Bluebrook Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann,MR JUSTICE MANN |
| Judgment Date | 11 August 2009 |
| Neutral Citation | [2009] EWHC 2114 (Ch) |
| Docket Number | Case No: 15856 OF 2009 |
| Court | Chancery Division |
| Date | 11 August 2009 |
[2009] EWHC 2114 (Ch)
Before :
Mr Justice Mann
Case No: 15856 OF 2009
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR. R. DICKER Q.C. and MR. R. FISHER (instructed by Latham & Watkins (London) LLP) for the Companies.
MR. D. CHIVERS Q.C. and MR. S. HORAN (instructed by Gide Loyrette Nouel LLP) for the Mezzanine Co-ordinating Committee.
MR. G. MOSS Q.C. and MR. A. AL-ATTAR (instructed by LovellsLLP) for the
Senior Steering Committee.
Approved Judgment
Hearing dates: 3 rd, 4 th and 5 th August 2009
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
………………………..
Mr Justice Mann :
Introduction
This is an application for the court's sanction of three schemes of arrangement, each of which is between one company and lenders described as Senior Lenders. Those companies are Bluebrook Limited (“Bluebrook”), IMO (UK) Limited (“IMO”) and Spirecove Limited (“Spirecove”). On 3 rd July 2009 Arnold J made an order convening meetings of the scheme creditors, and those meetings took place on 29 th July 2009. At each of the meetings the schemes were approved by a majority which very significantly exceeded the statutory majority, so that the relevant class of creditors approved each of the schemes. Only two members of that class in number, amounting to no more than 5% of the debt, voted against. The present challenge to these schemes comes not from those two creditors, or indeed from any member of the class of scheme creditors. Instead, it comes from representatives of a class of subordinated creditors. They maintain that the schemes operate unfairly to them because they deprive them of any valuable rights against the companies. Whether that is right or not is the question that I have to decide at this stage of the proceedings.
Background
Bluebrook is the holding company of a group of companies which operates the biggest carwash business in the world. The business is operated by a number of subsidiaries in a number of countries around the world. IMO and Spirecove are indirect subsidiaries of Bluebrook. Bluebrook is indebted to a consortium of lenders. This is the Senior Debt, and for present purposes its current amount can be taken as being £313m. The value varies a little depending on the sterling/euro exchange rate. The indebtedness is guaranteed by other companies in the group, including IMO and Spirecove. The indebtedness is supported by a range of debentures under the security so as to charge the value of the group. The lenders under these transactions are called the Senior Lenders.
Spirecove is indebted to another group of lenders, called the Mezzanine Lenders. The level of this debt can be treated in round terms as being £119m (including unpaid interest). Again, that indebtedness is secured by a range of securities covering the assets of the group. The actual trading is carried out by companies lower down in the group. Their various identities do not matter for the purposes of this judgment.
Various subordination arrangements are in place which firmly subordinate the Mezzanine Lenders to the Senior Lenders. The arrangements are contained in an Intercreditor Agreement dated 8 th February 2006 (as amended, restated and supplemented from time to time). I do not need to set out the detailed provisions of that agreement. I can summarise the relevant provisions as follows:
i) Clause 2 deals with the ranking of the debt. The Senior Debt ranks first; the Mezzanine Debt ranks second. (They are followed by other levels of debt which I do not need to deal with).
ii) Clause 6 deals with the subordination of the Mezzanine Debt. In essence, repayment of the Mezzanine Debt cannot be made, or sought, until the Senior Debt has been paid. Clause 6.8 is a “turnover” clause; —if any of the Mezzanine Lenders receive a payment in respect of its debt, which is not permitted under the Intercreditor Agreement, then it will pass it on to the Senior Lenders.
iii) Under clause 11.4 the security agent under the agreement is given authority by all the creditors to release security and to release liabilities in respect of any enforcement action by any of the creditors, provided that any proceeds from enforcement are applied in accordance with the Intercreditor Agreement (i.e. from the top down).
iv) Under clause 12 the Mezzanine Lenders are given an important right. In the event that they are not content with certain enforcement actions, they can compel a sale to them of the rights and obligations of the Senior Lenders for the amount of the outstanding Senior Debt.
v) Clause 13 provides that on the occurrence of an Insolvency Event (winding up, administration and so on) the Mezzanine Debt is subordinate in right of payment to the claims of the Senior Debt.
vi) Clause 14 provides for the proceeds of any enforcement to be applied (after certain fees, costs and expenses) in discharge of the Senior Debt and then the Mezzanine Debt and so on.
Thus the prospect of recovery by the Mezzanine Lenders is very firmly subordinated to the prior rights of recovery of the Senior Lenders. No-one has questioned the efficacy of those arrangements in the hearing before me.
The funding arrangements which are organised by the Intercreditor Agreement were made in 200Since then the group has not performed according to expectations, with the result that interest is now significantly in arrears. The group performance falls short of various targets specified in the Senior Credit Agreement covering the Senior Debt (principally the various financial covenant ratios based, directly or indirectly, on the EBITDA – earnings before interest, tax, depreciation and amortisation). Interest due to the Senior and Mezzanine Lenders has not been paid, and the boards have considered that it cannot be paid fully into the future either. The boards are concerned that they cannot pay debts as they fall due, and that the group is balance sheet insolvent. The group has sought to come to a restructuring arrangement with the Senior Lenders and, for a time, with the Mezzanine Lenders. Negotiations have been in process for some months. The plans involved the Senior Lenders giving up some of their debt in exchange for equity, with the business of the group being transferred to a new corporate structure containing new companies in order to achieve that. The new group would be principally owned by the Senior Lenders; the existing group would not retain an interest. At one stage of the negotiations there was a proposal to allow the Mezzanine Lenders to participate in the form of share warrants, but that was abandoned and since then the proposals that have been made have not included any new rights for the Mezzanine Lenders.
The current proposals are embodied in the schemes of arrangement for which the court's sanction is sought, coupled with other transactions to give effect to a partial debt-equity swap. Its elements are as follows:
i) There will be a restructured group consisting of three companies – HoldCo, MidCo (a wholly-owned subsidiary of HoldCo) and NewCo (a wholly-owned subsidiary of MidCo) and a transferee of certain German assets. The equity in HoldCo will ultimately be owned by the Senior Lenders, subject to a certain amount of dilution in favour of members of the management of the group.
ii) The Senior Debt will, to the extent necessary, be accelerated and demands for payment will be made against the three scheme companies and certain other transferors.
iii) Following this sanction hearing, and conditional upon sanction being given, the various transferor companies will be placed into administration and each of the transferor companies (including the three scheme companies) will be requested by the Security Agent under the present lending arrangements to enter into asset transfer agreements to transfer all the assets from the present group into the restructured group.
iv) £12m of the existing Senior Debt will remain in the existing group. A large part of the rest (approximately £185m) will be novated to a company in the new group. The remainder of the debt will be substituted by the Senior Lenders taking the shares in HoldCo. The old group will be released from the debt other than the £12m being left behind.
v) The transfer of assets to the new group will be done by an administrator. The evidence when it came before me was somewhat coy as to the reason why the administrator, rather than the various boards of directors, were effecting the transfer. It transpired that this was because it was considered by the boards to be better to have an insolvency practitioner, an independent third party, consider the transfer, and its propriety at the relevant values. Even though the administration is to be a pre-packaged administration, with the intended administrator being kept fully informed of everything that is going on, there can, of course, be no guarantee that the administrator will, at the end of the day, effect the various transfers. However, if the transfers do not happen, then the rest of the overall transaction does not happen either.
vi) The three schemes deal only with the mechanism of the release of the scheme claims (the Senior Debt) in anticipation of the exchange for the shares in HoldCo and the debt owed by the new group. The schemes do not themselves provide for the transfer of assets. As was pointed out, it would technically have been possible to have achieved the same result as that achieved by the schemes and the overall arrangements without the necessity for a scheme of arrangement had all the Senior Lenders been in...
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