreement was drafted by Centerbridge's lawyers.
(18) FMS and Litespeed are the only Lenders not to have signed up to the Lock-Up Agreement. As a result, as from its effective date of 15 August 2014, the proposed restructuring was supported by:
(a) 92% in value and 88% in number of the Non Guarantee Lenders;
(b) 92.5% in value and 83% in number of the Bank Guarantee Facility Lenders;
(c) 100% of the Second Lien Lenders;
(d) 100% of the Existing SSFA Lenders.
- Returning to the Turnover Agreement (again borrowing from FMS's skeleton arguments and subject to the same caveats as before):
(1) On 25 March 2014, the parties to the Turnover Agreement amended certain of its terms, most notably by deleting clause 4. Clause 4, and the impact of its deletion, is considered in more detail below.
(2) Once the Lock-Up Agreement had become effective and, therefore, once the Scheme Companies and Centerbridge knew that they had the requisite creditor majorities (based on their proposed class composition) to approve the Schemes, on 26 August 2014, the Turnover Agreement was terminated.
(3) The Scheme Companies' evidence contains an admission that both the deletion of clause 4 to, and the termination of, the Turnover Agreement were designed to avoid FMS and Litespeed running an argument that they fall into separate classes from the Consenting Lenders.
(4) Centerbridge then (as FMS would have it) bolstered its position and reinforced the subordinated position of the Consenting Lenders by entering into "alternative turnover arrangements" under the New Turnover Agreement to which none of the Scheme Companies was or is a party.
Instigation of the court process and the first stage
- Part 26 sets out the conditions under which schemes of arrangement comprising some compromise or arrangement between a company and its shareholders or creditors may be promulgated and sanctioned and given effect by order of the court. A scheme may achieve anything that the creditors or shareholders, acting unanimously, could together agree by way of compromise or arrangement of their interests in the relevant capacity (that is, as shareholders, in a shareholders' scheme, and as creditors in a creditors' scheme, such as these schemes are).
- There are three stages to such a scheme:
(1) an application to the court under section 896 for an order that a meeting of the relevant members or creditors be called;
(2) the convening and holding of the meeting of the relevant members or creditors; and
(3) if the scheme is approved by the requisite majority at the relevant meeting(s), the application to the court for its sanction of the scheme under section 899 CA 2006.
Function of court at Convening Hearing
- Before the decision of the Court of Appeal in Re Hawk Insurance Co Ltd  2 BCLC 480, the practice was for the court simply to note the class composition proposed and give directions as to the conduct of those class meeting(s), without itself considering whether the proposed classes would be correctly convened and constituted: see a Practice Note issued by Eve J at  WN 142. However, that practice caused considerable disquiet, especially since it could lead, in the context of what is intended to be "a useful and beneficial jurisdiction" (as Chadwick LJ put it in Re Hawk at )
"to the Court reviewing of its own motion, at the third stage, the utility of the order which it made at the first stage. "
- In re Hawk, therefore, the Court of Appeal called for a change in practice, requiring creditors to be warned that any objections on grounds of class composition should be advanced at the first stage (the Convening Hearing) for the court itself to be able to consider and only if thought fit approve the class meetings proposed.
- That led in turn to a new Practice Statement (Companies: Schemes of Arrangement)  1 WLR 1345). That Practice Statement and the cases (especially In re Hawk) which prompted and then explained it make clear that the court's function at the convening stage of proceedings for the approval and sanction of a scheme of arrangement is to deal with any questions of jurisdiction by then identified and to give appropriate directions for the convening of meetings. I shall call the hearing at which that is decided "the Convening Hearing".
- The principal jurisdiction question at the Convening Hearing is normally the identification of the appropriate classes for the purpose of convening meetings to vote upon the scheme proposals; but other matters going to the jurisdiction of the court may also be raised, and it is obviously optimal that any such matters be adjudicated, if possible, since if the court lacks jurisdiction there is no point in any class meetings at all.
- It is, however, important to emphasise that the function of the court at the Convening Hearing is a limited one; and its decision, even on the question as to the composition of classes is not final, even though the court can be expected not to change its mind, of its own motion, at the third stage on matters it decided at the first stage (since to do so would tend to subvert the purpose of the revised practice).
- All this is admirably summarised by David Richards J in Re Telewest Communications plc (No 1); Re Telewest Finance (Jersey) Ltd (No 1)  EWHC 924;  1 BCLC 752 at paragraph 14, where he said this:
"… it is important to keep in mind the function of the court at this stage. This is an application by the companies for leave to convene meetings to consider the schemes. It is emphatically not a hearing to consider the merits and fairness of the schemes. Those aspects are among the principal matters for decision at the later hearing to sanction the schemes, if they are approved by the statutory majorities of creditors. The matters for consideration at this stage concern the jurisdiction of the court to sanction the scheme if it proceeds. There is no point in the court convening meetings to consider the scheme if it can be seen now that it will lack the jurisdiction to sanction it later. This is principally a matter of the composition of classes. Under s 425 [the predecessor section under the Companies Act 1985], the court will have no jurisdiction to sanction the scheme if the classes have been incorrectly constituted."
- That passage makes clear also that the issue as to the appropriate classes is a fundamental one: the jurisdiction of the court depends and is conditional upon the correct identification and composition of classes, for it is only if approved by the appropriate classes, properly identified, selected and convened, that the majority should be enabled to bind the minority (which is the purpose and effect of a scheme). As explained by Bowen LJ in Sovereign Life Assurance Co v Dodd  2 QB 573 at 582-583 (in relation to the equivalent provisions of the Joint Stock Companies Arrangement Act 1870):
"What is the proper construction of that statute? It makes the majority of the creditors or of a class of creditors bind the minority; it exercises a most formidable compulsion upon dissentient, or would be dissentient, creditors; and it therefore requires to be construed with care, so as not to place in the hands of some of the creditors the means and opportunity of forcing dissentients to do that which it is unreasonable to require them to do, or of making a mere jest of the interests of the minority."
Test for identifying classes
- The test for identifying the appropriate classes has been stated in point of principle in the same way for many years; but its application has been much discussed in the authorities, and has been illuminated by a series of cases over the past few years after some uncertainty in the light of the decision in Re Hellenic & General Trust Ltd  1 WLR 123.
- The principle is, as I say, clear. In Re Hawk Insurance Co Ltd  EWCA Civ 241 Chadwick LJ repeated the classic test formulated by Bowen LJ in Sovereign Life Assurance Co v Dodd  2 QB 573 that a class "must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest" (at ), and also said (at ):
"When applying Bowen LJ's test to the question "are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?" it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements – so that they should have their own separate meetings – but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so; lest by ordering separate meetings the court gives a veto to a minority group. The safeguard against majority oppression, ……. is that the court is not bound by the decision of the meeting. It is important Bowen LJ's test should not be applied in such a way that it becomes an instrument of oppression by a minority."
- It is of particular importance to appreciate that, at least as the principle is now applied, the starting point is to identify the differences in legal rights as against the company, not interests, and then to determine whether, if there are differences in rights, they are such as to make impossible sensible discussion with a view to the common interest of all concerned: Re Telewest Communications Plc (No 1)  1 BCLC 752, .
- That was emphasised in Re UDL Holdings Ltd  1 HKC 172, where Lord Millett (sitting in the Court of Final Appeal for Hong Kong) said in the context ():
"(2) Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings. Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting.
(3) The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings.
(4) The question is whether the rights which are to be released or varied under the scheme or the new rights which the scheme gives in their place are so different that the scheme must be treated as a compromise or arrangement with more than one class."
Distinguishing rights from interests
- The difference between rights and interests both before and after the relevant scheme has sometimes given rise to confusion and difficulty. Indeed, I suspect that the now approved approach of strictly confining class composition issues to questions as to different rights against the company, and thus reserving other matters to discretion rather than jurisdiction, is a relatively modern refinement, even if it is a refinement which has been built and justified by reference to older cases (see below).
- My own sense is that, although the difference (which is plain) between legal rights against the company and personal interests or objectives in the case of particular creditors has always been recognised and emphasised, the importance attached to the difference has somewhat varied over the years. A tendency that developed was to regard Bowen LJ's classic test as to the meaning of the term "class" (see above) as connoting a single ultimate question, that is, whether the class constitution was such that any differences in the rights and the interests of the members of the proposed class were not such as to prevent them consulting together with a view to their common interests. Posed as a single question in that form, the test invites, indeed requires, consideration of interests.
- The modern approach, which the practice established pursuant to re Hawk both reflects and requires, is to break the question into two parts, and ask first whether there is any difference between the creditors in point of strict legal right, and only to proceed to the second question, at the Convening stage, if there is; and if there is, to postulate, by reference to the alternative if the scheme were to fail, whether objectively there would be more to unite than divide the creditors in the proposed class, ignoring for that purpose any personal or extraneous interest or subjective motivation operating in the case of any particular creditor(s).
- It is interesting to compare, for example, the focus in Eve J's Practice Note on "interests" and the focus in the prevailing Practice Statement on "rights against the company" (see paragraph 2). As is also familiar, in Re Hellenic & General Trust Ltd  1 WLR 123, where a scheme of arrangement was used (as often it is) as a means of effecting a take-over, Templeman J's decision that the court had no jurisdiction to sanction the scheme on the stated basis that the interests of one of the parties in a single class were different from the other shareholders may be explicable on this basis. Templeman J consistently referred to the parties' respective "interests" rather than their "rights" as if the former were to be assessed in determining the composition of a class.
Some remaining confusion?
- Be all this as it may, the confusion has largely been dispelled by a frank acknowledgment in later authorities that the language used had been "imprecise" (see, for example, per Lord Millett NPJ sitting in the Hong Kong Court of Final Appeal in Re UDL Holdings Ltd & Ors  1 HKC 172 at 182B) and a reinstatement of orthodoxy which has been established since Re Alabama, New Orleans, Texas and Pacific Junction Railway Co  1 Ch 213. There Bowen LJ made clear that the fact that a member of a class comprised of persons all with the same legal rights had a different interest did not preclude it from being included in and voting in that class, although that separate interest might lead the court to consider that the decision of the class was not in its interests, and on that basis to refuse to sanction the scheme as a matter of discretion. That chimes too, of course, with the inclination of judges to prefer the more flexible tool of discretion and an overall appreciation of fairness tested by reference to the real alternatives rather than the straight-jacket of jurisdiction, especially where rigidity may result in fragmentation of classes to avoid jurisdictional issues, but at the cost of enabling a small group to hold out unfairly against a majority.
- I say "largely been dispelled" because there remain, to my mind, some blurred boundaries, especially as to what meaning is to be given in the context to the term "rights against the company". Thus, for example, and as emphasised by Mr Snowden on behalf of FMS at the Convening Hearing, in the UDL case Lord Millett, when referring to Bowen LJ's analysis in Re Alabama, appeared to equate "interests proceeding from rights" with "rights" (see page 189I). He appears to treat the real distinction as being between such rights or derivative interests on the one hand, and "different and potentially conflicting interests that arise from circumstances unconnected with their interests as members of the class" on the other. Lord Millett also later referred, in seeking to rationalise Templeman J's approach in re Hellenic, to "different treatment" to be received under the scheme as going to the issue of class composition, without expressly confining the difference to a difference in legal rights. Indeed, he appears to have accepted that if the difference was that "rights proposed to be conferred by the scheme" on one set of shareholders "were commercially so dissimilar as to make it impossible for [that set and the other shareholders] to consult together with a view to their common interest", that would give rise to a jurisdictional issue (see page 181).
FMS's objections at the Convening Hearing
- It was by reference to these sorts of issues that at the Convening Hearing in this case, Mr Snowden objected to the class meetings proposed on the grounds that the differences in both the rights or interests proceeding from rights enjoyed by FMS (and Litespeed), and the differences in the commercial effect for them of the proposed Schemes gave rise, required a separate class comprised of FMS and Litespeed to be convened, failing which the court would not have jurisdiction to proceed to sanction the Schemes.
- If this argument were correct, and a separate class comprised of just FMS and Litespeed were to be required, that would, of course, give those two creditors a power of veto over a scheme which the Directors of the Scheme Companies consider to be a necessity if they are to avoid insolvency throughout the Apcoa Group.
The arguments and my decision at the Convening Hearing
- The proposed class constitutions for meetings were as follows:
A meeting of the Non Guarantee Lenders;
A meeting of the Bank Guarantee Facility Lenders;
A meeting of the Second Lien Lenders;
A meeting of the Existing SSFA Lenders.
- As regards these proposed classes, the Scheme Companies informed me that pursuant to a Lock-Up Agreement dated 29 July 2014 (which became effective on 15 August 2014) ("the Lock-Up Agreement") the present proposed restructuring proposals were already supported by:
92% in value and 88% in number of the Non Guarantee Lenders;
92.5% in value and 83% in number of the Bank Guarantee Facility Lenders;
100% of the Second Lien Lenders;
100% of the Existing SSFA Lenders.
- The Directors of the Scheme Companies reiterated to me with emphasis that (a) the Schemes are a critical part of the following restructuring, which will allow for a de-leveraging of the balance sheets of the Scheme Companies so as to allow for continued trading for the benefit of all creditors, and that (b) unless permitted to proceed they would have no alternative than to apply in Germany for the appropriate insolvency process.
- FMS contended that this was illusory, that if the Schemes did not proceed, some other solution more acceptable to it and to Litespeed would be found and implemented, and that the court should not succumb to this sort of pressure. In any event, it could and should not do so, since the issue of class composition went to its jurisdiction.
- At its conclusion on 29 September 2014, I gave my decision that the class meetings proposed by the Scheme Companies should be convened (on relatively short notice, for 13 October 2014, given that substantially all the creditors (though not of course FMS and Litespeed) were already bound by a Lock-Up Agreement) and the only known likely objectors were already before me and in effect already had had notice. As is usual, I gave further directions as to the conduct of those meetings.
- I should also mention that at the Convening Hearing, Mr Snowden also sought to persuade me that (a) so clear was both the factual context and the legal reality of unfairness that, even if not persuaded that FMS and Litespeed should form separate classes, I should also decide that the Schemes had no prospect of success at the third stage; and (b) that furthermore both (i) the cross-border aspects and (ii) the feature of the Schemes imposing a "new obligation" on creditors (as I explain more fully below) plainly indicated that the court would lack jurisdiction quite apart from the class composition issues.
- Mr Trower for the Scheme Companies and Mr Allison for Centerbridge urged me not to deal with either point at the Convening Hearing on the grounds that as to (a) the question of overall fairness was not properly part of the Convening Hearing and as to (b) the issue was of complexity and required more sustained analysis.
- It seemed to me that Mr Trower and Mr Allison were plainly right about (a), since it went to issues of discretion; but that (b), being an issue of jurisdiction, was less justifiably deferred.
- However, in the end, and largely for pragmatic reasons, I "parked" all issues other than the determination and convening of class meetings for them to be dealt with more comprehensively at the third stage hearing, "the Sanctions Hearing". Even the issues going to jurisdiction, such as the New Obligation issue, were inevitably going to raise issues of discretion. Further, I thought it best to seek to ensure that if there was to be an appeal it would be a single composite appeal. It seemed to me that any other course would be potentially (and possibly disastrously) inimical to the tight commercial timetable.
Further elaboration of reasons for approving class composition
- Having already set out the genesis of the test of "class" and given a brief statement of my reasons previously, I add the following partly in deference to the excellence of the submissions that were put before me, to which (I am acutely aware) my short statement of reasons did not do justice. I hope the following will suffice.
- The principal points advanced by Mr Snowden on behalf of FMS in relation to the issue of class composition were as follows:
(1) The original Turnover Agreement had created differences of legal rights against the relevant Scheme Companies who were party to that agreement: more particularly, FMS and Litespeed had retained rights of priority that those who had signed the Turnover Agreement had agreed to relinquish.
(2) The subsequent termination of the Turnover Agreement had no relevance since the legal reality was that its effect had been "locked into place by the Lock-Up Agreement".
(3) In any event, the Lock-Up Agreement (a) reflected and retained in place that difference in rights and (b) was such as to ensure that those locked up were in a materially different position and would remain so at the time of any class meetings.
(4) These differences of rights, or at the least differences in "interest proceeding from rights", could not be dissolved by the "comparator" of insolvency: put another way, it could not be said that the spectre of insolvency would so overshadow and inform any debate that all parties, even if they did have different legal rights, would have so much more to unite than divide them that they would be able to meet and discuss the Schemes together with a view to their common interest.
Did the Turnover Agreement alter legal rights against the relevant Scheme Companies?
- As to point (1) in paragraph  above, the Turnover Agreement is a somewhat curious document. Its justification is that, as previously foreshadowed (see paragraphs  and  above), it was made as part of the arrangements in November 2013 on the occasion of, and to encourage, the introduction of new money facilities which the Apcoa Group companies considered were urgently needed to avoid a potential insolvency risk in circumstances where Commerzbank in October 2013 withdrew the Group's cash pooling services because of its concerns about the continued uncertainty surrounding the Apcoa Group's financial position. As Mr Ralf Bender ("Mr Bender"), a Managing Director of each of the Scheme Companies, explained in his first witness statement, the result of the withdrawal of cash pooling facilities was an immediate additional liquidity requirement, then estimated to be about €22m, exacerbated by the multi-jurisdictional nature of the group's business.
- FMS's case is that this liquidity crisis was exaggerated with the encouragement of Centerbridge, and could have been addressed by "a simple extension of the maturity date of the Facilities". FMS contends that Centerbridge rejected the simple and obvious solution and encouraged the Apcoa Group companies to seek new funds "motivated by its desire to acquire an equity position which has the potential to deliver higher returns for its investors than long term debt" (I quote from FMS's skeleton argument at the Convening Hearing).
- A scheme hearing at either stage is not the appropriate occasion, and it is not possible, but nor is it necessary, for me to resolve finally this dispute of fact as to the background and reasons for the Existing SSFA and the Turnover Agreement. Suffice it to say, that I consider it right to proceed on the assumption that the honest view of the directors of the Scheme Companies concerned was and remains that in proceeding as they did, they were doing so in the best interest of their companies, and out of what they perceived to be practical necessity. That perception appears also to have been shared by a number of creditors who were not themselves providing new facilities, and who became "Consenting Lenders" (see paragraphs  to  below).
The Turnover Agreement
- The Turnover Agreement itself was necessary because the providers of new finance (including principally Centerbridge) not unnaturally needed some assurance of prioritised repayment; but any secured lending would have required amendments to be made to the Intercreditor Agreement which is governed by German law and required the unanimous consent of the Lenders to any variations of its terms. FMS and others did not support the proposal.
- The purpose and effect of the Turnover Agreement was that each "Consenting Lender" to the Turnover Agreement became contractually obliged to turn over proceeds received by it under and in connection with the Existing SFA to the Lenders under the new money facilities (until the Lenders under the new money facilities had been repaid in full). Thus, in substance, it gave the Lenders under the new money facilities super-priority over all of the Consenting Lenders whilst not requiring any amendment to the Existing ICA.
- However, the "super priority" thus provided, subject to one point, was so provided by the private arrangement between the Consenting Lenders agreeing on the terms set out to divert what they received under the Existing SFA to the new money Lenders. Although the "Super Senior Facilities" were "Super Senior" in name, the Lenders under the Super Senior Facilities Agreement had no security and no priority over the claims of the Lenders under the Existing SFA. Further, at no time have the Lenders under the Super Senior Facilities Agreement had any priority over FMS and Litespeed. By entering into the Turnover Agreement, however, the Consenting Lenders agreed (in effect) to subordinate their right to prepayment or repayment under the Existing SFA, their right to receive proceeds from the enforcement of any Transaction Security and their right to receive any realisations resulting from an insolvency of the Scheme Companies in favour of the Lenders under the Super Senior Facilities Agreement until such time as all sums due to the latter under the Super Senior Facilities had been repaid in full.
- As a corollary of this, FMS and any other Priority Senior Lenders that did not sign the Turnover Agreement were entitled to, and did, retain their existing rights of prepayment and repayment under the Existing SFA and their existing rights to receive proceeds from the enforcement of security. Their rights were wholly unaffected by the Turnover Agreement. (As elaborated below, their fundamental objection to the Schemes turns on this: they contend that the critical effect of the Schemes is to remove from them that priority which they never surrendered and presently enjoy.)
- The one point I mentioned in paragraph  above flows from the fact that, although the essential structure of the Turnover Agreement was that it operated as an agreement between most (but not all) of the Existing SFA Lenders as to how they would apply realisations which came into their hands in their capacity as such (which does not of itself affect the companies), two of the Scheme Companies (APD and APHG, the only two who were obligors in respect of the Existing SSFA) were made parties to the Turnover Agreement, and entered into certain arrangements and covenants as follows:
"2.6 Consideration – Super Senior Facilities
(a) Subject to the receipt of Turnover Amounts pursuant to Clause 2.5 (a) above, each Super Senior Lender herewith transfers by way of novation to the relevant Consenting Leader parts of its claims under the Super Senior Facilities Agreement, in an amount equal to the Turnover Amount received. Each Consenting Lender herewith accepts such transfer by way of novation.
(b) From the transfer by way of novation, the claims transferred pursuant to paragraph (a) above shall no longer constitute claims under the Super Senior Facilities Agreement for the purposes of the Super Senior Finance Documents and this Agreement, and shall in particular be disregarded under Clause 2.5 (a) (Application of Turnover Amount) and paragraph (a) above in connection with any turnover of proceeds subsequent to such transfer.
(c) If and to the extent the transfer pursuant to paragraph (a) above is invalid or ineffective, the Parties agree to promptly execute and deliver all further instruments and documents, and take all further action, that are reasonably necessary, in order to perfect such transfer.
(d) The Company and the Borrower expressly consent to the transfer by way of novation under and as set out in this Clause 2.6."
"4.1 Repayments and prepayments
(a) Until final discharge in full of all Super Senior Liabilities, the Borrower shall, and the Company shall procure that each Obligor under the Facilities Agreement and each Obligor under and as defined under the Super Senior Facilities Agreement will make repayments under the Facilities Agreement and the Super Senior Facilities Agreement (including, but not limited to, as a guarantor thereunder) pro rata, so that
(i) the amount repaid under the Facilities Agreement is equal to an amount calculated on the basis of the total outstandings under Super Senior Guarantee Provider Claims relative to the total outstandings under the Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims; and
(ii) the amount repaid under the Super Senior Facilities Agreement is equal to an amount calculated on the basis of the total outstandings under Super Senior Facilities Agreement relative to the total outstandings under the Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims,
provided that this obligation shall not apply in case of (A) a refinancing of any outstandings under the Super Senior Facilities Agreement and/or (B) a repayment of any outstandings under the Super Senior Facilities Agreement in the context of the Restructuring.
(b) Until final discharge in full of all Super Senior Liabilities, the Borrower shall, and the Company shall procure that each Borrower under and as defined in the Facilities Agreement will, make voluntary prepayments only pro rata so that:
(i) the amount voluntarily prepaid under the Facilities Agreement is equal to an amount calculated on the basis of the total outstandings under Super Senior Guarantee Provider Claims relative to the total outstandings under the Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims; and
(ii) the amount voluntarily prepaid under the Super Senior Facilities Agreement is equal to an amount calculated on the basis of the total outstandings under Super Senior Facilities Agreement relative to the total outstandings under the Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims.
(c) In case the Company is obliged to ensure that the Borrowers under and as defined in the Facilities Agreement and the Borrower under and as defined in the Super Senior Facilities Agreement make mandatory prepayments under the Facilities Agreement and the Super Senior Facilities Agreement, the Consenting Lenders and the Super Senior Lenders agree that the Company and the Borrower under and as defined under the Super Senior Facilities Agreement shall only be obliged to ensure that:
(i) the amount to be prepaid under the Facilities Agreement shall be an amount calculated on the basis of the total outstandings under Super Senior Guarantee Provider Claims relative to the total outstandings under Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims; and
(ii) the amount to be prepaid under the Super Senior Facilities Agreement shall be an amount calculated on the basis of the total outstandings under Super Senior Facilities Agreement relative to the total outstandings under the Super Senior Facilities Agreement and the Super Senior Guarantee Provider Claims.
(d) Clause 2.1 (Turnover of Proceeds) shall apply to any amount repaid or prepaid to the Consenting Lenders under the Facilities Agreement in accordance with paragraphs (a) to (c) (inclusive) above, provided that any Proceeds resulting from such repayment or prepayment shall be exclusively distributed to the Agent for distribution to the Lenders holding Super Senior Guarantee Provider Claims."
- It is to be noted that that although clause 2 of the Turnover Agreement contained covenants given by the "Consenting Lenders" (the relevant Lenders under the Existing SFA who were agreeing to turnover) in favour of and for the benefit of the Existing SSFA Lenders (who were advancing new monies) the clause:-
(a) contains no covenant given by the Scheme Companies;
(b) would not appear to be enforceable by the relevant Apcoa company (APD or APHG, those two being the only Scheme Companies who were ever parties to the Turnover Agreement);
(c) refers to the Agent under the Existing SFA, but such Agent acts as agent for the Lenders and the issuing bank (Existing SFA, clause 32.1 (a)), not for the relevant Apcoa Group companies; 
(d) is not an assignment or declaration of trust of the relevant rights against the company: it is a turnover provision, imposing an obligation only upon receipt by the relevant Consenting Lender of monies due pursuant to its retained right. Subject to one point, which is the provision for "novation", it is, as it were, an arrangement behind the curtain by and between the relevant creditors, without the involvement or any commitment by any Scheme Company, and arising only on receipt by the relevant Consenting Lender of amounts paid to it under the Existing SFA.
- But that reference to "novation", and the provision in clause 2.6(b) for the "claims transferred" no longer to constitute claims under the Existing SSFA, does raise (and beg) a question. For although otherwise the only substantive obligations arise and bind only the Consenting Lenders upon receipt, and do not affect APD/APHG, clause 2.6(b) appears to affect the relationship between the Consenting Lenders and APD/APHG, even if only in a way that is (it was, I think, common ground) rather opaque.
- Particularly uncertain or opaque is quite what rights the Consenting Lenders obtained from the Super Senior Lenders by way of "novation", and for what purpose. The form of the right appears to have been an unsecured claim in debt against the relevant company for an amount equal to the amount received and turned over by each Consenting Lender (or the Senior Agent or Security Trustee on its behalf), which amount would otherwise have been payable under the Existing SSFA. As to the purpose of that arrangement, the heading to clause 2.6 is "Consideration – Super Senior Facilities". Mr Trower submitted that what he described as "a rather worthless looking and uncertain bare cause of action under clause 2.6(b)" was simply intended to demonstrate that there was consideration for the receipt.
- Mr Snowden, on the other hand, did not, and for the purposes of his argument did not need to, commit himself as to the true nature or value of what he described as the "innominate" right transferred by the Existing SSFA Lenders to the Consenting Lenders; nor did he dispute that the purpose might have been the provision of some form of consideration. What he emphasised was that the involvement of APD/APHG and their implicit consent to the qualification to the rights of the Consenting Lenders was such that, until the Existing SSFA Lenders had been paid in full, payments to the Consenting Lenders under the Existing SFA would discharge the debts owed to the Super Senior Lenders in priority to them (leaving them only with the 'innominate' claim), represented in law and in substance an agreement between the Consenting Lenders and APD/APHG to subordinate their claims to those of the Super Senior Lenders. That in turn, he submitted, manifestly created a difference in rights in both legal and commercial terms as between Consenting Lenders (whose rights were thus qualified) and Non-Consenting Lenders (whose rights were retained unaffected); and furthermore, that "severed any community of interest so far as the Non-Consenting Lenders were concerned in relation to their claims under the [Existing SFA] to the extent that this Turnover Agreement operated".
- As to clause 4 of the Turnover Agreement (see paragraph  above), its section heading was "Intercreditor Terms" but it recorded covenants by APD and APHG as to how they were to distribute repayments and prepayments under the Existing SFA and the Existing SSFA, as well as the express agreement of the Consenting Lenders not to request repayment (or prepayment) under the Existing SFA until the Existing SSFA Lenders had been paid in full. This was described in correspondence by Clifford Chance (acting for the Scheme Companies) as purely "mechanical".
- None of the parties placed great (or indeed any) reliance on clause 4 as such, not least because it was deleted in its entirety by an Amendment Agreement dated 25 March 2014. Indeed, Mr Snowden chiefly placed reliance not on the terms of clause 4 but the reason for its entire deletion, which was stated as being to avoid any argument as to the constitution of classes. This, he submitted, demonstrated (a) that the Turnover Agreement, as originally conceived did, by both clauses 2.6 and 4, qualify the Consenting Lenders' rights as against the two relevant Scheme Companies and (b) the deletion was a device to seek to forestall any class argument.
- However, and in contrast to his argument in relation to clause 2.6, he did not rely on clause 4 as continuing, even after its deletion, to have had the effect of establishing a class divide and making sensible discussion between the Consenting and Non-Consenting Lenders impossible. So the real focus of FMS's arguments was the effect of clause 2.6 in forever having that effect, notwithstanding that at a later time the Turnover Agreement itself was brought to an end for the same reason.
Effect of the Lock-Up Agreement
- That brings me next to the Lock-Up Agreement, which was entered into after the deletion of clause 4, but whilst the Turnover Agreement otherwise was in full force and effect. The Lock-Up Agreement was dated 29 July 2014 and was stated to become effective on 15 August 2014. I note that it was drafted by Centerbridge's solicitors.
- Subject to the usual exceptions or limitations (especially that it should not be taken to require any breach of the law or fiduciary obligation, often called a "fiduciary out" provision) the Lock-Up Agreement committed the parties to it (a) to support the restructuring proposals and (b) (by clause 2.10) not in the meantime to take any Enforcement Action (as defined, and including the making of any demand for repayment of any liability under the Existing SFA or the Existing SSFA). As set out previously, the support secured by the Lock-Up Agreement was sufficient to ensure (subject to any legal objection) the approval by the creditors of the Schemes.
- FMS submits that the Lock-Up Agreement and the Turnover Agreement (especially clause 2.6 of the latter) are to be read together as, in effect, providing (a) by clause 2.6 of the Turnover Agreement, the severance of any parity of legal right or community of interest between the Consenting and Non-Consenting Lenders and (b) the preservation of the difference in right and conflict of interest by committing the Consenting Lenders who became parties to the Lock-Up Agreement to the principle that their rights under the Existing SFA should be subordinated under the Schemes as they already had been by the Turnover Agreement.
- The crux of FMS's submission in this regard, and the crux of its case as to all aspects of the class rights issue, was that (a) the Consenting Lenders had nothing to lose by becoming obligated under the Lock-Up Agreement to support the Schemes providing for the subordination of their rights for the good and simple reason that they had already agreed to that subordination under the Turnover Agreement and (b) in those circumstances, the termination of the Turnover Agreement after the Lock-Up Agreement had taken effect in no substantive way made any difference. They had, in short, made an agreement the effect of which was that they were already subordinated and they were therefore indifferent to the Schemes' proposals to subordinate the Priority Senior Lenders' rights behind those of the Super Senior Lenders.
- Whereas, and by way of contrast (and conflict), FMS and Litespeed were not parties to the Turnover Agreement and neither entered into the Lock-Up Agreement. They had at no time agreed to subordinate their rights behind those of the new Super Senior Lenders, the Existing SSFA Lenders having been repaid in full.
- This being the crux of FMS's case, I set out below, so as to capture it fully and fairly, the relevant passages from its skeleton argument at the Convening Hearing explaining what it contends flows from this sequence of events:
(1) At the time the Consenting Lenders entered into the Lock-Up Agreement, their rights and those of FMS and Litespeed were materially dissimilar.
(2) The Consenting Lenders had subordinated their rights behind those of the Super Senior Lenders pursuant to arrangements involving the Companies and which had the commercial effect that amounts payable to or received by the Consenting Lenders would have to be paid or turned over to the Super Senior Lenders and would not reduce the Companies' indebtedness to the Consenting Lenders.
(3) In contrast, the rights of FMS and Litespeed under the Existing SFA remained unqualified and unsubordinated. Payments received by them from the Companies were not required to be turned over and would reduce the Companies' indebtedness to FMS and Litespeed pro tanto.
(4) As a result of the Consenting Lenders having entered into the Lock-Up Agreement:
(a) their rights are materially different from those of FMS and Litespeed because the Consenting Lenders' rights under the Existing SFA are qualified and restricted by the terms of the Lock-Up Agreement whereas the rights of FMS and Litespeed are not; and
(b) the votes of the Consenting Lenders on the Scheme proposal have become the votes of the Companies.
Did the Turnover Agreement qualify the Consenting Lenders' relevant legal rights?
- As previously acknowledged, clause 2.6 of the Turnover Agreement is not easy to understand. However, what I consider did become clear is that it did not cut off or qualify the vindication of the Consenting Lenders' rights against the Scheme Companies: what the Consenting Lenders had, they retained, and all that happened in that regard is that the Consenting Lenders were committed to pass on or turn over to the Existing SSFA Lenders the fruits of the vindication of their rights.
- It seems to me to be clear also that the only reason for the selection and joinder of APD and APGH as parties to the Turnover Agreement can have been and was that they were the only two Apcoa Group companies which were obligors under the Existing SSFA, and thus the only companies interested at all in obtaining the release of the Existing SSFA Lenders' rights under the Existing SSFA. The rights that the Consenting Lenders received as consideration were indeed innominate, and as far as can be judged, lacked any real content; and furthermore, those innominate rights were rights given by APD and APHG in their capacity, not as Existing SFA borrowers/obligors but (as the recitals of the parties to the Turnover Agreement make clear) as borrowers under the Existing SSFA.
- All in all, in my judgment, the Turnover Agreement substantively operated between the Consenting Lenders "behind the curtain", and the participation of the two Apcoa Group companies who were parties to it was nominal and did not, as a matter of substance, alter the rights of the Consenting Lenders against them. The turnover obligation arose only on receipt; and did not constitute in law an agreement for subordination as against any of the Scheme Companies.
- I did not and do not find it easy to see that rights without content and relating to a legal relationship separate from the relationships affected by the Schemes proposed would give rise to a class issue; but supposing I am wrong on that, I also consider that the termination of the Turnover Agreement removed the innominate rights anyway well before the Convening Hearing and the class meetings proposed.
The Lock-up Agreement
- That leaves only Mr Snowden's arguments as to the effect of the Lock-Up Agreement itself, and especially (a) its effect in terms of itself opening up differences in the rights against the Scheme Companies of those whose votes were locked up and (b) the interplay between the Lock-Up Agreement and the termination of the Turnover Agreement. It is FMS's case that it was the Lock-Up Agreement which made possible and in substance made irrelevant the termination of the Turnover Agreement (by the Termination Agreement dated 29 November 2013) whilst effectively preserving for the Existing SSFA Lenders the economic priority position that the Turnover Agreement had provided for them to have.
- In this case, and as indicated above, the Lock-Up Agreement qualified the rights of the Scheme Creditors who signed up to it in two ways: (a) those creditors no longer had autonomy in the exercise of their voting rights, which in effect became the relevant Scheme Companies' votes, and (b) those creditors also agreed not to take any Enforcement Action (which was broadly defined to include any demand in relation to any liabilities, including under the Existing SFA and the Existing SSFA).
- Mr Trower (for the Scheme Companies) and Mr Allison (who represented Centerbridge at the Convening Hearing) submitted that the Lock-Up Agreement was not relevant to classes at all. They relied especially on David Richards J's decision in Re Telewest Communications (No 1)  1 BCLC 752 at 769, which has since been followed repeatedly (including in McCarthy & Stone PLC  EWHC 712 (Ch) and in my own decision in Re Primacom Holding GMBH  EWHC 3746 (Ch)). In Telewest (No 1) David Richards J said this (at [53-54]) in relation to a lock-up or voting agreement to which bondholders were proposed to be parties with the scheme company, Telewest:
" The objection to voting agreements is that at the time of the meeting the bondholders' votes, which could determine the outcome of the meeting, have in effect become Telewest's votes so that the result of the meeting cannot be said to reflect the views of the class. That is not, in my judgment a substantial objection, provided at any rate that the bondholder would not reasonably have voted differently in the absence of the agreement. In this case the events entitling the relevant bondholders to terminate the voting agreements ensure that if reasonable grounds exist for a change of mind they can withdraw. Even in the absence of such agreed termination events, voting agreements of this sort would not in my view create a separate class, although they would be relevant to the exercise of the discretion to sanction the scheme.
 A serious issue would arise if in consideration of its agreement to vote in favour of the scheme, or collaterally to it, the bondholders received benefits not available to the other bondholders. In effect, the result would be unequal treatment under the scheme and the bondholders could not, I think be included in the class…"
- Mr Snowden did not suggest that the mere entry into a voting agreement necessarily requires the parties to it to be placed in a separate class: he did not seek to contend that in this regard the rationale in Telewest or any of the cases following it was in any way incorrect. Nor did he suggest that the Lock-Up Agreement itself conferred a benefit on some of which others were deprived. What he did submit, however, was that (a) even a bare voting agreement does alter the balance of rights, since it in effect confers upon the relevant company (subject to any exceptions enabling termination or withdrawal) the voting rights in question; (b) in this case, the Lock-Up Agreement further qualified the rights of the creditors who became parties to it by virtue of their promise not to enforce the Scheme Companies' liabilities to them in the meantime; and (c) whereas in Telewest and cases following it, the parties to the voting agreement were on a level playing field in terms of their rights against the company when they entered into the agreement, that was not the case here, where by virtue of clause 2.6 of the Turnover Agreement (still in force at that time) the Consenting Lenders stood in a different legal and commercial position than did FMS (and Litespeed).
- Further to this analysis, Mr Snowden submitted that to all intents and purposes the parties to the Lock-Up Agreement had committed their votes to support the Schemes at a time when they were already contractually obliged under the Turnover Agreement, and thus had nothing to lose by the Scheme proposals to subordinate them (and FMS and Litespeed) to the Existing SSFA Lenders, and indeed something to gain in this regard (since FMS and Litespeed had previously not been within the commercially subordinated circle).
- I should acknowledge that I was initially disposed to accept Mr Snowden's powerful and clear submissions in this regard. I felt that perhaps I had too easily assumed that the Lock-Up Agreement could not affect the issue of class constitution where there was no additional inducement or advantage to entering into it. I was also impressed by Mr Snowden's point that it was only after the Lock-Up Agreement was safely executed that the Termination Agreement putting an end to the Turnover Agreement was made. More generally, I was inclined to the view that the commitment not to enforce liabilities and to vote in favour of the Schemes did create different rights, which opened the gateway to a determination of interests; and that the interests of the parties were likely to be sufficiently affected by the Turnover Agreement as to cause from that moment on a conflict of interest that made impossible the required deliberations in the common interest within the class structure proposed.
- In the end, however, I concluded to the contrary. My reasons can be summarised as follows. First, though the Lock-Up Agreement undoubtedly affected each party's enjoyment of the relevant rights affected (voting and enforcement), I am not persuaded that it affected the rights themselves.
- Secondly, Mr Snowden's analysis, focusing on the lack of a playing field at the time of the Lock-Up Agreement, tended (as Mr Trower submitted, and for obvious reasons) to (a) overemphasise the significance of the Turnover Agreement in terms of its effect on the rights of the relevant parties against the relevant Scheme Companies as the means of (b) adding colour to the Lock-Up Agreement as primarily devised to persuade the Consenting Lenders to commit to the Schemes whilst they had nothing in economic terms to lose from it (because they had signed away already the rights that it would remove). But once the true (and paltry at best) nature of the right as against two of the Apcoa Group companies conferred by the Turnover Agreement is appreciated (as I think it must be), a very different perspective as to the purpose of the Lock-Up Agreement emerges, and its true likely overriding purpose is revealed. That purpose is the usual one of ensuring that the Schemes will attract, through the process, sufficient support to justify the time and expense of promoting it.
- Thirdly, and as a corollary of the second point (or possibly another way of putting the same point from a different perspective), I concluded that Mr Snowden has too readily assumed a link between the Turnover Agreement and the Lock-Up Agreement, for which on analysis there was little or no evidence, and relied on an inference from the sequence in which the three agreements (the Turnover Agreement, the Lock-Up Agreement and the Termination Agreement) were made which was inconsistent with the available evidence.
- As to that, it appeared to me of some note that FMS never really provided an answer, in this context or more generally, to the fact that there were a number of Existing SFA Lenders who were Consenting Lenders but not Existing SSFA Lenders, and who therefore got no benefit from the Turnover Agreement but who signed up to the Lock-Up Agreement just the same. These creditors (namely, Bank of Ireland, and DNB Bank ASA) also, at the invitation of the Scheme Companies, sent emails (which were provided to me on the third day of the Convening Hearing) expressly confirming that they were not motivated in any way by the Turnover Agreement in agreeing to the Lock-Up Agreement. Whilst I take into account the fact that the request for confirmation did perhaps make clear what answer was preferred, the replies were from reputable and regulated institutions and should to my mind be accepted at face value. The email from DNB is longer than the others but reflects the views expressed:
"DNB considered the best way of protecting our creditor position was and still is to support a financial restructuring as presented in the Lock-Up agreement. As part of the negotiations, working together with the original lenders and other Stakeholders, we have been convinced that supporting the restructuring process is to DNB's benefit.
DNB wanted to support the APCOA Group by signing the Lock-Up Agreement to enable it to issue a strong press release in connection with the proposed restructuring to restore confidence for the benefit of its employees, customers and trade creditors – an by extension the Lenders.
DNB Bank ASA consent to the disclosure of this email in Court."
- None of this is surprising: the Turnover Agreement related only to €34 million; that sum is dwarfed by the amounts at stake under the Facilities.
- In short, after careful consideration both in making my decision after the Convening Hearing and after further reflection at and following the Sanction Hearing, I concluded that the Lock-Up Agreement did not reflect or introduce a conflict of interest, either by reason of the pre-existing Turnover Agreement or otherwise, such as to require a separate class meeting of those who did not become parties to it.
- Put another way, I was not persuaded that the Lock-Up Agreement was simply or even primarily an engine or means whereby to enable the rights conferred under the Turnover Agreement to be retained after its termination; nor do I think that the Lock-Up Agreement, any more than the fact of the (by then terminated Turnover Agreement) altered the way that the parties to it would have voted at the class meetings which I directed.
Overall assessment as to composition of classes: the relevance of imminent insolvency
- Lastly, in considering the composition of classes, I have sought to stand back and assess more generally whether, in the round, and even if I am wrong in my judgment that on analysis there is no difference in the relevant rights so as to require application of the second limb of the test, there was sufficiently more to unite than divide all creditors within a single class so as to make further classes unnecessary (and see Telewest (No 1) at ).
- At the heart of this assessment are two related questions (a) what is the appropriate comparator, and (b) what weight is to be given to it in the circumstances. As David Richards J explained in Re T&N Limited (No. 4)  Business LR 1411 at -:
"87. In considering the rights of creditors which are to be affected by the scheme, it is essential to identify the correct comparator. In the case of rights against an insolvent company, where the scheme is proposed as an alternative to an insolvent liquidation, it is their rights as creditors in an insolvent liquidation of the company: In re Hawk Insurance Co Ltd  2 BCLC 480. Those rights may be very different from the creditors' rights against a company which is solvent and will continue in business. In the latter case the creditors' rights against the company as a continuing entity are the appropriate comparator: In re British Aviation Insurance Co Ltd  EWHC 1621 (Ch)."
- It is necessary to consider in this context (a) whether the imminent prospect of insolvency is sufficiently established to warrant that being the correct comparator, (b) what would be the legal rights that the various creditors would have in an insolvency but for the Schemes, and (c) the commercial value of those rights with and without the Schemes as best can be estimated by reference to the likely outcome in a liquidation.
- As to (a) in paragraph  above, there is often little dispute, except perhaps as to the imminence of actual insolvency; but as noted previously, there was considerable dispute in this case. Although FMS put in issue the reality of the threat, I concluded that I should accept the detailed evidence of the Scheme Companies (put in with regret on behalf of the Directors for obvious reasons) that the restructuring which the Schemes enable and in part effect, and the new finance which Deutsche Bank has offered conditionally upon the restructuring, is necessary if the Apcoa Group is to trade solvently and successfully. I see no sufficient reason for doubting the Directors' evidence that if the Schemes fail they will, under German law, have to commence insolvency processes very soon thereafter.
- There was some suggestion in FMS's evidence that Centerbridge had too much to lose to allow this, and would step into the breach at the last minute; but that implicitly invites a gamble or an assessment as brinkmanship on the part of the court which I do not think would be appropriate.
- As to (b) in paragraph  above, in a liquidation without any prior scheme, FMS (and Litesepeed) would be entitled to priority under the Existing SFA and to retain receipts of monies paid; whereas other Consenting Lenders would be obliged to turn over any receipts to SSFA Lenders until the latter had been discharged as such.
- In broad terms, and positing (as Mr Trower suggested would illustrate the matter) a staged process of distributions, that would mean that until repayment of the Existing SSFA Lenders (in the amount of €34 million), the Consenting Lenders would be obliged to hand over in aggregate 92% of each such distribution, with 8% (the approximately correct proportion that FSM's Existing SFA debt bears to the whole) being retained by FMS. Of course, once the Existing SSFA liability is discharged, then (in a "no-scheme world") Consenting Lenders and FMS would all be in the same position of being entitled to retain any further distributions. By that stage, FMS would have received (irrespective of the amounts ultimately realised) €2.7 million. That is the maximum amount of the relative advantage to FMS of not becoming or being equated with a Consenting Lender.
- That figure of €2.7 million falls to be compared with the advantage to FMS, in terms of likely overall recovery in respect of its overall indebtedness of a face value of some €45 million, of liquidation or some equivalent insolvency process being avoided (as it would be, it is to be assumed for these purposes) if the Schemes are approved, sanctioned and implemented. That advantage cannot precisely be measured or even accurately be estimated: for the anticipated recoveries with and without liquidation cannot be known now. But I am satisfied that the strong likelihood is that the insolvency of the Apcoa Group would result in far lesser overall recovery than if the Group is saved by the reconstruction and re-financing which the Schemes are designed to enable.
- The question then is whether the prospect of that relative advantage to FMS would have been such as reasonably and objectively to outweigh in any of their deliberations with the Consenting Lenders (assuming all parties to be acting rationally and reasonably) the disadvantages of insolvency.
- It seemed and seems to me that the advantage of avoiding insolvency and being able to share in a larger cake would sufficiently outweigh the wish to have a larger share than others in a much smaller cake. I do not consider that a creditor in the position of FMS, if acting rationally and reasonably and without any inadmissible collateral or extraneous interest, would prefer the prospect of doing proportionately better than the Consenting Lenders and especially the Existing SSFA Lenders amongst them, at the expense of doing considerably less well in terms of that creditor's overall recoveries.
- Accordingly, whilst I accept that the risk of imminent insolvency is not to be used as a solvent for all class differences, in this case in my judgment it would have caused reasonable Existing SFA Creditors to unite in a common cause.
- In that context, I take some additional reassurance from the fact that at least four Consenting Lenders, who had nothing to gain from the Turnover Agreement since none was an Existing SSFA Lender, saw the Schemes as plainly preferable to the alternative outcome. I also take into account that FMS (and Litespeed) proposes that they alone should constitute an additional class. The Court is wary of conferring such a right of veto; and I think there are specific reasons for additional caution in this case. In particular:
(1) There are some signs that FMS has no real answer to the basic point that what it stands to gain by retaining the rights it maintains are being unfairly removed from it is both quantifiable and relatively limited (see above).
(2) There are signs that FMS has over the course of a long process of negotiation been less than constructive: for example, although it advanced a case before me that a simple extension of the repayment date might suffice, I note that it did not support (and abstained from voting on) a proposal for such an extension (it being the failure of that proposal which indeed made necessary the earlier extension scheme, as to which see In the Matter of Apcoa Holdings GmbH and others  EWHC 1867 (Ch)). A second example is its apparent indifference to the needs of the Scheme Companies for new monies in November 2013, and their refusal (alone except for Litespeed) to agree arrangements, which are hardly unusual, for the providers of new money to have some additional reassurance or repayment. A third example, which has another ramification which I refer to next, is that FMS has consistently opposed any proposal to push up a substantial part of the priority senior facilities to the holding company level, and has held out for restatement of all or substantially all sums owed to it under such facilities at the level of the operating companies ("OpCo level"), even though the Scheme Companies and all other creditors accept that keeping the debt at OpCo level would prevent proper solution of the financial difficulties the Group is facing.
(3) The additional ramification from that point is this. FMS has fastened on the Turnover Agreement and what it depicts as its continuing effect by virtue of the Lock-Up Agreement as the reason for its objection to the class constitution proposed: but, as Mr Trower submitted, it is apparent from its correspondence that its real objection to the Schemes is the hiving up of debt proposed by the restructuring which works what Mr Trower described as a "structural subordination". As Mr Allison put it on behalf of Centerbridge:
"They will be sitting in their class meeting thinking, 'Is the best way to make the maximum return on our claims the restatement of roughly 275 million of our claims at the OpCo level and the push-up of the remainder of our claims to the new holding structure, or is it to take our chances in a formal insolvency that the directors say will take place if this scheme does not go through?' That is the real question faced by a priority senior lender within their class meeting."
(4) I agree, therefore, that it is that choice which would objectively be expected to be likely to inform debate; and it is not a matter on which there is any division of interest as between the Consenting Lenders and the (two) Non-Consenting Lenders.
(5) It may well be that Centerbridge has been pursuing a "loan to own" strategy and may have driven a hard bargain; but the fact is that the other sophisticated creditors consider the prescription to offer a cure; and FMS (with Litespeed) has stood out alone. There has been, in my judgment, a whiff of a "hold out creditor" in FMS's conduct: in other words, that FMS has been seeking leverage to obtain an advantage greater than the vindication of its rights.
Conclusions at Convening Hearing
- For all these reasons, and notwithstanding the impressive submissions advanced by Mr Snowden, I determined at the Convening Hearing that the composition of the class meetings proposed was satisfactory, and I directed meetings accordingly. A relatively short notice period was agreed, given the urgency of the matter, and the fact that all the Scheme Creditors were already apprised and agreeable to that course.
- In the latter context, it may be worth noting that the summoning and conduct of a class meeting of creditors is in the discretion of the court under section 896 of Part 26; and meetings thus convened and held are not meetings of the relevant scheme company but meetings of the classes of creditors selected. I mention that to emphasise the point, which may be obvious, that the convening and conduct of such meetings in the case of creditors is not a matter impinging on the constitution of the body corporate concerned and in my judgment does not involve any trespass on matters that should be the preserve of the law of incorporation.
Results of class meetings
- The Scheme meetings convened by my order of 29 September 2014 were all held on 13 November 2014 and it appears from the evidence that the meetings were summoned and held in accordance with the directions given: and there is no suggestion to the contrary.
- At those class meetings the Schemes for each Scheme Company were approved by substantially in excess of the statutory majorities (by number and value). At some of the Scheme meetings there were no votes against the proposed Scheme. At others the Scheme was approved with only a single vote against (either by FMS or by Litespeed), votes in favour amounting by value to between 86.9% and 97.3%.
- Section 899(1) CA 2006 has been satisfied in that a majority in number representing 75% in value of the relevant Scheme Creditors present and voting either in person or by proxy at each of the meetings summoned under section 896 CA 2006 agreed the Schemes.
- However, and as is well known, even such clear support for the Schemes does not reduce the court's responsibility to ensure at the Sanction Hearing that it may properly sanction the Schemes. The approval of creditors is necessary, and their decision must be given full weight; but it is not sufficient.
- I turn to the issues raised at the Sanction Hearing and my determination of them. Some of these have been touched on in my explanation of my reasons for convening the class meetings as proposed.
- The principles the court must apply when considering whether to sanction a scheme of arrangement are well established. The most regularly cited passage (see, for example, Lloyd J in Re Equitable Life Assurance Society  BCC 319, 335 (at para 29) and Re Telewest Communications plc (No 2)  EWHC 1466 (Ch),  1 BCLC 772, 777 (at para 20)) is derived from a passage in Buckley on the Companies Acts, approved by Plowman J in Re National Bank Ltd  1 WLR 819, 829:
"In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that the statutory majority were acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme."
- This summary of the correct approach was formulated in the light, amongst other authorities, of the judgment of Lindley LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Company  1 Ch 213 (p.238 – 239), where he explained the test as follows:-
"….. what the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men. The Court must look at the scheme, and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it."
- The Court's role is not to substitute its own assessment of what is reasonable for that of the creditors. They are much better judges of what is in the commercial interests of the class they represent than the court. This approach is clear from amongst others the following authorities:
(1) Re Alabama, New Orleans, Texas and Pacific Junction Railway Company  1 Ch 213 (p.247), per Fry LJ:
"Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise or arrangement? I shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it."
(2) Re English, Scottish, and Australian Chartered Bank  3 Ch 385 (p.409), per Lindley LJ:
"… If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to their commercial advantage than the Court can be. I do not say it is conclusive, because there might be some blot in a scheme which had passed that had been unobserved and which was pointed out later.
While, therefore, I protest that we are not to register their decisions, but to see that they have been properly convened and have been properly consulted, and have considered the matter from a proper point of view, that is, with a view to the interests of the class to which they belong and are empowered to bind, the Court ought to be slow to differ from them. It should do so without hesitation if there is anything wrong; but it ought not to do so, in my judgment, unless something is brought to the attention of the Court to show that there has been some material oversight or miscarriage."
(3) Re Telewest Communications plc (No 2) in which David Richards J explained the Re National Bank test as follows:-
" This formulation in particular recognises and balances two important factors. First, in deciding to sanction a scheme under section 425, which has the effect of binding members or creditors who have voted against the scheme or abstained as well as those who voted in its favour, the court must be satisfied that it is a fair scheme. It must be a scheme that "an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve." That test also makes clear that the scheme proposed need not be the only fair scheme or even, in the court's view, the best scheme. Necessarily there may be reasonable differences of view on these issues.
 The second factor recognised by the above-cited passage is that in commercial matters members or creditors are much better judges of their own interests than the courts. Subject to the qualifications set out in the second paragraph, the court "will be slow to differ from the meeting"."
- These authorities make clear that the court must give full weight to the decision of the creditors, acting in their capacity as members of the class in which they are voting. It is not sufficient for the court to determine that it would not have reached the same decision as the creditors themselves reached. In the absence of some procedural or jurisdictional hurdle (or of some blot on the face of the scheme itself), the court should only decline to sanction the scheme if an intelligent and honest member of the relevant class acting in respect of his interest could not reasonably have approved it.
- In particular, if an allegation is made that a creditor had improper regard to interests other than those of the class to which he belonged, it is necessary for there to be a "but for" link between the collateral interest and the decision to vote in the way that he did. The person challenging the relevant vote must therefore show that an intelligent and honest member of the class without those collateral interests could not have voted in the way that he did. It is not sufficient simply to show that the collateral interest is an additional reason for voting in the manner in which he would otherwise have voted.
- At the Sanction Hearing FMS opposed the court giving its sanction to the Schemes on the following grounds:
(1) that the Schemes provide for the execution, on behalf of the Existing SFA Lenders, of an agreement imposing upon such creditors a new obligation to indemnify the issuer of new guarantees in respect of the future business of the Apcoa Group. Such new obligation would go beyond the obligations of the Scheme Creditors under the Existing SFA which give rise to their present status as contingent creditors of the Scheme Companies. FMS submitted that the court has no jurisdiction under Part 26 to sanction a scheme which includes that provision. This was referred to as "the New Obligations point";
(2) that the majority vote cast at the class meeting of the Existing SFA Lenders was not representative of, and should not be treated as binding upon, the class as a whole. The interests of the Consenting Lenders and the interests of the Non-Consenting Lenders were in conflict, and the one could not claim to be representative of the other. This is in a sense a reincarnation of the argument as to the composition of classes, but by reference to interests rather than rights. This was referred to as the "Unrepresentative Vote point";
(3) that the termination of the Turnover Agreement after the conclusion of the Lock-Up Agreement, followed by the execution of a New Turnover Agreement contrived to perpetuate the same economic effect, constituted a deliberate manipulation of the classes such as should preclude sanction of the Schemes. This was referred to as the "Class Manipulation point";
(4) that the changes of the governing law and jurisdiction clauses of the Existing SFA, though effective, had no real commercial purpose other than to persuade the English court to exercise its scheme jurisdiction to do that which could not have been done under the original governing law and jurisdiction clauses. That was an insufficient connection for that purpose and an insufficient basis for the assertion of jurisdiction over foreign Scheme Companies and their mainly foreign creditors with a view to far-reaching changes in their substantive rights. This was referred to as the "No sufficient connection point";
(5) that in any event, and having regard to its cross-border recognition, the court should decline to sanction the Schemes because the restructuring they are designed to enable would not be effective in Germany and would involve a breach of contract, and especially of the existing Intercreditor Agreement ("the Existing ICA"), which continues to be governed by German law and a German jurisdiction clause. This was referred to as the "German Issue".
- I address each point in turn. Issues (1), (2) and (3) do not involve any cross-border considerations, and I deal with them first, starting with the New Obligations point since that is the only one that goes to jurisdiction (though for reasons I shall explain alterations to the Schemes have made it unnecessary for me to reach a concluded view). Issues (4) and (5) arise out of the cross-border features of the Schemes: I deal with those last.
Domestic (non cross-border) Issues
The New Obligations point
- In the form in which it was proposed and presented to the court, and approved by the class meetings, the Schemes provided for the execution on behalf of the Scheme Creditors of a Restructuring Deed and other Implementation Documents. These include the New SFA, which, it appears, purports to impose obligations on those of the Lenders who are contingently liable under an indemnity provision (clause 7.3(b)) of the guarantee facility contained in the Existing SFA, including FMS, to indemnify Issuing Banks which provide guarantees under the New SFA (see clause 7.3(b)).
- The New SFA imposes the obligation to indemnify new and different Issuing Banks in respect of guarantees issued by them for a period of up to six years from the date of the New SFA. Further, the rights of the Lenders in respect of the New Senior Guarantee Facility (i.e. to an indemnity from the Borrowers in respect of the Lenders' own indemnity owed to the Issuing Banks) are subordinated behind certain other new facilities.
- FMS objected to this provision on the grounds that
(1) the proposed arrangements were not properly explained in the Explanatory Statement or in the evidence for the Convening Hearing; and
(2) the effect of the arrangements in this regard would be to impose a new obligation on creditors in favour of new and different issuing Banks in respect of new guarantees issued by them for up to six years from the date of the New SFA, and furthermore, to subordinate the rights of Lenders in respect of the New Senior Guarantee Facility to an indemnity from the Borrowers in respect of such Lenders' own indemnity owed to the new Issuing Banks behind certain other new facilities.
- FMS raised the objection first at the Convening Hearing. At that stage, and although the matter related to jurisdiction, I declined to make a determination, for lack of time (since the point appeared to me to be novel and to require detailed analysis) and because it also raises issues of fairness. FMS renewed its objection at the Sanctions Hearing, where it submitted that this attempt to subject it to a new obligation and new contingent liabilities under a new agreement without its consent was beyond the jurisdiction of the court. That jurisdiction was confined to arrangements affecting existing rights and obligations inter se as creditor and debtor, and not new obligations.
- The Scheme Companies accepted that these new arrangements would impose new obligations. But they submitted that FMS's arguments that this was a matter of substance which it was beyond the jurisdiction of the court to impose were "wrong because all that the new guarantee facility does is replace the existing issuer bank, extend the term and hive up the obligation to Luxco".
- Mr Trower submitted that this amounted simply to a rearrangement by the exchange of one set of mutual rights and obligations for another set of mutual rights and obligations. He presented the changes proposed as amounting simply to alterations in the contingencies required to be satisfied for the status of the Bank Guarantee Facility Lenders to be elevated from that of a contingent creditor to that of an actual creditor. He explained the rationale of this submission in more details as follows:
- The Bank Facility Lenders have to indemnify the Issuing Bank in respect of newly issued underlying guarantees. This amounts to a continuation of the existing commitments by which, under the Existing Bank Guarantee Facility (and as an essential part of the relationship they have with the Scheme Companies as contingent creditors), the Bank Guarantee Facility Lenders already have to indemnify an issuing bank in respect of a changing series of underlying guarantees.
- There is a new issuing bank: but the definition of "Issuing Bank" in the Existing SFA contemplates the possibility other banks may become the Issuing Bank, and includes successors in title, permitted assigns and permitted transferees.
- The Bank Guarantee Facility Lenders grant the facility for a further six years, and the Scheme Companies pay a higher fee (in place of the present 1.85% fee p.a, and fronting fee of 0.125%, a higher fee of 3.5% is given).
- What was being done could entirely properly be regarded as a compromise or arrangement between the company and its creditors in their capacity as such so as to constitute an arrangement which the court plainly had jurisdiction to sanction.
- None of the experienced Counsel who appeared before me could cite any authority directly in point in this jurisdiction (though the point has been addressed briefly in two Australian cases and one New Zealand case, to which I refer later).
- At the Sanctions Hearing itself, submissions focused principally on the scope of the jurisdiction as a matter of principle, and as part of that analysis, on two decisions where the boundaries of what could constitute a qualifying "arrangement" for the purposes of Part 26 were discussed. The two cases are (a) Re T&N Ltd (No. 4)  Bus LR 1411 at ; and (b) Re Lehman Brothers International (Europe)  BCC 272 at –.
- The Scheme Companies relied on Re T&N Ltd (i) to emphasise that the word "arrangement" is not defined in the statutory provisions but has always been accepted to have a very broad meaning and (ii) to support the proposition that an arrangement is not confined to the alteration of existing rights between the company and its creditors, and all that is needed is that there be an element of "give and take" between a company and its creditors (including contingent creditors) in their capacity as such. Mr Trower relied especially on the following passage in David Richard J's judgment (at ):
"In my judgment it is not a necessary element of an arrangement for the purposes of section 425 [of the Companies Act 1985, the then applicable section] that it should alter the rights existing between the company and the creditors or members with whom it is made. No doubt in most cases it will alter those rights. But, provided that the context and content of the scheme are such as properly to constitute an arrangement between the company and the members or creditors concerned, it will fall within section 425. It is, as Nourse J observed, neither necessary nor desirable to attempt a definition of arrangement. The legislature has not done so. To insist on an alteration of rights, or a termination of rights as in the case of schemes to effect takeovers or mergers, is to impose a restriction which is neither warranted by the statutory language nor justified by the court's approach over many years to give the term its widest meaning. Nor is an arrangement necessarily outside the section, because it effect is to alter the rights of creditors against another party or because such alteration could be achieved by a scheme of arrangement with that other party."
- However, it is (as ever) important to note what the issue was in T&N Ltd, and the context in which it arose. The purpose of the scheme was to deal with certain claims against the company (T&N Ltd) by employees and former employees for damages for personal injuries arising out of their exposure to asbestos. The claims included in the scheme were restricted to those covered by employers' liability insurance. The essence of the scheme was that in return for the insurers (who had disputed liability) paying £36.74 million to the administrators of T&N Ltd, and the claimants being entitled to payment of a share of those monies, the claimants would agree not to bring claims against insurers. A complication was that on entering administration, the rights of T&N Ltd under its insurance policies (in respect of liabilities which had by then been incurred) were transferred to the employee claimants by dint and effect of the Third Parties (Rights against Insurers) Act 1930. Those rights had to be compromised if the objectives of the scheme were to be met.
- One of the arguments put to David Richards J was that the scheme did not qualify as an "arrangement" because it only affected the rights between the employee claimants and the insurers and was thus not a compromise (or arrangement) between T&N and its creditors. David Richards J rejected this objection on the grounds that (as summarised by Patten LJ at  in Re Lehman Brothers International (Europe) [supra]):
"the rights which the claimants had against the insurers were sufficiently connected with the claimants' rights against T&N to bring the proposed arrangement within the scope of s425."
- Although T&N Ltd had been questioned, and Patten LJ later noted (at ) that "it has not met with universal approval in Australia", the Court of Appeal in Re Lehman do not appear to have had any difficulty with it either in terms of its analysis or its result. Patten LJ added this (at ):
"Although the decision in Re T&N Ltd…has not been the subject of any judicial criticism in this country, the principle it establishes has proved controversial at least in Australia. It seems to me entirely logical to regard the court's jurisdiction as extending to approving a scheme which varies or releases creditors' claims against the company on terms which require them to bring into account and release rights of action against third parties designed to recover the same loss. The release of such third party claims is merely ancillary to the arrangement between the company and its own creditors. Mr Snowden has not invited us to overrule T&N Ltd…and it would not be appropriate for us to do so without hearing full argument on the point."
- I do not read that as encouragement on the part of the Court of Appeal to review T&N Ltd. For my own part, I respectfully agree that the proposition that the court's jurisdiction does extend to the variation or release of claims against third parties designed to recover the same loss is indeed "entirely logical" and (as in the case of "ricochet" claims) necessary to protect schemes from being undermined by such collateral claims. But that proposition does not in my judgment extend to the imposition of new obligations, even where the obligations can be said to be similar to existing ones arising in a tripartite context. A further extension of an apparently already controversial proposition would be required.
- Turning to the Lehman case itself, Mr Snowden submitted that any such extension of what can properly qualify as an "arrangement" was precluded by the actual decision and the analysis of the Court of Appeal in that case. Mr Snowden submitted that it was established by that case that the court has no jurisdiction to sanction a scheme which requires the surrender by a creditor of his own property. Again, however, the context and objective of the scheme there in issue needs to be understood.
- In summary, the scheme in the Lehman case was intended to achieve a resolution of certain trust claims in the administration of Lehman Brothers International (Europe) Ltd after its sudden collapse and entry into administration in September 2008. The scheme provided, in outline, for any client who had both a pecuniary claim against Lehman and a proprietary or beneficial interest in assets held or controlled by Lehman to be treated as a scheme creditor and have both its pecuniary and its property interest dealt with by an "arrangement" under the scheme. There was much to be said generally for the certainty and simplicity of what was proposed. The question was whether property rights could be dealt with in such a way under a scheme. The answer given was that they could not. Patten LJ's analysis appears from the following (and see  to  of his judgment):
"64. But when properly analysed, these cases do not, in my judgment, really assist Mr Trower in his argument. It seems to me tolerably clear from the judgments in both cases that the courts did not consider that they were changing the basic criteria for the approval of a scheme of arrangement. David Richards J. (in the passage in  of his judgment quoted above) refers expressly to it being implicit in s.425 that the arrangement must be made with creditors in their capacity as creditors and must concern their position as creditors. In Opes (at ) the Federal Court describes a scheme of arrangement as no more than a proposal to vary or modify the company's obligations in relation to its debts and liabilities owed to the creditors or class of creditors.
65. It seems to me that an arrangement between a company and its creditors must mean an arrangement which deals with their rights inter se as debtor and creditor. That formulation does not prevent the inclusion in the scheme of the release of contractual rights or rights of action against related third parties necessary in order to give effect to the arrangement proposed for the disposition of the debts and liabilities of the company to its own creditors. But it does exclude from the jurisdiction rights of creditors over their own property which is held by the company for their benefit as opposed to their rights in the company's own property held by them as security.
66. I do not accept Mr Trower's submission that the reference to a creditor was intended to act as no more than a gateway to the inclusion of that person in the scheme and that s.895 leaves the court with jurisdiction to sanction the compromise or removal of rights which the creditor does not hold as a creditor. That would, I think, be inconsistent with the expressed purpose of the legislation which must be to allow the company to re-arrange its contractual or similar liabilities with those who qualify as its creditors. A person is the creditor of a company only in respect of debts or similar liabilities due to him from the company. I am not persuaded that Parliament can have intended to allow creditors to be compelled (if necessary) to give up not merely those contractual rights but also their entitlement to their own property held by the company on their behalf.
67. A proprietary claim to trust property is not a claim in respect of a debt or liability of the company. The beneficiary is entitled in equity to the property in the company's hands and is asserting his own proprietary rights over it against the trustee. The failure by a trustee to preserve that property in accordance with the terms of the trust may give rise to a secondary liability to make financial restitution for the loss which results, but that is a consequence of the trust relationship and not a definition of it.
68. Part of Mr Trower's argument seeks to minimise these legal distinctions by treating agreements such as the IPBA as an overall commercial arrangement which should be looked at in the round for the purposes of Pt 26. The commercial nature of these agreements is not in dispute but the trust mechanism has long been regarded as an important safeguard against insolvency and has been imported into commercial contracts for that very reason. In the case of pure custody agreements, it is, of course, paramount. I do not therefore accept that the trust element in these arrangements ought in some way to be merged into the general contractual framework and treated merely as ancillary when considering the limits of the scheme jurisdiction or (which is more important) that Parliament ever intended to deal with it in that manner."
- Just as I cannot accept Mr Trower's submission that T&N Ltd justifies the imposition of a new and more extensive obligation on a scheme creditor under a scheme, I cannot accept Mr Snowden's submission that Lehman entirely excludes it. Lehman was an adventurous and ingenious attempt to vary trusts under the mechanism of a scheme: the result is not altogether surprising, but it does not seem to me to provide the answer to the New Obligation point in this case.
- Subsequently to the oral hearing, and in answer to a request from me for further assistance, the Scheme Companies (supported by Centerbridge) relied on two Australian decisions (which in fact were addressed by Patten LJ in the Lehman case) and a decision in New Zealand (which was not). The decision of the Full Federal Court of Australia (sitting in Melbourne) in Fowler v Lindholm, in the matter of Opes Prime Stockbroking Ltd  FCAFC 125, (2009) 258 ALR 362 ("Opes") is of particular interest.
- In Opes, and as was noted by Patten LJ in the Lehman case (at ), it was a term of the scheme of arrangement under the relevant Australian Corporations Act 2001 (which closely resembles Part 26 here) that creditors of the scheme companies were required to release claims against two third party financiers (ANZ and Merrill Lynch) who had provided the scheme companies with cash and other securities in return for securities which the scheme companies had received from their own clients. As part of an overall settlement of claims by the creditors against the scheme companies and ANZ and Merrill Lynch, a fund was created for the benefit of creditors into which ANZ and Merrill Lynch paid some $226 million in cash and released cash and assets of the scheme companies valued at some $27 million. It was a term of the scheme that, in return for being able to prove against the fund, ANZ and Merrill Lynch would be released from any claims by either the scheme creditors or the scheme companies. Thus, and as Patten LJ (from whose judgment I have in substance taken the above summary) noted, the circumstances were very similar to those considered by David Richards J in Re T&N Ltd.
- The judge at first instance rejected a submission by a creditor that he had no jurisdiction, and the scheme was approved; and the Full Federal Court dismissed the appeal. Of particular interest, however, is that the scheme did not only provide for release of rights; for the release of rights was combined with an obligation to enter into a deed of indemnity which required the scheme creditor to indemnify the third party financiers (ANZ and Merrill Lynch and others) against any claims that might be made against them by others, although such indemnity was limited to the amount of the benefit received by the scheme creditor under the scheme. The Full Court stated as follows (see paragraphs 68 to 70):
"68. A scheme of arrangement between a company and its creditors is no more than a proposal to vary or modify the company's obligations in relation to its debts and liabilities owed to the creditors or class of creditors. There is nothing to prevent the company from posing, as part of the arrangement, a term to the effect that, in consideration of what the company has provided under the scheme, the creditors will discharge not only the debts and liabilities of the company, but also the liabilities of, for example, sureties for the same debts and liabilities of the company.
69. It is permissible to incorporate in a scheme of arrangement an involvement or participation by an outsider, being a person or entity who is not a party to the scheme as a company or creditor (see Re Glendale Land Development Ltd (In liquidation) (1982) 1 ACLC540). Such arrangements are commonplace in relation to schemes involving takeovers. A scheme of arrangement made between a company and its creditors under s 411 binds only the company and the creditors. Nevertheless, there is no reason why a bargain might not be struck between a company and creditors whereby the creditors are bound to enter into an arrangement with third parties. So long as there is some element of give and take, such that the creditors receive something in return for the benefit conferred on a third party, there is no reason in principle why that term could not be part of a scheme of arrangement as contemplated by s 411.
70. Questions of fairness, of course, are different. The contention advanced by Mr Fowler is that terms such as are presently in issue, being the requirement for creditors to give a release and indemnity to Merrill Lynch and ANZ, take the purported Schemes outside the concept of a scheme of arrangement that can be made binding on creditors who do not vote in favour of it, by the operation of s 411.
71. It is quite clear that the creditors of the Scheme Companies will receive significant benefit as a consequence of the release and indemnity in favour of Merrill Lynch and ANZ. Merrill Lynch and ANZ are contributing very substantial sums of money into the Scheme Fund in order to rid themselves of claims by the creditors and the Liquidators. The fund that they are providing is not apportioned between claims of Liquidators and the claims of creditors. While it may be difficult to do so, an apportionment would not be impossible and it is clear enough that some significant part of the sum of $226 million being provided by Merrill Lynch and ANZ represents contributions for the release of the claims by the creditors. Without that release and indemnity, the sum to be provided by Merrill Lynch and ANZ would be reduced in a not insignificant way.
72. There is simply no textual basis for the claim that a scheme cannot include a provision affecting the rights of a creditor against a third party and no basis for a gloss to that effect. All that is required is a compromise or arrangement between the company and its creditors. These Schemes are clearly between the Scheme Companies and their creditors.
73. There is also no principled basis for a restrictive approach. Provisions of s 411 are intended to provide a flexible mechanism to facilitate compromises and arrangements between insolvent companies and their creditors as an alternative to liquidation. If there is an adequate nexus between a release or indemnity, on the one hand, and the relationship between the creditor and the company, as creditor and debtor, on the other hand, there is no reason in principle why a scheme could not validly incorporate a release and indemnity such as is provided for in the Schemes. The claims against Merrill Lynch and ANZ that are released and are the subject of the indemnity arise out of dealings with the Scheme Companies. Thus, the claims of creditors against the Scheme Companies and the claims against Merrill Lynch and ANZ substantially overlap. The arrangement involves a settlement of claims that are significantly interrelated. Without the release, there could be no compromise or arrangement."
- Mr Trower also relied on Lift Capital Partners Pty Ltd  FCA 1523 (Emmett J) in which the approach taken in Opes appears to have been followed. There, the benefits received by scheme creditors (called the Lift Clients) under the scheme were facilitated by consideration supplied by third parties (certain Merrill Lynch companies). The exchange required of the scheme creditors included the execution of a deed of release and indemnity by the liquidators on behalf of all scheme creditors. The indemnity was in respect of claims made by third parties against Merrill Lynch arising out of its involvement in the affairs of the scheme companies. It was limited to the extent of any benefit received by the scheme creditors under the scheme, but was undoubtedly a new obligation. The Full Court  FCAFC 36 dismissed an appeal from Emmett J and in so doing declined to depart from Opes (paras 136-145). The Full Court noted in particular that (a) although the decision in Opes had in the meantime been criticised by a differently constituted Full Court in City of Swan v Lehman Brothers Australia Ltd (2009) 179 FCR 243 ("City of Swan"), the High Court of Australia on appeal did not endorse those criticisms and made clear that the question of the correctness of the decision in Opes did not arise in that case and was "a question for another appeal specifically directed to the problem" (see paragraphs 54 and 73). I was also told that the High Court of Australia had refused special leave to appeal in Lift Capital.
- The last case that Mr Trower referred me to in this context was the decision of the High Court of New Zealand in Bank of Tokyo Mitsubishi UFJ Ltd v Solid Energy New Zealand Limited  NZHC 3458 in which the question of whether a compromise (which has a meaning in New Zealand that is similar to an arrangement in England) can extend to a complex rearrangement of contractual debt including the imposition of liabilities. There, the High Court of New Zealand, whilst accepting that the relevant Act made clear that "consent or express statutory authority is required for the imposition of the liability" (see paragraph ), decided that (a) a compromise could include the imposition of an obligation as an incidental element of it (see [paragraph ), (b) the relevant consent was provided by virtue of the vote of the majority (see paragraph ), (c) since the particular indemnity obligation imposed was a standard feature of a syndicated bank facility and related to liabilities to which the creditor would already in effect be exposed it "arguably creates no additional exposure or burden" (see paragraph ), (d) the potential exposure was more theoretical than real, and (e) in all the circumstances that element of the scheme should be approved.
- Mr Snowden, in written submissions in which he also complained of the lateness of the introduction of these Australian and New Zealand cases, and indicated that FMS's response could not in such circumstances "be as full and considered as it should be", sought to contest their application on the general basis that (a) none was binding on this court, (b) the position in Australia remained unclear, (c) the true focus in the Australian authorities was on the question of whether third parties could be released through a scheme of arrangement and no full argument had been addressed to the issue of imposing an obligation, and (d) the New Zealand case raised a question of construction on the New Zealand Companies Act 1993 and had not addressed the arguments raised in this case.
- More particularly as to Opes (which all Counsel recognised to be the high point of the Scheme Companies' legal case in this regard), Mr Snowden also submitted that
(1) The focus of the attack was on the release provision (and thus the indemnity as well) because, it was argued that "a scheme may not bind a person who is a creditor of a company on account of that person's claim against a third party other than as a creditor of the company" .
(2) Whether or not the case was properly decided, the court was not faced with the arguments which FMS has advanced in this case. Further, the nature of the indemnity was completely different to that which is required of FMS under the Apcoa Schemes. Properly characterised, it was a qualification on the receipt of the scheme consideration. It was merely designed to prevent a scheme creditor (or its successor) from benefiting from taking steps inconsistent with the scheme and the release. It did not create a new and freestanding obligation to require the scheme creditors to pay over their own money, whether to the scheme companies or a third party. The indemnity was limited to disgorging what scheme creditors received, directly or indirectly, from ANZ and Merrill Lynch.
(3) The release and the indemnity were inextricably bound up with the deal comprised in the scheme. The scheme did not work without the release and the indemnity served the sole purpose of adding teeth to the indemnity so as to qualify the otherwise unrestricted entitlement to the scheme consideration.
- As to Lift Capital, Mr Snowden drew my attention to the fact that (a) the Judge did not appear to have considered the question whether a scheme can involve the imposition of obligations on creditors separately from the question of whether a scheme could release existing rights against third parties, and (b) the impression that the Judge had not properly distinguished between the two was confirmed by the fact that he had relied on the Lehman case in this jurisdiction which could not be read as justifying the imposition of an obligation, although it could be read as supporting T&N Ltd on the issue of release.
- Mr Snowden described the reliance on the New Zealand case (The Bank of Tokyo-Mitsubishi UFJ, Ltd v Solid Energy New Zealand Limited) as also misplaced in circumstances in which none of the arguments advanced by FMS was considered by the High Court of New Zealand and therefore offers no assistance to this court.
- In deference to the arguments addressed to me and in light of what I consider to be the novelty and potential future importance of the point, I have set out the opposing arguments at some length. But in the event, it is not necessary for me to make a final determination of this difficult and novel point. That is because, when I indicated on 29 October 2014 (which I was informed was the day by which, as matter of commercial imperative, the Scheme Companies needed to know the result) that on the material presently available to me I had sufficient concerns on both jurisdictional and discretional grounds that I would not feel able to approve the Schemes insofar as they indirectly imposed the New Obligations, the Scheme Companies asked for time to consider whether it might be possible to amend the Schemes so as to finesse the difficulties. I acceded to that request; and the result was that the next day, the Scheme Companies proposed that the Schemes be amended to enable relevant Scheme Creditors to elect whether or not to enter into the Deed imposing the relevant obligation. The proposal was made safe in the knowledge that creditors other than FMS would (a) make the required election to assume the relevant obligation and furthermore (b) would cover FMS's proportion of some £3.7 million if FMS opted out.
- In such circumstances, and also because I was politely urged by Mr Trower not to make any final determination lest in the manner I expressed it I might inadvertently preclude unobjectionable arrangements (an example was suggested to me of revolving credit facilities involving a true rollover of an existing obligation as contrasted to the imposition of a wholly new one), I do not think it necessary or wise to express a final view.
- All I will say for the present is that in my view, the imposition of a new obligation to third parties is very different from the release in whole or in part of an obligation to such third parties. More generally, I am not persuaded that obligations may be imposed under a scheme of arrangement under Part 26: in creditors' schemes, it appears to me likely that the jurisdiction exists for the purpose of varying the rights of creditors in their capacity as such, and not imposing on such creditors new obligations. (I also have some doubt whether in a members' scheme it would, for example, be possible to provide for the payment up of partly paid shares, though I should emphasise that this was not properly explored).
- I agree with Mr Snowden that the Australian authorities do appear to be focused on the former, and (with all respect) do not focus upon or analyse the latter; and that may be partly because the indemnities there imposed merely required the scheme creditors to redirect their scheme consideration if and to the extent that they, or their successors, receive more than they are entitled to from the third parties under the scheme. Rather than being a new and meaningful obligation, they represent a qualification on the receipt of the scheme consideration which only matters in the event of steps being taken which are inconsistent with the scheme.
- Lastly in this context, I should also acknowledge that I felt especial unease in imposing new and more extensive obligations in the context of a cross-border scheme, and on dissentients.
- But I should make clear that nothing in what I say should be taken to cast doubt on mere extensions or the rolling over of existing facilities involving no new contract or more extensive obligation, such as may be the case in a revolving credit facility.
The Class Manipulation point
- FMS put its case on the Class Manipulation point as follows:
"It cannot be, and is not, right that the fracturing of the class caused by the Turnover Agreement is mended by the termination, after the Lock-up Agreement had been entered into, of the Turnover Agreement and its replacement with a new turnover agreement to which the Companies are not parties…
All that has happened is that, cynically, the parties to the Turnover Agreement have attempted to enter into the same agreement for a second time, but without the Companies being bound by it, such that it does not actually work as a matter of law, for the purpose of forcing FMS and Litespeed to vote at the same scheme meetings as the Consenting Lenders.
To sanction the Schemes in these circumstances would amount to: (a) a victory of form over substance; and (b) a licence to manipulate classes with a view to cramming down dissentients.
It is in fact incumbent on a company to propose a scheme fairly and to not manipulate the constitution of classes to ensure the apparent satisfaction of the statutory requirements. If it does not do so, injustice will or might follow."
- In support of these submissions, FMS referred me to two cases, namely Re PCCW Limited, in the Hong Kong Court of Appeal (CACV 85/2009, 11 May 2009) and Sea Assets v Garuda  EWCA Civ 1696.
- Re PCCW Limited was, however, a very different case: it was a case where the controllers of the company had allotted and transferred shares to various "secretaries, clerks or receptionists…spouses…friends and acquaintances, including, apparently, a baby-sitter and a tailor" in order to secure an ordinary majority to approve a shareholder scheme (paragraph ), and even provided for the allotment to be subject to "a buy-back offer" (paragraph ), demonstrating clearly the contrivance. The Hong Kong Court of Appeal understandably characterised this brazen vote manipulation as a form of dishonesty and held that the court "cannot sanction dishonesty". That, with respect, is obviously right: but Mr Snowden emphasised, entirely properly, that no such dishonesty is alleged in this case.
- Nevertheless, Mr Snowden submitted that the case illustrated that the court should be very astute to detect attempts to manipulate the class composition to achieve a particular result. He supported this broader proposition by referring to the Sea Assets case. He submitted that there the Court of Appeal said, at  and , that the exclusion of putative members of a class had to be justified for good commercial reasons and not for reasons which are arbitrary or capricious. I am not sure that this is what the Court of Appeal was saying: it seems to me that the Sea Assets case was really concerned with the selection of who are to be scheme creditors. But I can well understand and accept more generally that the court will be astute to avoid gerrymandering or its like.
- That is how Mr Snowden sought then to depict the facts in this case as showing that when the Existing SFA Lenders appreciated that the Turnover arrangements they had insisted upon, in the absence of any other security, as the price of providing new money, gave rise to a class issue they engineered the Lock-Up Agreement and the Termination Agreement. These were calculated to remove the relevant Scheme Companies from the picture whilst achieving the same effect; and their true purpose was to ensure that the classes were constituted in such a way that Litespeed and FMS would not be able to vote against the Schemes in their own classes.
- I accept that it is likely that the reason why the Turnover Agreement was terminated was a recognition that it might exacerbate difficulties in the context of determining class composition. But even on that basis I do not accept the conclusion urged by Mr Snowden. For reasons I have already given, I am not persuaded that the Turnover Agreement did create new rights against the relevant Scheme Companies; and I do not see why, if I am wrong about that, the effect was not such as to require separate class meetings. Even if the purpose of the Termination Agreement was to avoid an argument that separate class rights require separate class meetings, I do not regard that attempt to preclude an argument as objectionable manipulation. As it seems to me, the answer to the Class Manipulation point lies in my approach to the class constitution issue.
- In summary, I do not consider that the Class Manipulation point provides any separate or sufficient reason for refusing sanction of the Schemes.
The Unrepresentative vote point
- In assessing whether to treat the approval of creditors at the class meetings convened as a reliable indication of the commercial soundness of the Schemes the court will have in mind three principal requirements:
(1) that the provisions of the statute have been complied with and the requisite numerical majorities have been achieved;
(2) that each class was fairly represented at the meeting, and that those in the majority were not coercing the minority to advance an adverse interest of their own: this is the point in issue;
(3) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.
- I have already addressed and been satisfied in relation to the first requirement.
- Although the weight of numbers is not conclusive, the turnout and the percentages in each class in favour of the Schemes naturally are of interest and relevance to the court.
- At each of the Scheme meetings there was a 100% turnout; all Scheme Creditors voted on the Scheme proposals.
- The majorities by number and value voting in favour of the Schemes were substantial: by value they varied between 86.9% and 97.3%.
- These figures demonstrate consideration of the Schemes by all concerned and impressive support for them.
- As to fairness, each member of the Guarantee Facility Lender class and the Non Guarantee Lender class is treated under the Schemes in exactly the same way as every other member of the relevant class: as previously noted (it being crucial on the issues raised at the Convening Hearing), their rights against each Scheme Company are identical both pre and post Scheme to the rights of every other member of the relevant class.
- Particularly in a commercial context of this kind, involving sophisticated commercial or financial parties, the court will ordinarily recognise that the best assessment of whether a scheme is in the interest of those to be bound by it is the vote of those present and voting at the meetings: Re English, Scottish, and Australian Chartered Bank  3 Ch 385, 408-409. They are in the best position to consider their own commercial interests. The Court will not, however, simply endorse the majority vote.
- In Re Alabama, New Orleans, Texas & Pacific Junction Railway Co [supra], Bowen LJ explained, at 244:
"[A]lthough in a meeting which is to be held under this section it is perfectly fair for every man to do that which is best for himself, yet the Court, which has to see what is reasonable and just as regards the interests of the whole class, would certainly be very much influenced in its decision, if it turned out that the majority was composed of persons who had not really the interests of that class at stake."
- Likewise in Re BTR plc  1 BCLC 740 at 747 Chadwick LJ stated:
"A favourable resolution at the meeting represents a threshold which must be surmounted before the sanction of the court can be sought. But if the Court is satisfied that the meeting is unrepresentative, or that those voting at the meeting have done so with a special interest to promote which differs from the interest of the ordinary independent and objective shareholder, then the vote in favour of the resolution is not to be given effect by the sanction of the court."
- The Scheme Companies submit that the court can be satisfied that each class was fairly represented by those who attended the meetings, and that the statutory majority were acting bona fide and were not coercing the minority in order to promote interests adverse to those of the class in which they were voting.
- FMS rejected this submission. It contends that by virtue of the Turnover Agreement and the Lock-Up Agreement, the economic position of the Consenting Lenders who comprised the majority of the class of Existing SFA Lenders was so different from the position of the Non-Consenting Lenders that (even if the classes were in law properly constituted, as I have held and confirm my view that they were) the true interests of the class as a whole were not properly represented and the majority were indifferent to those interests. FMS submits that for these reasons the court should not regard the majority vote cast at the class meeting of the Existing SFA Lenders as representative of, or binding upon, the class as a whole.
- The essence of FMS's argument on the facts in this context is that in economic, even if not in legal, terms the relevant effect of the Turnover Agreement was to subordinate the rights of the Consenting Lenders behind the Existing SSFA Lenders. That subordination was achieved by a turnover arrangement pursuant to which the benefit of payments received by the Consenting Lenders would be turned over to the Existing SSFA Lenders until their debt was discharged in full; and by the Lock-Up Agreement the Consenting Lenders were locked in. Thereby, FMS submitted, the Consenting Lenders divested themselves of the very economic interest which the Non-Consenting Lenders retained.
- The effect of that economic subordination was that the Consenting Lenders were at best indifferent to the Schemes' proposals for subordination in law: indeed they stood to gain because under the Schemes FMS would be brought into line and required to share the "pain".
- The argument is initially an attractive one; and it was attractively put. However, its premise is that these divergent interests should be taken to have been central to the (hypothetical) debate and been the primary factors in informing the way the majority voted. For reasons likely to be apparent from my approach at the Convening Hearing (and the reasons I have given above in support of it) I have not felt able to accept that premise.
- First, and as may be apparent from my conclusion that the members of the relevant class had much more to unite than divide them, looked at objectively FMS (and Litespeed) always have shared with the Consenting Lenders a much greater interest in common, which is the facilitation of a reconstruction which will avoid the Group's imminent insolvency and should secure its future, for the benefit of all its creditors. This community of interest, which is to facilitate repayment of the sum of c.€660m as Existing Priority Senior Lenders, substantially outweighs any separate interest which those of them who are Existing SSFA Lenders may have to repayment of the very much smaller amount of €34m due under the Existing SSFA. As Mr Robson explained in his evidence, this is all the clearer, given that the Existing SSFA Lenders will be repaid in any reasonable scenario (because of the operation of the turnover arrangements in the event that the Scheme Companies enter into insolvency proceedings). Therefore an Existing SFA Lender does not need to vote having regard to such interest as it may have as an Existing SSFA Lender in order to secure the returns it is expected to receive as such Existing SSFA Lender.
- By way of comparison, the turnover obligations on which FMS sought exclusively to focus (averting their eyes for this purpose from the much greater exposure) were very minor in economic effect. The turnover obligations only amounted to each Consenting Lender's pro rata share of the first €34m of any recovery made in its capacity as an Existing SFA Lender. The total debt owed to Existing SFA Lenders amounts to some €730m (of which some €660m is owed to them as Existing Priority Senior Lenders). I have explained earlier that the maximum comparative advantage to FMS, looking exclusively at the turnover arrangements, is about €2.7 million. I agree with the Scheme Companies that it is not credible to suggest that the existence of the turnover obligation might have caused any member of the Guarantee Facility Lender or Non Guarantee Lender classes who is a Consenting Lender to vote in a different manner from the way in which it would have voted if it had not also been a Consenting Lender.
- The position is even more straightforward so far as concerns the position of the members of the Guarantee Facility Lender and Non Guarantee Lender classes who are not Existing SSFA Lenders, but are Consenting Lenders under the turnover arrangements. They have no actual interest which diverges from the position of the Non-Consenting Lenders (FMS and Litespeed). The most that could be said is that they did not have to balance the appropriateness of the Existing SSFA Facility being repaid, because they were already under an existing obligation under the turnover arrangements to ensure that this occurred.
- This analysis is supported by what all of the other (supporting) Lenders, being members of the Guarantee Facility Lender and Non Guarantee Lender classes, themselves say in their own evidence. Each creditor expressed itself in different terms but there are a number of common themes:
(1) Their main interest as creditors is to allow the Scheme Companies to recover so that, as creditors, they can have a better chance of repayment than the present alternative of insolvency.
(2) They exercised their votes with regard to their interests as Existing SFA Lenders, because the alternative is catastrophic for all of them. The position in respect of the Existing SSFA was not, in the overall context, a material consideration for their decision.
(3) Further, Bank of Ireland and DNB, who are not Existing SSFA Lenders and thus will not receive any repayment in respect of the Existing SSFA sum of €34m, support the restructuring because it is likely to be to their, and other creditors', overall benefit in contrast to the alternative.
- Additionally, the evidence of AMP, a Second Lien Lender (who thus enjoys priority over the Existing SSFA Lenders as a matter of pure priority, and is not a turnover party), was that the restructuring is the appropriate way forward, because insolvency is not sensible for any of the creditors.
- There is no suggestion of impropriety or commercial ignorance or naïveté. It is clear that all the Scheme Creditors are experienced and sophisticated parties, such as banks or funds. There is credible evidence which explains the approach that was taken by Existing SFA Lenders and demonstrates that they behaved in a manner that was both commercial and rational. Thus, for example:
(1) Bank of Ireland's evidence was:
"As a sophisticated investor in this type of transaction, it is obvious that when we made our decision to support the schemes, we considered the restructuring transaction being proposed holistically and by reference to the effect that it was likely to have on our total debt exposure …".
(2) DNB's evidence was:
"DNB's view is that with the appropriate operational turn around and the debt restack as envisaged by the schemes the scheme companies will be relieved of the previously unsustainable debt burden and will be in a position to return to profitability and enable DNB to make a return on its original investment upon its exit in a few years' time. It was for this reason that DNB decided to enter into the Lock Up agreement and vote in favour of the schemes."
- Further, I am satisfied that it is entirely understandable that an honest and intelligent member of the Existing SFA Lender classes would consider it reasonable to approve a scheme providing for repayment of the Existing SSFA Lenders. As to this:
(1) There is no evidence that the use of money to repay the Existing SSFA Lenders will have had any adverse impact on the ability of the Scheme Companies to discharge the obligations they have undertaken to the Existing SFA Lenders.
(2) The repayment of the Existing SSFA is simply the repayment of new monies advanced subsequent to the time at which the restructuring commenced in September 2013. It is not a question of assets which would otherwise have been available to pay the Existing SFA Lenders being diverted to discharge some pre-existing liability ranking junior or pari passu.
(3) The Existing SSFA represents a small percentage of the amounts payable to Lenders with exposures under both the Existing SSFA and Existing SFA.
(4) The repayment of the Existing SSFA (which is the actual term of which FMS complains) is the result of a commercial negotiation with Deutsche Bank as the new money provider rather than a pre-requisite for the Existing SSFA Lenders and/or the Existing SFA Lenders agreeing to the terms of the restructuring. It was Deutsche Bank, not the Existing SSFA Lenders who required the Existing SSFA to be repaid (as might have been impliedly suggested by FMS at the Convening Hearing).
- More generally, and in light of the weight of support for the Schemes, I consider that it is legitimate and instructive to stand back to consider the reason why others gave up voluntarily an advantage that FMS contends that it should be assisted by the court to retain. This reveals, not greed or improper motive on the part of Consenting Lenders, but concern that unless they surrendered their advantage, the Apcoa Group would be likely to have to enter an insolvency process.
- The important point, stressed by Mr Trower, is that the Consenting Lenders agreed to economic subordination in order to secure new monies urgently required by Apcoa in November 2013; and it is hardly surprising that the providers of those new monies to a group in difficulties to enable it to continue as a going concern should have required some certainty that they would be repaid.
- I accept the submission advanced on behalf of the Scheme Companies that FMS's evidence suggests plainly that the reason that it refused to facilitate the advance of the new monies on a priority basis was not having specific regard to what might best facilitate the Scheme Companies' ability to continue as going concerns, but was because it disapproved of what it called Centerbridge's "loan to own" strategy. FMS has not persuaded me that the threat of insolvency was contrived; and although I cannot say whether this was or was not Centerbridge's strategy, the fact remains that, so far as the Consenting Lenders were concerned, economic subordination was a necessity to avoid far greater losses.
- I do think there is force in the submission against FMS that it is seeking to have (as I put it in the course of the hearings) both the penny and the bun: it undoubtedly took the benefit of the further advances (the avoidance of insolvency), but refused to take any of the burden.
- It is difficult to avoid the conclusion that FMS has sought to use the circumstances that arose as leverage to require a reformulation of the Schemes to its own advantage. Its correspondence suggests that, in particular, it has sought the unequal treatment of remaining whole at Opco Level in respect of the entirety or a large proportion of its debt. As the Scheme Companies submitted, on the face of it, this is obviously unfair because it would prefer FMS above the other members of the same class and is not affordable as an offer to all Lenders in the same class.
- In all the circumstances, I do not consider that there is any sufficient reason demonstrated as to why I should not accept the decisions of the meetings as representative, commercially sensible and fair.
- If these Schemes all concerned companies incorporated in this jurisdiction and creditor agreements and facilities each governed by English law, that would conclude matters in favour of sanction.
- I turn next to consider issues relating to the cross-border features of the Schemes.
- Although many of the points raised have been addressed in previous cases, I think it appropriate to set out my reasoning in some detail. I have been very conscious that these Schemes do test the boundaries of a jurisdiction which is by its nature potentially exorbitant. It is important, both in terms of propriety and to safeguard a salutary and useful jurisdiction to take care in its application.
- That is of particular importance in this context also because in the case of schemes affecting creditors and bodies incorporated in the European Union ("EU") the structure and objectives of the Judgments Regulation require that courts in EU Member States do not (save on very limited grounds of public policy agreed not to be of relevance in this case) question the exercise of jurisdiction by the court in the EU Member State which has given the judgment. As Mr Snowden emphasised to me, this places the onus squarely on the court seized of the matter to decide for itself whether it is appropriate to exercise its jurisdiction or not. That responsibility is in no way attenuated where (as here) there is no dispute that such recognition would be afforded if sanction is given to the Schemes.
The 'No Sufficient Connection" issue
Jurisdictional gateway: are all the Scheme Companies "liable to be wound up" here?
- Part 26 applies to a compromise or arrangement between a "company" and (a) its creditors, or any class of them ("a creditors' scheme") and (b) its members, or any class of them ("a members' scheme"). The first question to consider in a cross-border scheme is whether the body corporate is to be treated as a "company" for these purposes.
- Section 895 (2) CA 2006 provides that "In this Part - …. "company" … means any company liable to be wound up under the Insolvency Act 1986 ….". Section 220 of the Insolvency Act 1986 ("section 220") allows for the winding up of unregistered companies (such as foreign companies) and section 220 (1) provides: "For the purposes of this Part, "unregistered company" includes any association and any company, with the exception of a company registered under the Companies Act 2006 in any part of the United Kingdom." (The interpretation sections for the First Group of Parts for the Insolvency Act 1986 are at sections 247 to 251 and add nothing to section 220 as regards unregistered companies.)
- The effect of section 220 is that the expression "unregistered company" includes any foreign company. The Scheme Companies are incorporated in Germany, Austria, Belgium, Denmark, England and Norway respectively and are thus, as regards the companies incorporated outside England, unregistered companies within the meaning of section 220 of the Insolvency Act 1986.
- The jurisdiction is thus stated in broad terms. However, before exercising its jurisdiction to wind up a foreign company in England, the court would usually have to be satisfied as to the fulfilment of three core requirements: (1) there must be a sufficient connection with England which may, but does not necessarily have to, consist of assets within the jurisdiction; (2) there must be a reasonable possibility, if a winding up order is made, of benefit to those applying for the winding up order; and (3) one or more persons interested in the distribution of assets of the company must be persons over whom the court can exercise jurisdiction: see Stocznia Gdanska SA v Latreefers Inc (No 2)  2 BCLC 116, 140, approving the formulation of Knox J in Re Real Estate Development Co  BCLC 210, 217.
- The rationale of these principles was explained by Knox J in Re Real Estate Development Co as follows:
"The proposition that there has to be a sufficient connection with this jurisdiction prompts the question, sufficient for what? The perhaps rather circular answer I would give to that question is, sufficient to justify the court setting in motion its winding-up procedures over a body which prima facie is beyond the limits of territoriality…The primary need for that connecting factor is, in my judgment, to establish that persons exist who are likely to benefit from the making of the order and who qualify for one reason or another as persons on whose behalf it would be right to set in motion the winding-up petition over a foreign company. Throughout the investigation into whether the court has jurisdiction, the aim is to discover a sufficient connection with this jurisdiction and that is as true in relation to the potential beneficiaries as it is in relation to the company which it is sought to wind up."
- However, although these principles govern the usual practice of the court in determining whether to exercise its jurisdiction, as and for the reasons explained by Lawrence Collins J (as he then was) in re Drax Holdings Ltd  1 WLR 1049, they do not constitute preconditions to the existence of that jurisdiction: they do not go to the question whether a company is "liable" to be wound up under the Insolvency Act 1986, only to whether the court will be persuaded to wind that company up.
- As also explained in re Drax, and since all that has to be established to engage the jurisdiction of the court under Part 26 is whether a company is "liable" to be wound up under the Insolvency Act 1986, it is not necessary for the purposes of section 895 and for Part 26 to be engaged for grounds for a winding up to exist.
- However, as noted previously, in any cross-border context, it is important that the court should not trespass over the boundaries of comity by applying its jurisdiction in an exorbitant way. Thus, once more to adopt the approach in re Drax (at ):
"The court should not, and will not, exercise its jurisdiction unless a sufficient connection with England is shown."
What constitutes a "sufficient connection"?
- It was not in dispute that the "sufficient connection" test has been adapted in its application in the context of creditors' schemes of arrangement to require that the sufficiency of connection is to be tested by reference to the object of the scheme, which is not winding up but rather a compromise or arrangement in respect of the rights of the scheme creditors: and see Re Drax at  – .
- Thus, as was explained also in Re Drax, it is almost impossible to envisage circumstances in which an English court could properly exercise jurisdiction in relation to a scheme of arrangement between a foreign company and its members (a members' scheme of arrangement, rather than a creditors' scheme), which would not involve any legal relationship connected to this jurisdiction and essentially be a matter for the courts of the place of incorporation.
- A creditors' scheme, however, has much less to do with the place of incorporation and much more to do with the contractual relationships between the company and its creditors and between the creditors inter se. Lawrence Collins J explained the relevant connection in the context of a creditors' scheme as follows:
"30. In the case of a creditors' scheme, an important aspect of the international effectiveness of a scheme involving the alteration of contractual rights may be that it should be made, not only by the court in the country of incorporation, but also (as here) by the courts of the country whose law governs the contractual obligations. Otherwise dissentient creditors may disregard the scheme and enforce their claims against assets (including security for the debt) in countries outside the country of incorporation.
31. It is not necessary to consider the limits of the permissible exercise of jurisdiction in relation to a creditors' scheme. But there are many factors here which point to the exercise of the jurisdiction in the present matters both legitimate and appropriate."
He then described what might be called the connecting factors in that case, including (a) the principal company was incorporated (in the Cayman Islands) specifically for the purpose of raising finance for the acquisition of the Drax power station in Yorkshire, (b) most of the relevant finance documents were governed by English law with either a non-exclusive or exclusive submission to the jurisdiction of the English courts, (c) several of the creditor banks were incorporated in England or had branches here, and (d) simultaneous orders would also be made in the Cayman Islands.
Examples of exercise of jurisdiction in the context of creditors' schemes
- The adaptation of the test of "sufficient connection" to the context of creditors' schemes of arrangement has allowed and encouraged the English court to exercise its jurisdiction under Part 26 where the rights of the scheme creditors are governed by English law and they have submitted to the jurisdiction of the English court.
- In a line of cases starting with the decision of Briggs J (as he then was) in Re Rodenstock GmbH  EWHC 1104 (Ch) and including (in chronological sequence) Re Primacom Holdings GmbH  EWHC 3746 (Ch) (at the convening stage) and  EWHC 164 (Ch) (at the sanction stage), In re Seat Pagine Gialle SpA  EWHC 3686 (Ch), Re NEF Telecom Company BV  EWHC 2483 (Ch) and  EWHC 2944 (Ch), Re Cortefiel SA  EWHC 2998 (Ch), Re Vietnam Shipbuilding Industry Group  EWHC 2476 (Ch), Re Magyar Telecom BV  EWHC 3800 (Ch), Re Tele Columbus GmbH  EWHC 249 (Ch) and indeed Re Apcoa Parking (UK) Ltd  EWHC 997 (Ch), the English court has sanctioned creditors' schemes where the rights of creditors were governed by English law.
- That list of cases illustrates both the perceived utility of the jurisdiction for foreign companies (whose laws of incorporation may not contain provisions analogous to Part 26) and the way that the exercise of the jurisdiction has expanded.
- As to the ambit of the objection in this case, I did not understand Mr Snowden to doubt or question the jurisdiction or the propriety of its exercise in a creditors' scheme in an appropriate case. Indeed, he acknowledged that in the context of the earlier scheme involving Apcoa which resulted in the last of the decisions chronicled above, FMS had not objected to the exercise of jurisdiction. Mr Snowden explained that this was because the earlier scheme was restricted to the extension of the repayment date under the various facilities ("the Extension Scheme"), and submitted that the fact that the court was prepared to find a sufficient connection for the purposes of sanctioning the Extension Scheme does not mean that the same result must follow in relation to the instant Schemes that (unlike the Extension Schemes) seek to impose very significant changes to the relationships of the parties concerned and are opposed.
- In other words, Mr Snowden's objection was focused on what he presented as insufficiency of connection; not on want of substantive jurisdiction, nor even as to the tests and analysis in Rodenstock and the cases following it (except Apcoa).
- What he objected to was what he presented as being a step outside the proper boundaries of the jurisdiction in this case: and most particularly, he objected to the exercise of jurisdiction where the choice of English law relied on as the principal connecting factor had not been the parties' original choice, and where the change to English law "was not carried out in order to accomplish any substantive commercial change in the economic relationships between the parties. It was carried out solely in an attempt to persuade the English court to exercise the scheme jurisdiction."
Was this objection open to FMS given its acquiescence in the Extension Scheme?
- I should mention in that regard that although ultimately not hard-pressed, it was submitted on behalf of the Scheme Companies that any argument on the part of FMS based on insufficiency of connection should not be permitted on the basis of principles analogous to Henderson v Henderson (1843), 3 Hare 100, 67 E.R. 313 at 319 (Ch.).
- Put shortly, Mr Trower submitted that although the present Schemes are obviously different, the relevant discretionary factors for establishing the closeness of the connection are identical. Mr Snowden protested that FMS had expressly stated in a letter dated 22 May 2014 and sent prior to the sanction of the Extension Scheme, that its non-objection at that stage should not be construed as acceptance by it of any issue so considered or determined. As to that protest, I am not persuaded that a party may avoid the principle in Henderson v Henderson unilaterally in that way; in my judgment the principle (in effect that parties should bring forward the whole of their case at one time), like principles of issue estoppel and res judicata, is part of the armoury of the court in securing (a) finality and (b) efficiency, by avoiding duplication, and the question of their application is for the court, and not for the parties. However, the application of the principle is discretionary and depends upon all the circumstances. Especially having regard to the element of compulsion, and to the importance of the point and the benefit of adversarial argument, I would not have been minded to apply the principle.
- As it was, as I have indicated, Mr Trower did not press the point, and I think he accepted that the test of sufficiency would be affected by the nature and terms of each Scheme, which would be a powerful, possibly overwhelming argument, against applying the principle.
The context of the choice of governing law in this case
- As recorded in the evidence, and also in paragraphs  to  of my judgment at the convening stage in respect of the earlier Extension Scheme (see Re Apcoa Parking [supra]), the Existing SFA, when incepted, was not in relevant part governed by English law, nor did it contain a jurisdiction clause selecting England as the relevant jurisdiction for dealing with matters under it.
- The governing law clause (clause 44 of the Existing SFA) provided as follows:
"(a) This Agreement, other than clause 14.1 (Calculation of Interest) and clause 14.3 (Capitalisation of Interest), is governed by German law.
(b) Clause 14.1 (Calculation of Interest) and clause 14.3 (Capitalisation of Interest) (and any dispute, controversy, proceeding or claim of whatever nature arising out of or in any way relating to clause 14.1 (Calculation of Interest) and clause 14.3 (Capitalisation of Interest) shall be governed by and construed in accordance with English law."
- Exclusive jurisdiction was reserved to the courts of Frankfurt/Main as regards all disputes regarding the existence, validity or termination of the agreement, which the parties accepted to be the most appropriate and convenient courts for that purpose (clause 45.1); except that jurisdiction was reserved to the English courts to settle any dispute relating to clauses 14.1 and 14.3 (a "UK Clause dispute") and for that purpose the parties agreed the courts of England to be the most appropriate and convenient forum.
- The Existing SFA did not itself provide for a change of law or forum selection clause. However, nor did it expressly exclude such changes. Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations ("the Rome 1-Regulation") enables a change of governing law and (provided Article 23 of the Brussels Convention applies) also a change of jurisdiction clause. It was the unanimous and firm view of the experts on the local laws of each of the jurisdictions of the Scheme Companies (other than English law, of course) instructed by the Scheme Companies to advise the court on these points that (a) those Regulations did enable the changes made, (b) there was nothing in the Existing SFA to exclude or preclude those changes, and (c) having been approved by a "Super Majority" of Lenders, both this change of law and the change of jurisdiction clause from German law and the courts of Frankfurt/Main to English law and the English courts respectively was effective and would be recognised and given effect in each of the relevant jurisdictions.
- These matters being determined by the foreign law (and especially German law in the case of any changes to the Existing SFA as originally framed) and there being no contrary views expressed, I accept that evidence (as I did in the context of the Extension Scheme).
- I did not understand that conclusion to be challenged or questioned before me on behalf of FMS, who had accepted the enforceability of the Extension Scheme which was likewise premised on the effectiveness of those changes.
- For completeness I should mention that there was brief mention in FMS's skeleton argument at the Sanctions Hearing of the possible inadequacy of the forum selection clause adopted. The new clause 45 introduced into the Existing SFA provided for the exclusive jurisdiction of the court of England
"to settle any dispute arising out of this Agreement (including a dispute relating to the existence, validity or termination of this Agreement) (a "Dispute")."
- FMS submitted that "the court would be right not to place reliance upon such clauses in the absence of an express reference to the scheme jurisdiction of the English court in those clauses. A scheme of arrangement such as the present is not concerned with the resolution of "a dispute arising out of" the Existing SFA. The proposal for the Schemes arises because some of the Existing SFA Lenders are unwilling voluntarily to agree to replace the existing facilities by new and restructured ones. That does not fall within the scope of the jurisdiction clause. The "dispute", if there is one, relates to the proposal of the Schemes and not out of the existing agreement."
- However, this was not pressed in argument; nor did FMS suggest any difficulty in this regard in the context of the Amend and Extend Scheme or at the Convening Hearing. Further and for the avoidance of doubt, in my judgment, although not optimally clear, the changed clause is to be read in the context of the change of governing law to English law to which it was supplemental; and construed in context, and the objective intentions of the parties, it is sufficient to connote exclusive jurisdiction in respect of schemes under English law for the compromise of creditors' rights and any dispute in respect of them.
Argument as to lack of sufficient connection
- In any case, as previously indicated, what Mr Snowden on behalf of FMS objected to, was the fact that the changes were made solely in order to create a connection with England which before that change had not existed, which he likened to "forum shopping", to which he directed his fire and which he submitted put this case in a different category. He accepted that the matter would be different, for example, if:
(1) the terms of the finance documents expressly contemplated a change of applicable law in order to take advantage of a foreign restructuring law;
(2) the parties effected a change of law for other commercial purposes with the consequence that the finance documents were then governed by English law which (at least arguably) carried with it for the future the foreseeable possibility of compromise by an English law scheme of arrangement; or
(3) all of those who would be bound by the Schemes were in fact content to be so bound or had expressed no objection to being bound.
- Mr Snowden accepted that the first situation would be a clear case in which jurisdiction would not in fact be exorbitant. The second situation would, in effect, be no different from any of the line of cases referred to above. The third situation would be one in which the court would be prepared to exercise what would otherwise be an exorbitant jurisdiction in light of the consent or non-objection of all those affected. But, he emphasised, the present case does not share any of these characteristics; and the change in governing law, albeit a necessary precondition to the exercise of the jurisdiction, was not sufficient for that purpose.
- In support of this argument, Mr Snowden took me back (quite correctly I hasten to say) to Rodenstock, which is not only the first in a developing line, but also contains the most detailed examination of the relevant jurisdiction. He referred me in particular to paragraphs 66 to 69 in Briggs J's judgment:
"66. It would not in my view be right to treat the Senior Lenders' choice of English jurisdiction for the purposes of resolving disputes under or in connection with the Existing Senior Facilities Agreement as involving a deliberate decision voluntarily to subject themselves to the English court's scheme jurisdiction. The Existing Senior Facilities Agreement contained its own limited provisions for the resolution of certain matters by majority, but it is acknowledged that those provisions are insufficient to achieve the variation in the Senior Lenders' rights contemplated by the Scheme.
67. Nonetheless the Senior Lenders' choice of English law clearly did have the consequence that their rights as lenders were liable to be altered by any scheme sanctioned by a court (whether or not the English court) to the extent that English law recognises the jurisdiction of that court to do so. The alteration of the English law contractual rights of the dissentient majority achieved by a scheme of arrangement sanctioned under Part 26 of the Companies Act 2006 occurs because Parliament has legislated precisely to that effect by conferring upon the English court jurisdiction to do so.
68. I have, on a fairly narrow balance, come to the conclusion that the connection with the jurisdiction constituted by the choice of English law and, for the benefit of the Senior Lenders, exclusive English jurisdiction is on its own a sufficient connection for the purposes of permitting the exercise by this court of its scheme jurisdiction in relation to the Company. This is not a case where, merely by happenstance, a majority or even all of the Scheme Creditors have separately chosen English law and/or jurisdiction to govern their individual lending relationships with the Company. Rather, it is a case where they have collectively done so by a single agreement, governing what is in substance a single facility or set of facilities to which they have all contributed. The single agreement therefore regulates not merely a series of individual creditor/debtor relationships between each lender and the Company, but the relationship between each of the Senior Lenders inter se, and between them as a body and the Company.
69. I suggested by way of contrast during the hearing the hypothetical case of a Japanese shipping company, a majority of the creditors of which happened to be a series of shipowners based in various countries in the Far East, each of whom, separately from the others, chose to use charterparties governed, in accordance with typical maritime usage, by English law. I consider that a structure of that kind, in which each shipowner had an entirely separate relationship with the Company, governed by a separate contract, would be a less persuasive candidate for supplying the necessary connection with this jurisdiction for the purpose of permitting its exercise in sanctioning a scheme of arrangement for the Japanese company. Mr Snowden did not dissent from that analysis, but submitted that the unitary nature of the Existing Senior Facilities Agreement, binding all the Senior Lenders, and therefore all the Scheme Creditors, into a single English legal structure was sufficient to make the difference. I agree."
- Mr Snowden (who represented the proponents in Rodenstock) submitted that this case is fundamentally different from Rodenstock, where the choice of all lenders, under all the agreements between them and the scheme company and between themselves also, was from the outset that the governing law should be English law and that the courts in England should have exclusive jurisdiction.
- That, Mr Snowden submitted, signified a deliberate and voluntary decision, their free choice and willingness, to have their rights altered by the English court pursuant to what would otherwise be an exorbitant jurisdiction over the foreign company with which they were contracting.
- In contrast, he submitted, in this case, there was no such deliberate and voluntary decision, no such personal choice, at least on the part of the dissentient minority; they did not choose English law: it, and in consequence the availability of an English scheme jurisdiction, had been forced on them by an (admittedly valid) contractual mechanism implemented by the majority.
- To this Mr Snowden added the submission that the whole point of using the scheme mechanism is to bind the very minority who have not consented to the change of governing law. He posited that it might be different if FMS had agreed the change: "but we didn't". To bind people without their consent and who have not chosen English law as the basis of their relationship (the means of their compulsion) "is a step too far."
- Mr Snowden concluded by reminding me that in the (as he would have it) far stronger case of Rodenstock Briggs J had only reached his conclusion that there was a sufficient connection to justify exercise of the scheme jurisdiction, where there remained no active opposition, "on a fairly narrow balance".
- These are powerful submissions, well made. I have considered and weighed them anxiously. In the end, however, I concluded that they were not sufficient to require me to decline to sanction the Schemes on this ground and thus frustrate the realistic possibility of a group reconstruction which seems manifestly in the interests of all creditors and is certainly clearly and consistently supported by a strikingly high proportion of them.
- The validity of the change of governing law and of the jurisdiction clause was not questioned. Paragraph 3 of Article 2 of the Rome 1-Regulation specifically enables the parties to a contract dealing with "obligations in civil and commercial matters" (such as the Existing SFA plainly is) to change the governing law is an aspect of the central theme of the Regulation, being "freedom of choice".
- As in his careful and detailed Opinions Professor Dr. Christoph Paulus ("Professor Paulus"), the expert on German law instructed by the Scheme Companies to assist me, explained,
"such a change is declared to be permissible and is not dependent on any stricter or other requirement than the original choice of law….The only reservation pursuant to art. 3 para. 2 sentence 2 Rome 1-Regulation, namely that the new law shall not prejudice the contract's formal validity under art.11 or adversely affect the rights of third parties, is of no concern in the case at hand."
- Consistently with the theme of party choice and autonomy, it is likely that if the agreement in question prohibits (whether expressly or impliedly) such a change of law, that prohibition would prevail. Professor Paulus has therefore considered whether on its true interpretation (under German law, being the relevant law for the purpose) the Existing SFA either (a) contains such a prohibition or (b) stipulates that any such change requires unanimity. He concluded that (a) no such prohibition is express or falls to be implied and (b) the provisions in the Existing SFA requiring unanimity in defined circumstances and not in others are to be taken as confirming that unanimity is not required for the change. These conclusions were not challenged, and I accept them.
- The consequence pursuant to the Rome 1-Regulation, as stated by Professor Paulus, is that the "new law is to be applied from the moment of the validity of that amendment". There is nothing to suggest that the choice of law pursuant to a change of governing law pursuant to the Rome 1-Regulation is to be accorded any lesser respect than an original choice of law.
- Of course, the fact that the change is effected in reliance on provisions in an agreement which make certain majority decisions binding on the minority is a fact, and a factor in any exercise of discretion to which it may be relevant. But its effect is clear. Further, that effect is not arbitrary or unfair: the law is clear and is to be taken to be well known, and the legal incidents and statutory provisions to which a contract or agreement is subject are just as much part of the overall agreement as express clauses; and as Professor Paulus noted:
"Moreover, the parties to the Facilities Agreement are experienced actors on the business stage rather than consumers in need of special protection from the intricacies of law."
- The question then is whether some different respect is to be accorded to a choice of governing law made pursuant to a change from an earlier (and especially perhaps the original) choice of law, where that choice of law is the foundation for access to the processes and provisions of the new law chosen, and those processes and provisions enable the same minority parties/creditors as objected to the change of law to be once more placed under compulsion to accept some further change in their existing contractual rights and obligations.
- I do not accept that it is, although I do accept that the court invited to sanction such compulsion will be particularly careful in giving it. Indeed I would go some way towards accepting Mr Snowden's arguments; it seems to me that the onus placed on the court in exercising its jurisdiction to make an order which will be given recognition elsewhere may well require it to be especially wary if, for example, the new choice is of a law which appears entirely alien to the parties' previous arrangements and/or with which the parties had no previous connection; or if the change in law has no discernible rationale or purpose other than to advantage those in favour at the expense of the dissentients; or even more generally, where in its discretion the court considers that, in the places in which the parties are, the extent of the alteration of rights between the parties for which sanction is sought would be considered a "step too far".
- In this case, however, I do not consider that what is proposed (subject to my reservations as to the imposition of new obligations and also to clause 14.2 of the Schemes as originally presented (as to which see further below) is "a step too far".
- I have already explained why I consider that I should proceed on the basis that the Schemes offer the means of enabling a restructuring which is necessary to avoid insolvency in the interests of all creditors. I have explained also why I consider the Schemes to be fair, and to have been approved at properly constituted classes at which those approving the Schemes were acting in a manner reasonably considered to be in the interests of that class. I consider that the change of governing law was understood and intended to enable such a result; and even if Centerbridge may also have had other motives and objectives, it could not have secured the changes without the assistance of others who did not.
- I do not think that the changed choice of law is alien or indiscriminate or such as could not reasonably have been contemplated by commercial parties aware of the Rome 1-Regulation. I am fortified in that conclusion by the following factors:
(1) the approval of the change of law by a super majority of Existing SFA Lenders, including creditors who had nothing to gain by or from the Turnover Agreement, but not FMS and Litespeed (who abstained);
(2) the fact that when that approval was sought by the Scheme Companies all Lenders had been advised that the change would be a gateway to the implementation of a scheme under English law;
(3) the fact that the Existing SFA in its original form and as executed by all parties identified and selected English law for certain (albeit limited) purposes;
(4) two of the Scheme Companies are incorporated in this jurisdiction, and a number of the Lenders are managed from London offices;
(5) the Agent under the Existing SFA and the Security Trustee are both English companies incorporated in England and operating out of London;
(6) although itself governed by German law the Existing ICA, which was drafted by Clifford Chance in English, stipulates as the exclusive place of performance for all rights and obligations under any Finance Document (as therein defined), the seat of the Agent at Bracken House, One Friday Street, London or any other place (except Austria) designated by that Agent;
(7) none of the creditors objected to either the choice of law or the jurisdiction of the English court for the purposes of the Extension Scheme.
- All in all, I am satisfied that it is proper to proceed on the basis of a valid choice of English law and jurisdiction and that in all the circumstances the same faith and credit should be accorded to that choice as if it were the original choice. In those circumstances, I do not see that there is any real or sufficient distinction between this case and Rodenstock and the other cases in the following line of cases on the question of "sufficient connection".
- In summary, I am satisfied that there is a "sufficient connection" to warrant and justify the exercise of my jurisdiction under Part 26, provided that such exercise would not be in vain or in breach of laws within the jurisdictions in which the Schemes are intended to be given effect.
Would the Schemes be recognised and enforced?
- I turn next to the question of recognition and enforcement. For reasons which will already be apparent, I can be very brief.
- The foreign Scheme Companies commissioned opinions from independent experts on the local law of each of the jurisdictions of the Foreign Scheme Companies, as to the recognisability and effectiveness of the Schemes as follows:
(a) an expert opinion as to matters of German law produced by Professor Paulus;
(b) an expert opinion as to matters of Belgian law produced by Prof. Dr. Geert Van Calster;
(c) an expert opinion as to matters of Danish law produced by Prof. Lic. Jur. Søren Friis Hansen;
(d) an expert opinion as to matters of Norwegian law produced by Mr. Jo. Rodin of Advokatfirmaet Thommessen AS; and
(e) an expert opinion as to matters of Austrian law produced by Prof. Dr. Paul Oberhammer.
- In each case, the relevant foreign law expert concluded that the local court in the applicable jurisdiction would recognise and give effect to the Schemes pursuant to which the Restructuring shall be implemented. Each such expert also concluded that such local court would recognise and give effect to the change of the governing law and jurisdiction of the Existing SFA from German law and the Courts of Frankfurt/Main to English law and the English courts, respectively, prior to the launch of the Extension Scheme.
- As to the analysis here, the EC Regulation on Insolvency Proceedings 1346 / 2000 does not apply to schemes of arrangement (proposed outside an insolvency process). Furthermore, the Judgments Regulation 44 / 2001 does not limit the original jurisdiction of the English court, even though the application may be a civil or commercial matter. The reason for this is either because no defendant is "sued" by way of a scheme of arrangement so as to engage Article 2, or because Article 23 applies by reason of exclusive English jurisdiction clauses for the benefit of the relevant lenders: see Re Vietnam Shipbuilding Industry Groups  EWHC 2476 (Ch), [11 to 16] (and see Re Rodenstock GmbH  EWHC 1104 (Ch), [54, 61 and 63], Re Primacom GmbH  EWHC 164 (Ch) [8 to 17] and NEF Telecom Company BV  EWHC 2944 (Ch), [38 to 42]).
- Accordingly, I see no real reason to doubt that the Schemes would be recognised and enforced in the relevant EU jurisdictions: the court, in giving sanction, should not be acting in vain.
Would the release of the Transaction Security be in breach of German law?
- A further contention advanced on behalf of FMS was that the court should decline to sanction the Schemes because the Restructuring, of which the Schemes are part, will not be effective and will involve a breach of the terms of the Existing ICA, the governing law of which was never changed from German law. The Existing ICA, assuming its currency (which became a point in issue), regulates the holding of the Transaction Security (that is, the security created or expressed to be created under or pursuant to the Security Documents as defined in the Existing SFA) and distribution of payments to the Security Trustee among the creditors.
- To support this contention FMS adduced by way of an opinion dated 13 October 2013 (the same day as the class meetings were held) the expert evidence of Dr Dietmar Shulz LL.M, ("Dr Schulz", a German attorney-at-law admitted to the bar in Frankfurt am Main and presently a partner in DLA Piper UK LLP based in their Frankfurt office).
- Dr Schulz agreed with Professor Paulus that the Schemes, if sanctioned by this court, would be recognised in Germany. However, it was his opinion, in summary, that
(1) the Security Trustee would not lawfully be entitled to release the Transaction Security upon implementation of the Schemes since the Schemes do not and cannot interfere with or supersede the Existing ICA, which is governed by German law and restricts the ability of the Security Trustee to release the Transaction Security;
(2) the Existing SFA Agent and the Security Trustee would be acting in breach of the ICA if the security was released without the prior consent of the Super Majority Lenders; and
(3) the consent required in order to release the Transaction Security being a matter governed by German law, the votes of Existing SFA Lenders who are also Existing SSFA Lenders would not be counted in respect of any resolution to require such release because of a conflict of interest and duty arising under German law because all Existing SFA Lenders would be treated as members of a civil law partnership among all the Existing SFA Lenders and security holders.
- This unheralded evidence, introducing points relied on as giving rise to a fatal flaw in or "blot" on the Schemes, occasioned a flurry of further expert evidence and submissions, and ultimately to an extra day being required for cross-examination of the experts, namely Dr Schulz and Professor Paulus (who was instructed to assist me on this point also by the Scheme Companies).
- I directed this cross-examination, which is unusual though not unknown in the context of a scheme, even though it was common ground that the English court did not need finally to determine the German law issues in order to sanction the Schemes. (Those issues are only factors going to whether or not, as a matter of discretion, the English court should exercise its power to sanction the Schemes.) The reasons why I did so, at the invitation of the parties, arose out of my concern that, having regard to the onus implicit in the system for recognition of judgments referred to previously, I should do my best to satisfy myself that, if sanctioned, the Schemes would not constitute or necessarily result in a breach of German law. That concern was heightened by (a) the direct conflict of expert evidence on German law, (b) the hurried circumstances in which expert exchange had had to be exchanged and the need for its elucidation, and (c) concerns that I would not be in a position to reach a sufficiently clear view without it.
- It may assist first to elaborate a little on the ambit of this German law element of the dispute.
- FMS's arguments relied on showing (at least) that the German court would accept each of the following four contentions, none of which is accepted by the Scheme Companies:
(1) As a matter of construction of the documents, the obligations of the borrowers under the New SFA and Holdco Facilities to be entered into as part of the Restructuring are "Secured Obligations" within the meaning of the Existing ICA or (it is alleged) one of the other documents executed as part of the 2007 transaction, so the Existing ICA will still be in effect even after the discharge of the Existing SFA.
(2) The Existing SFA and/or ICA give rise to a subsisting civil law partnership (Gesellschaft burgerlichen Rechts, "GbR") under section 705 of the German Civil Code, and in particular an Innengesellschaft (or "IGS") between (it appears) all Senior Facility Lenders in their capacity as security holders.
(3) The GbR (assuming it to exist) restricts the way in which Super Majority Lenders are entitled to vote when exercising their right to instruct the Senior Facility Agent to release Transaction Security pursuant to Clause 41 of the Existing SFA ("Clause 41"), with the effect (FMS argues) that Clause 41 requires not only approval by a 90% vote by Senior Lenders but also a vote that excluded any Existing SFA Lenders that were subject to a conflict of interest.
(4) The purported instruction for a release of the Transaction Security by operation of Clause 12 of the Schemes would not be recognised by the German Court because it is said to be contrary to regulation 22.2 of the Judgments Regulation.
- All of Dr Schulz's arguments would need to be accepted (and all of Professor Paulus' be rejected) by the German court in order for FMS to succeed in Germany. If any of Dr Schulz's arguments were to fail, then the contention that the German court would not recognise the release of Transaction Security would also necessarily fail.
- Having read the reports of the two experts (each of whom I have no doubt did his best to assist me in a context where there appeared to be little or no clear guidance in the case law or unanimity view in the text books) and listened carefully to their oral evidence, I have concluded that it is unlikely that the arguments advanced by Dr Schulz would all succeed.
- Given that it is accepted that my role is not to reach a decision on the German law, but only to satisfy myself as best I can that there is no such plain and obvious risk or likelihood of a breach of that law as should cause me, as a matter of discretion, to refuse to sanction schemes which otherwise appear to me should be sanctioned, it is, I think, only necessary for me to summarise my views in this regard. I can do so as follows.
- First, as to whether the existing obligations under the Existing ICA will cease to have any application or relevance and should be treated as discharged, it seems to me that:
(1) although the Schemes, when sanctioned and recognised, would not of themselves terminate the Existing ICA (being governed by German law), the question remains whether their provisions would be interpreted as continuing to apply;
(2) that process of interpretation would be governed by German law; but the experts seemed to be agreed that in the context broadly the same principles would be applicable as under English law: a German court would seek to determine what the parties intended, by looking at the words used in their context;
(3) applying those principles to the definition of the phrase "Secured Obligations" as it appears in the Existing ICA, and the phrase "Finance Document" to which it refers, I do not consider it at all likely that the parties intended that those definitions would extend to obligations not owed under the Existing SFA and new documents making available new facilities and involving new borrowers under a different overall structure: even the extended definition of "Finance Documents" to include agreements or instruments "as amended or novated (however fundamentally) …" (see clause 1.2(a)(iii) of the Existing ICA) is difficult (if not impossible) to read as intended to extend to agreements or instruments which do not have any root in the original agreements or instruments, but are wholly new;
(4) nor does it seem to me likely that the borrowers' obligations under the New SFA and Holdco Facilities would be interpreted as falling within the (albeit broadly stated) definition of "Liabilities" in the Existing ICA: I accept the Scheme Companies' submission in that regard that it is (at least) unlikely that the draftsman intended to extend the concept of liabilities to any new debts arising under a refinancing;
(5) more generally, I accept also the Scheme Companies' contention that it is unlikely (and would be inherently surprising) for the parties to the Existing SFA to have intended the security package provided in 2007 to continue when the liabilities for which the package was constructed had come to an end. The purpose of the security, so far as Existing SFA Lenders are concerned, was to secure the obligations owed under the Existing SFA, and that purpose would have come to an end. Any other interpretation would lead to uncertainty, which would be undesirable for both Lenders and borrowers, and pose a difficult and possibly unanswerable question as regards its application to new borrowers.
- On that basis, it seems to me more likely that the borrowers' obligations under the New SFA and Holdco Facilities are not "Secured Obligations" under the Existing SFA; and on that basis, FMS's argument would fall away since the Existing ICA can be of no relevance to the release of Transaction Security.
- That is sufficient to satisfy me that there is no insuperable objection under German law to cause me to refuse to sanction the Schemes. I deal with the other points, which proceed upon the premise of the continued application of the Existing ICA, and relate to the overall question whether (without the consent or acquiescence of FMS) a valid direction for the release of the Transaction Security could be given, for comprehensiveness, and in case this matter proceeds further.
- Secondly, as to the question whether (as Dr Schulz contended) the rights and obligations arising out of the 2007 transaction would be treated as giving rise to an overarching GbR in the same way as a domestic German transaction involving the pooling of securities might be, I am satisfied that it is unlikely that, in the context of these agreements such a partnership would be implied. As it seems to me:
(1) Both experts agreed that there was nothing in the Existing ICA referring to or impliedly acknowledging some overarching partnership.
(2) Although Dr Schulz appeared to suggest that such a partnership would be imposed unless expressly excluded, that chimes oddly with both the nature of the concept and the approach to interpretation under German law, which appears broadly to equate with our own approach; further, in answer to a question from me, Dr Schulz agreed it was all a matter of the parties' intention.
(3) Professor Paulus did at one point seem to concede that he would have expected the parties expressly to exclude any part of German law that they did not want to apply, and accepted that they had not done so. However, the overall gist of his evidence (written and oral) to me was that the question was always one of intention and that in a context such as this, where there were international parties and the agreement was drafted in English, it would be unlikely that the parties intended that an overarching partnership should sub silentio qualify their carefully crafted obligations, and a German court would be unlikely to apply such a concept in such a context: that impressed me as very likely to be correct.
(4) My impression that a German court would be unlikely to conclude that the parties had any such intention is fortified by considering the ramifications of Dr Schulz' s opposing view: in particular, I accept Mr Trower's submission, which does not require any analysis of German law, that it would cut across the mechanics contemplated by the transaction documentation. The Facility Agent and Security Trustee would be required to go behind the quantum of votes to look at the beneficial ownership of the debts held by the Lenders of record, and the motives of those voting on particular issues. This would create uncertainty and grave commercial difficulties for the Facility Agent and the Security Trustee which it is most unlikely the parties would have intended. Further, it appears directly contrary to the intent of the provisions of clause 16.7 of the Existing ICA.
- In the round, I am satisfied that in the particular circumstances it is unlikely that a German court would infer or imply the existence of an overarching partnership, qualifying and in important respects undermining the careful contractual definition of the parties' agreement.
- The third argument advanced by Dr Schulz on the assumption (which I do not think would be made) that a partnership would be implied is that such partnership would bar Existing SFA Lenders with cross-holdings in the Existing SSFA debt from voting to release Transaction Security pursuant to Clause 41 of the Existing SFA. As to this, and very briefly (since this argument is dependent on arguments I have already explained seem to me unlikely to succeed):
(1) I agree with the Scheme Companies' submission that it is the Existing SFA (rather than the Existing ICA) which governs the relationship between Priority Senior Lenders in relation to matters including voting to instruct the Agent to instruct the Security Trustee to release Transaction Security: and since the experts were agreed that the change of the Existing SFA's governing law to English law was effective, it is English law which controls that issue, and there is no suggestion that any fetter arises under English law.
(2) Even if a German court were nevertheless to conclude that in some way (a) there was a GbR and (b) that it might theoretically impose obligations on Existing SFA Lenders in relation to votes under Clause 41 of the Existing SFA, I accept Professor Paulus's evidence that a German court would be unlikely to consider there to be, on the facts, a conflict of interest such as to deprive Existing SFA Lenders of their contractual rights to vote under the Existing SFA.
- Lastly, I was not persuaded by Dr Schulz's argument that even though (as both experts agreed) the German Courts would be required under the Judgment Regulations to recognise and give effect to the Schemes as sanctioned, they would nevertheless rely on Article 22.2 of the Judgments Regulation and refuse to recognise an instruction to the Existing SFA Agent for the release of the security. As to this (and again briefly):
(1) I found Professor Paulus's clear and unequivocal view that Article 22.2 was not engaged persuasive.
(2) The instruction for release would be an incidental step, not the main purpose of the Schemes: it seems to me that Professor Paulus is likely to be right in his assessment that a German court would be unlikely to undermine a scheme which it has recognised and given effect by denying effect to an instruction for release of the Transaction Security.
- For all these reasons, I am satisfied that FMS's arguments based on German law do not provide any sufficient basis for me to decline to sanction schemes which otherwise I would sanction.
Amendment required to Clause 14.2 of the Schemes
- Clause 14.2 of the Schemes as originally approved and presented for sanction comprised an unqualified undertaking on behalf of all Scheme Creditors not to commence any proceedings or other similar process to challenge the negotiation and implementation of the Schemes, the previous Restructuring Schemes or the execution or implementation of the documents and arrangements required for the restructuring. FMS objected to the provision as being in the nature of an anti-suit injunction against access to other EU courts to vindicate pre-existing rights and contrary (in substantive effect) to cases such as Turner v Grovit  1 AC 101. FMS sought especially to protect its rights (as it has perceived them to be) under German law in respect of the Existing ICA.
- I can record that in the end the Scheme Companies and FMS agreed a proviso to the clause, and so it became unnecessary further to consider the matter. The Schemes have been amended accordingly.
- Subject to (a) amendments that I have mentioned and (b) agreed provisions to enable the Schemes to proceed so far as possible without in any way precluding the Court of Appeal, if so minded, thereafter reversing this decision entirely, I considered for my part that I should give the court's sanction to each of the Schemes. I have done so accordingly.
- I have dealt with consequential matters previously. My rulings have been transcribed, and I will revise and approve these in due course.