Barings (UK) Ltd v Galapagos S.A.
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Bacon |
| Judgment Date | 30 June 2022 |
| Neutral Citation | [2022] EWHC 1633 (Ch) |
| Docket Number | Case No: CR-2019-005614 |
| Court | Chancery Division |
[2022] EWHC 1633 (Ch)
Mrs Justice Bacon
Case No: CR-2019-005614
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF GALAPAGOS S.A.
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
7 Rolls Building
Fetter Lane
London, EC4A 1NL
David Alexander QC (instructed by Akin Gump LLP) for the Applicants
Peter Head (instructed by Stewarts LLP) for the Respondent
Ryan Perkins (instructed by Kirkland & Ellis LLP) for Galapagos Bidco S.A.R.L.
Daniel Bayfield QC and Ben Griffiths (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for Signal Credit Opportunities (Lux) Investco II S.A.R.L.
Hearing dates: 24–25 May 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application by various Barings companies and Goldman Sachs (together the Applicants) for the making of a winding up order in respect of the Respondent, Galapagos S.A. ( GSA). It is supported by Galapagos Bidco ( Bidco) but opposed by Signal Credit Opportunities ( Signal). GSA is ostensibly neutral as regards this application, save for submissions as to the basis for its representation in these and related proceedings.
Signal's opposition to the application turns on a long-running dispute between GSA's senior creditors (the Applicants) and junior creditors (of which Signal is one). The present application was originally made in 2019. While it was pending before the English courts, a group of high yield noteholders, of which Signal was a member, procured the replacement of GSA's English directors with a German director, and the new German director and two creditors brought separate ex parte applications before the Düsseldorf Amtsgericht (District Court) for the opening of insolvency proceedings there. Following the opening of insolvency proceedings by the Düsseldorf court, the English proceedings were stayed.
The German proceedings eventually resulted in a reference to the CJEU made by the Bundesgerichtshof (Federal Court of Justice), judgment on which was handed down on 24 March 2022: Case C-723/20 Galapagos EU:C:2022:209 (the Galapagos CJEU judgment). The Applicants and Bidco say that the effect of the Galapagos CJEU judgment is that GSA's winding up can and should now proceed in this jurisdiction. Signal, however, contends that the English insolvency proceedings should remain stayed or should be dismissed. The arguments on both sides are complicated by the fact that the Brexit transition period ended on 31 December 2020, as a result of which it is necessary to consider the effect of the transitional provisions in the Withdrawal Agreement ( [2019] OJ C384/1).
The parties and factual background
GSA is a company incorporated in Luxembourg, and was a member of a group of companies whose principal business was the manufacture of heat-exchangers. The ultimate owners of the group are a consortium of private equity funds managed by Triton Investment Management Limited ( Triton).
GSA itself was not an operating company within the group, but was formed to facilitate financing transactions for the group which were implemented in May 2014. In that capacity, GSA was the borrower of group debt under a revolving credit facility, a guarantee facility and senior secured notes. It was also the guarantor of high yield notes issued by its immediate parent company Galapagos Holding S.A. ( GHSA). The credit and guarantee facilities were agreed on 18 May 2014; the notes indentures were issued on 30 May 2014. Under an Intercreditor Agreement dated 30 May 2014 the claims of the lenders under the credit and guarantee facilities were ranked first, followed by the senior secured noteholders, and lastly the high yield noteholders.
The first to third Applicants are the managers or advisers to funds which are the beneficial holders of the senior secured notes. The fourth applicant is a beneficial holder of the senior secured notes. Signal is one of the ultimate beneficial owners of the high yield notes (with a face value amounting to around 29% of the notes issued in May 2014).
Bidco was a wholly-owned subsidiary of GSA, and a creditor of the company for the sum of €6.5 million under a loan agreement executed on 26 June 2019 (which ranks below the May 2014 debt). In a restructuring of the company implemented on 9 October 2019, the share capital of Bidco was transferred to Mangrove IV Luxco SARL ( Mangrove), a subsidiary of Triton, for the sum of around €424.6 million. The restructuring transaction enabled the discharge of GSA's liabilities under the credit and guarantee facilities, and also discharged 90% of the company's liabilities under the senior secured notes.
The restructuring left outstanding, however, 10% of the company's liabilities under the senior secured notes (amounting to around €33.35 million), all of the liability under the guarantee of the high yield notes (amounting to around €250 million) and the liability under the Bidco loan agreement.
Procedural background
The present insolvency proceedings were commenced by an application by GSA itself on 22 August 2019 (i.e. before the restructuring transaction was implemented) for an administration order on the basis that GSA was or was likely to become unable to pay its debts. The application was supported by a witness statement from one of GSA's then directors, Mr John Keen. He had been appointed in June 2019, together with another director Mr Matthew Turner, as part of a series of actions designed to shift the company's centre of main interests ( COMI) from Luxembourg to England. (As discussed further below, Signal disputes that there was in fact an effective shift of the company's COMI to England.)
The administration application was listed to be heard by Fancourt J on 23 August 2019. Shortly before the commencement of the hearing, the high yield noteholders exercised their voting rights pursuant to a pledge over GSA's shares, so as to remove the company's English directors, appointing in their place a German director, Mr Jan Bayer, as the company's sole director. Mr Bayer then instructed GSA's solicitors to withdraw support for, and in fact to oppose the making of, the administration order.
In order for the hearing to proceed the Applicants applied to be substituted as the applicants in the administration order. That substitution application was granted by Fancourt J in the afternoon of 23 August 2019. In the meantime, however, Mr Bayer had made an ex parte application to the Düsseldorf court for a preliminary insolvency order, which was granted at 1.15pm UK time on the same day. The order appointed Dr Frank Kebekus as the insolvency administrator and designated the Düsseldorf proceedings as the “main proceedings” for the purposes of the Regulation (EU) 2015/848 on insolvency proceedings [2015] OJ L141/9 (the Recast EIR), on the basis that GSA had its COMI in Germany. As a result of that order, Fancourt J adjourned the substance of the hearing to the following week, for the court to consider whether the amended administration application could proceed.
On 29 August 2019 Norris J stayed the English administration application on the basis that the court had to recognise and give effect to the German insolvency proceedings under Article 19 of the Recast EIR: [2019] EWHC 2355 (Ch). He rejected Dr Kebekus' submission that the application should be dismissed altogether, expressing concern as to whether the Düsseldorf court had been told that there was already a pending application before the English courts for an administration order, and questioning whether GSA's COMI had in fact been transferred to Germany. He noted that there was therefore a possibility that the German order would be set aside or revoked, and concluded at §29 of his judgment that:
“There were undoubtedly some very smart moves by the high yield note holders. They have an understandable concern that the present proposed process does not yield them sufficient. They acknowledge that the prosecution of insolvency proceedings in Germany does not completely jeopardise the restructuring, or at least does not completely jeopardise a sale of the BidCo shares since that could take place within the German insolvency proceedings. But it seems to me they should not procure the advantage of managing to dispose of the English administration application in its entirety if there is the possibility that the German court takes the view that it should have been told about the English administration proceedings (in the event that it proves it was not told).”
On 9 September 2019 the Düsseldorf court did indeed set aside its preliminary insolvency order, on the basis that GSA's COMI was not located in Germany when the proceedings were commenced, i.e. on 23 August 2019. (The court order was dated 5 September 2019, but this appears to have been an error.) The Applicants then immediately applied to lift the stay of the English application, and a hearing was listed for the same day before Falk J. On 6 September 2019, however, renewed ex parte applications had been made to the Düsseldorf court, which resulted in a second preliminary insolvency order being made by that court on 9 September 2019 before the matter came before Falk J. Falk J therefore adjourned the application to lift the stay.
There were then appeals against the second order of the Düsseldorf court, which resulted in the preliminary reference made by the Bundesgerichtshof to the CJEU, received by the CJEU on 29 December 2020. As recorded above, the Galapagos CJEU judgment...
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