Azevedo v IMCOPA - Importacao. Exportaacao e Industria de Oleos Ltda
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Aikens,Lord Justice Beatson |
| Judgment Date | 22 April 2013 |
| Neutral Citation | [2013] EWCA Civ 364 |
| Docket Number | Case No: A3/2012/1532 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 April 2013 |
[2013] EWCA Civ 364
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE HAMBLEN
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lloyd
Lord Justice Aikens
and
Lord Justice Beatson
Case No: A3/2012/1532
Simon Goldblatt Q.C. and Karen Gough (instructed by R A Rosen & Co) for the Appellants
Ben Valentin (instructed by Shearman & Sterling (London) LLP) for the Respondents
Hearing date: 11 March 2013
Introduction and summary
In this appeal, from an order of Mr Justice Hamblen dated 30 May 2012, the appellants contend that it is not lawful under English law for a company to undertake a process which they characterise as buying the votes of the holders of notes or other securities issued by the company. To put the point more formally, the issue is whether English law permits a company to solicit and procure votes in support of a financial restructuring proposal by offering and making cash payments to those members of the relevant class who vote in favour of the proposal but excluding from the payment those who vote against it or do not vote on the resolution at all. The process is referred to as consent solicitation, and the payments as consent payments.
In 2006 the Second Defendant, incorporated in Uruguay and therefore known in the proceedings as Imcopa U, issued $100 million 10.375% guaranteed notes with a maturity date in 2009 (the Notes). The Notes were guaranteed by its parent company, the First Defendant, incorporated in Brazil and therefore known as Imcopa B. The Third Defendant, as its name suggests, is a Cayman company and therefore known as Imcopa C. The Notes were governed by a Trust Deed dated 27 November 2006 made between Imcopa U as Issuer, Imcopa B as Guarantor and the Bank of New York (now Bank of New York Mellon) (hereafter BNY) as Trustee. The Notes are governed by English law, with an English jurisdiction clause. The Claimants invested in the Notes in the amount of $1.2 million.
The resolution which is at issue in these proceedings was proposed in October 2010 as part of a process of restructuring the Imcopa group's obligations. It involved postponing a payment of interest due under the Notes. The notice of the meeting explained that a payment would be made to those voting in favour of the resolution, and would not be made to other Noteholders. The resolution was passed by an overwhelming majority, but the Claimants were not among those voting in its favour, despite having voted in favour of earlier similar resolutions. They now contend that the making of the consent payments only to those voting in favour was unlawful, either because it was a breach of the pari passu principle or because, although not secret, it was in the nature of a bribe and as such not permitted under English company law.
As before the judge, the Claimants were represented by Mr Simon Goldblatt Q.C. leading Ms Karen Gough, and the Defendants by Mr Ben Valentin. I am grateful to Counsel for their clear, sustained and eloquent oral submissions, as also for the written material provided.
The judge rejected the contentions advanced by Mr Goldblatt in an impressive judgment delivered extempore: [2012] EWHC 1849 (Comm). The appeal also challenges, separately, the judge's order as to costs. Permission to appeal was granted by Sir Richard Buxton. I agree with the judge on the main appeal, and I find no misdirection in the way he dealt with the issue of costs. I would therefore dismiss the appeal. My reasons follow.
The Notes
The Trust Deed dated 27 November 2006 contains a covenant by the Issuer with the Trustee to pay to the Trustee all sums due by way of principal and interest on the Notes, in clause 2, and it also contains the guarantee by Imcopa B in clause 5. Clause 6.1 is a declaration of trust, relevantly as follows:
"6.1 All moneys received by the Trustee in respect of the Notes or amounts payable under the Trust Deed will, despite any appropriation of all or part of them by the Issuer or the Guarantor, be held by the Trustee on trust to apply them:
6.1.1 [first, in payment of costs, charges, expenses etc. of the Trustee,]
6.1.2 second, in payment of any amounts owing in respect of the Notes pari passu and rateably"
Schedule 3 to the Deed sets out provisions for meetings of Noteholders. By clause 2.1 a meeting has power, by extraordinary resolution,
"to sanction any proposal by the Issuer, the Guarantor or the Trustee for any modification, abrogation, variation or compromise of, or arrangement in respect of, the rights of the Noteholders against the Issuer or the Guarantor, whether or not those rights arise under the Trust Deed"
However, a special quorum applies to any resolution which would have the effect of modifying the maturity of the Notes or the dates on which interest was payable on them: clause 2.9. An extraordinary resolution must be passed by a majority of 75% of those voting on it. A special quorum resolution requires the attendance at the meeting of representatives of the holders of not less than 75% of the Notes eligible for voting on the resolution. In practice, voting at meetings was by proxy, and the persons appointed as proxies cast votes in respect of all Notes as regards which the holders had appointed them as proxies. Thus, there was no difference between the Notes represented at the meeting, in this sense, and the Notes in respect of which votes were cast at the meeting.
These provisions applied to the resolution with which this appeal is concerned. So, in order to get the resolution passed, the Issuer had to persuade the holders of at least 75% of all the Notes to cast their votes, and at least 75% of those voting to vote in favour of the resolution. That explains the offer of the consent payments.
The terms and conditions of the Notes are set out, with the form of certificate for the Notes, in a schedule to the Trust Deed. Among these terms and conditions is Condition 3 which reiterates the guarantee of the Notes and also has this provision as to the status of the Notes:
"The Notes constitute (subject to Condition 4) direct, unconditional, unsecured and unsubordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4, at all times rank at least equally with all their respective other present and future unsecured and unsubordinated obligations."
Condition 4 includes a negative pledge covenant and other provisions. Mr Goldblatt addressed us in some detail on some of these provisions, but it does not seem to me that anything turns on them for the purposes of the issues that are live on the appeal.
Condition 12 deals with meetings of Noteholders and modifications, in terms which follow those of the Trust Deed already mentioned.
I mention at this point a provision relevant to the position of the Third Defendant. Clause 14 of the Trust Deed allows for substitution of another company as principal debtor under the Trust Deed and the Notes in place of the Issuer, by agreement of the Trustee, without requiring the consent of Noteholders. This power was used in December 2007 to replace Imcopa B as Issuer by Imcopa C. Under clause 14.2.2, an agreement by the Trustee under this provision "will, if so expressed, release the Issuer … from any or all of its obligations under the Trust Deed or the Notes". The Claimants contend that Imcopa B remains liable under the Trust Deed and the Notes despite the substitution of Imcopa C. I will come to that point later.
On the same date as the Trust Deed an agency agreement was entered into between Imcopa U, Imcopa B, the Trustee and other parties, including the Bank of New York, London, by which BNY London was appointed as Principal Paying Agent in respect of the Notes, BNY was appointed as registrar, and other agency appointments were established. BNY and BNY London are not separate legal entities, but they were treated as having separate functions in this context.
The resolutions
The Imcopa restructuring plan was initiated in late 2008, in order to address financial problems resulting from the financial crisis of that year. It led to four resolutions being put to the Noteholders, each of which was approved by the necessary majority and with the necessary quorum. In May 2011 the Brazilian court confirmed the reorganisation plan. The Claimants voted in favour of the first three resolutions.
The first of the resolutions, in May 2009, did not propose any relevant modification of the obligations of the Issuer and therefore did not require the special quorum. Just under 65% of the votes were cast on the resolution, the votes in favour being over 95%. The second resolution was put at a meeting in November 2009. It was to postpone the date of maturity of the Notes and to cancel a payment of interest otherwise due under the Notes on 27 November 2009. Accordingly the special quorum provision did apply. On this occasion over 90% of the eligible votes were cast, with over 99% in favour. Payment of a consent payment was part of this proposal, to be paid to those voting in...
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