UK Companies Act

Indah Kiat – A Scheme Pulped

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On 12 February 2016 Snowden J handed down his judgment in Indah Kiat International Finance Company B.V. [2016] EWHC 246 (Ch). Indah Kiat International Finance Company B.V. (“Indah Kiat”), part of the global Asia Pulp & Paper Group (one of the world’s largest pulp and paper manufacturers), applied for an order convening a meeting of scheme creditors to consider and, if thought fit, approve a proposed scheme of arrangement (the “Scheme”) under Part 26 of the Companies Act 2006. One creditor, APPIO, opposed the Scheme on various grounds and in this hearing sought an adjournment on the basis that insufficient notice was given to the creditors of the convening hearing.

The Indah Kiat judgment neatly follows a similar judgment of Snowden J in Van Gansewinkel Groep BV [2015] EWCG 2151 (Ch) only a few months earlier. In this case Snowden J took the opportunity to review the current law on jurisdiction relating to schemes of arrangement, and, arguably, to raise the jurisdictional hurdle. He noted that in recent years, schemes of arrangement have been increasingly used to restructure the financial obligations of overseas companies that do not have their centre of main interest or an establishment or any significant assets in England, and stated that companies seeking approval of a scheme would be well advised “to ensure that greater detail is provided, both in the explanatory statement and in the evidence before the court”. Additionally, and more importantly for Indah Kiat, he commented on the judgment in re Telewest Communications plc (No 2) [2005] 1 BCLC 772 that the court will not generally sanction a scheme if it finds a “blot” in the scheme such that the scheme will not have the effect that the company and creditors intend. This is key in the underlying message of Snowden J’s Indah Kiat judgment.

Whilst schemes of arrangement have become increasingly popular to compromise creditors’ claims in a pragmatic manner which may not be available in the jurisdiction of incorporation of the relevant debtor, the judgments in Van Gansewinkel and, more specifically, in Indah Kiat, make it clear that the English courts will not compromise the integrity of this highly effective restructuring tool where the parties invoking the court’s jurisdiction act other than with the “utmost candour”.

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European Revolution vs. English Evolution

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This client alert will focus on three of the key recent cases of the past six months, each of which features the use of English law restructuring tools for non-English companies. Whilst the wave of recent restructurings has slowed in recent times given the uptick in the European economy, these cases are likely to be cited as precedents in the future and the case law developments will be of assistance in the event there is rise in the number of restructurings which may be expected as interest rates rise in the next few years.

In the decade leading up to the Great Recession which commenced in 2008, many European jurisdictions took significant measures to update their antiquated insolvency regimes. The Spanish updated their 1898 insolvency laws in 2003, the Italians updated their 1942 bankruptcy laws in 2005, the French updated their 1984 laws in 2005, the Germans amended their regime in 1999, and finally the UK made radical changes in 2002. The effectiveness of the reforms were mixed and when the stresses of the Great Recession collided with the new regimes, a second wave of reforms, forged by the reality of experience, occurred in every major European country save the UK. In recent years a dichotomy has arisen between European radical change and English gradualism when it comes to restructuring law practice.  Read More.