Algeco Scotsman Pik S.A. (Claimant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 22 June 2017 |
| Neutral Citation | [2017] EWHC 2236 (Ch) |
| Docket Number | Case No: CR-2017/003756 |
| Court | Chancery Division |
| Date | 22 June 2017 |
[2017] EWHC 2236 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
Mr Justice Hildyard
Case No: CR-2017/003756
Mr David Allison QC, Mr Adam Al-Attar appeared on behalf of the Claimant
(As Approved)
I shall give an ex tempore judgment now which if necessary I shall wish to perfect and add to in due course. I do think it is important, particularly in the context of a cross-jurisdictional scheme such as this, that the court should explain why it is proceeding so that any other court can both understand the approach of the English Court and also can see and be reassured that the function of the court in the context of schemes is not a ministerial or rubber-stamping one; it is to consider the scheme diligently, and to seek to identify and address any 'blots' on the scheme and any jurisdictional or enforcement problems, whether or not the scheme is the subject of opposition.
As will be apparent from that introduction, this application seeks the sanction of the court under section 899 of the Companies Act 2016 for a scheme of arrangement proposed pursuant to section 895 of the same Act and the scheme raises cross-jurisdictional issues.
The application is made by the subject company, Algeco Scotsman PIK SA which I shall call "the Company". The company is part of the Algeco Scotsman Group which I shall call "the group", for which the holding company is Algeco Scotsman Holding S.à r.I. ("ASH"). The group is a leading global business service provider focussed on modular space, secure storage solutions and remote accommodations. The Company itself is not an operating company but a finance company within the group.
As may be apparent from its name, the Company was not incorporated in England or Wales: it is incorporated in the Grand Duchy of Luxembourg and it has its registered office in that member state of the European Union. It follows from that that the presumption is that its centre of main interest or COMI is in the Grand Duchy. Furthermore, according to the evidence:
(1) the principal discussions and negotiations between the Company and the PIK Lenders, its creditors, have taken place in England;
(2) on 14 and 17 April 2017 creditors and other counterparties to agreements with the Company were notified (by letter and through a website announcement) that Manor Drive, Peterborough, PE4 7AP, England is the address for correspondence with the Company;
(3) three of the four directors of the Company reside in England;
(4) the Company is UK resident for tax purposes;
(5) the Company has a non-officer employee based at the Group's UK headquarters in Peterborough, who is a reporting accountant for the Company and who, amongst other matters, liaises with the Administrative Agent, as representative of the PIK Lenders, in relation to matters under the PIK Loan Agreement;
(6) the Company occupies its UK headquarters under a licence to occupy office space at Manor Drive, Peterborough, PE4 7AP, England; and
(7) the Company was registered as an overseas company with a UK establishment with Companies House on 10 April 2017.
I accept that the PIK Lenders should be taken to be aware from the conduct of negotiations (and the other matters stated above) that the head-office functions of the Company are conducted from England. No Scheme Creditor has sought to suggest that the Company is managed from Luxembourg or that its COMI is in Luxembourg. In all the circumstance, I accept the submission that the Company's COMI is in this jurisdiction.
The Company is the borrower under a lending arrangement which I shall call the "PIK Loan Agreement". The scheme relates to and involves the restructuring of the PIK Loan Agreement as a first step in a sequence designed to address the Group's financial difficulties. The PIK Loan Agreement relates to the borrowing of US$400 million. The agreement itself was dated 1 May 2013. As at 30 April 2017, the amount of PIK Loans outstanding is approximately USD 699 million (plus approximately USD 37 million of accrued but uncapitalised interest). The PIK Loans mature on 1 May 2018, on which date an amount of approximately USD 868 million will become immediately due and payable.
The PIK Loans represent only part of the Group's borrowing. It also has structurally senior debt ranking in priority (termed "Existing Senior Indebtedness"): (a) some US$1,095 million of 8% senior secured notes and EUR 275 million 9% senior secured notes (together the "SSNs") issued by Algeco Scotsman Global Finance PLC (the "Issuer"), an affiliate of the Company, and due October 2018; (b) some US$745 million of 10.75% issued by the Issuer due October 2019 (the "SUNs"); and a revolving syndicated facility agreement between certain operating subsidiaries of ASH as the borrowers (the "ABL Facility"). As at 3 May 2017, approximately USD 870 million has been drawn under the ABL Facility (including letters of credit) and approximately USD 53 million remains available for drawing. The ABL Facility was originally due to mature in October 2017 but its maturity has recently been extended to July 2018 so as to give the Group an opportunity to achieve a restructuring of the sums due under the PIK Loan Agreement (albeit that an event of default will occur under the ABL Facility if the restructuring of the entirety of the sums due under the PIK Loan Agreement has not been achieved by October 2017).
The ABL Facility and the SSNs are secured, having the benefit of share and asset security granted by the Group's key operating subsidiaries. The SUNs are unsecured but have the benefit of guarantees granted by the Group's key operating companies.
ASH is a guarantor under the PIK Loan Agreement. The PIK Loans are secured by pledges over:
(a) the entire outstanding share capital of:-
i. the Company; and
ii. Algeco Scotsman Global S.à.r.l. (" ASG"), which is the sole shareholder of the Group's key operating companies (except for a 13.49% interest in the Group's North American holding company that is held by ASH); and
(b) certain receivables due to the Company under a loan made by the Company to ASH with the proceeds of the PIK Loans.
In broad summary, the purpose of the scheme is to effect a compromise arrangement in respect of the claims of the lenders under the PIK loan agreement by the cancelation of the PIK loans in exchange for a pro rata portion of first, an aggregate amount of cash consideration of US$95 million, subject to an adjustment in respect of an early tender fee to which I shall return and secondly, equity in the restructured group. It is, as I indicated earlier, the first step in a potential wider restructuring of the group's financial indebtedness and it is intended to facilitate the injection of new monies into the group.
The need for the reorganisation and the scheme to effect it arises out of difficulties of a financial nature affecting the group as a whole. Again, put very shortly and in terms which are elaborated in considerable detail in the explanatory statement relating to the scheme, the group has, since 2013, experienced declining revenues primarily attributable apparently to foreign currency movements and a decrease in revenue generated in Asia Pacific and the Americas.
The impact, both in terms of its balance sheet and its profitability, has been severe: certainly severe enough to prompt a review of its borrowing commitments. It is in that context that negotiations have been carried on between the company and its lenders and, in particular, the lenders under the PIK loan agreement with a view to a reorganisation, either consensually or if that was impossible to achieve, by resort to a scheme of arrangement.
Although the ABL Facility had the earliest maturity of all of the Group's secured indebtedness, the Group decided to approach the PIK Lenders regarding a potential restructuring of the PIK Loans first as:
(a) the Group considered that a restructuring of the PIK Loans would give it more flexibility in proposing and assessing potential transactions to address the upcoming maturities of its Existing Senior Indebtedness; and
(b) it was believed that a transaction with the PIK Lenders could be completed more quickly than a transaction with the creditors of the Existing Senior Indebtedness.
There is no real doubt on the evidence as to the fact and acuteness of the need for a reorganisation. This is reinforced by an independent report by Deloitte investigating alternatives to the reconstruction proposed.
Again in summary, the alternatives and thus the comparators, are that if the scheme is not sanctioned, the effects or consequences will likely be: (a) there would be no Equity Commitment, being an investment by the group's beneficial owner with an aggregate value of USD 250m, and a very low prospect of finding new sources of liquidity or refinancing; (b) an event of default would be triggered under the ABL Facility on 10 October 2017,...
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