Bluecrest Mercantile Bv v Vietnam Shipbuilding Industry Group and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Blair |
| Judgment Date | 22 April 2013 |
| Neutral Citation | [2013] EWHC 1146 (Comm) |
| Docket Number | 2012 Folio 1462 and 2013 Folio 143 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 April 2013 |
[2013] EWHC 1146 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building
Mr. Justice Blair
2012 Folio 1462 and 2013 Folio 143
APPEARANCES
Mr. John Taylor QC (instructed by Simmons & Simmons LLP) appeared on behalf of the Claimant BlueCrest.
Mr. Patrick Goodall (instructed by Dentons) appeared on behalf of the Claimant FMS.
Mr. Tom Smith (instructed by Mayer Brown International LLP) appeared on behalf of the Defendants.
(As approved by the Judge)
This matter came before the court in Friday's application list. There was insufficient time to give a decision, which I do now on Monday morning. These applications arise in the context of a proposed English scheme of arrangement in respect of a credit facility of a non-English company. Such schemes have been used with increasing frequency to restructure borrowing governed by English law, as in the present case. However, these applications concern a situation in which there is limited decided case law. Ahead of the proposed scheme of arrangement, the debtor asks the court to stay claims brought by two particular creditors to enforce their holdings of the debt on the basis that this would disrupt the scheme and destabilise the restructuring process.
The factual background is as follows. The first defendant, Vietnam Shipbuilding Industry Group (or "Vinashin" for short) is a Vietnamese state-owned company. Its business is the building and repair of ships, although it also has interests in construction and transportation. I am told that at its peak in 2008 it was the fifth largest shipbuilder in the world with around 50,000 employees. It still has around 30,000 employees, and is an important business in Vietnam.
On 24 May 2007, the Singapore branch of Credit Suisse AG (as Arranger and Facility Agent) and certain lenders entered into a facility agreement under which US$600 million was lent to Vinashin on an unsecured basis. (I should make it clear that where I refer to "lenders" I mean lenders under this facility and not other creditors of Vinashin.) The loan was repayable in 10 equal instalments on specified payment dates falling between December 2010 and June 2015. The obligations of Vinashin were guaranteed on a joint and several basis by the 2 nd to 22 nd defendants. The facility is governed by English law and subject to the non-exclusive jurisdiction of the English court.
In the usual way, the facility provided for the transfer of loans. On 7 January 2011, the claimant in the first action, BlueCrest Mercantile BV, acquired a participation of US$25 million directly from Credit Suisse International by way of transfer certificate.
The claimant in the second action, FMS Wertmanagement AÖR ("FMSW"), acquired its participation as follows. In September 2007 DEPFA Investment Bank Ltd. (which was one of the original lenders under the facility agreement) transferred a participation of US$45 million by way of novation to DEPFA Bank plc, which in January 2013 transferred it by way of novation to FMSW.
Unfortunately, the Vinashin group soon ran into financial difficulties. These are addressed in a review by KPMG, its financial advisers. It seems that in part the problems were caused by the global downturn in the shipping industry and also from difficulties within the Vietnamese economy. The evidence is that Vinashin is presently insolvent. It has a net asset shortfall of approximately US$1.07 billion and accrued losses of approximately US$1.74 billion. Amongst other things, it has not paid principal and interest due under the Credit Suisse facility. As at 31 December 2012, US$240 million principal and US$14.8 million interest was outstanding. KPMG's advice is that Vinashin's current level of debt is unsustainable.
The evidence shows that restructuring negotiations have taken place between Vinashin and the lenders under the Credit Suisse facility since late 2010. In fact both BlueCrest and FMSW have participated in the negotiations. There are only two ways in which such a restructuring can bind all the lenders. The first is an agreement to which all parties subscribe, which presently does not seem on the cards. The other is a scheme of arrangement binding under English law, if that can be put in place. It has not yet happened.
On 8 November 2012, BlueCrest issued proceedings against Vinashin to recover the sums owing to it. A defence was served by Vinashin on 7 January 2013, and summary judgment proceedings issued by BlueCrest on 31 January 2013. No evidence was served in opposition.
As regards FMSW, proceedings were issued on 31 January 2013. No defence was served. Summary judgment proceedings were issued on 7 March 2013. Both these applications were listed for hearing on Friday, 19 April 2013 for half a day.
According to Vinashin's evidence, in March 2013 the restructuring took an important step forward in that it secured the necessary lender support to qualify for a scheme of arrangement. On 28 March 2013, its lawyers wrote to the claimants' lawyers seeking consent to a stay. That, however, was not agreed to by the claimants, and an application for a stay was issued by Vinashin on 11 April 2013.
In its written submissions in support of the stay application dated 17 April 2013, Vinashin made it clear that it had no defence to the substantive claims. On that basis the claimants' straightforward submission is that they are now entitled to summary judgment. The real issue between the parties is Vinashin's application for a stay of the proceedings, alternatively a stay of enforcement.
I need now to say something more about the proposed restructuring. The parties' evidence is not entirely consistent in this respect. However, I do not think it is in dispute that prolonged and complex restructuring negotiations have been going on for about two-and-a-half years, including Vinashin, the lenders, the Government of Vietnam, and their respective advisers. According to Vinashin's evidence, one complication has been the changing constituency of lenders as a result of trading in the debt by distressed debt investment funds.
However, it appears that these hurdles have now largely been overcome and, according to Vinashin, commercial terms have now emerged. Under them, the claims of lenders under the Credit Suisse facility will be exchanged for fixed rate guaranteed notes due 2025, issued by a new entity and bearing a fixed rate of interest at 1% per annum, payable on maturity.
The key aspect of the deal is that it is envisaged that these notes will have the benefit of a Sovereign guarantee provided by the Government of the Republic of Vietnam and governed by English law. The net result is that if the restructuring goes ahead, the lenders, including of course the claimants, would get a single payment in 2025 as opposed to repayment by 2015 under the contractual terms. On the other hand, if the guarantee holds good, they should get their money back. According to Vinashin's evidence, the restructuring proposal was circulated to the lenders on or shortly after 4 February 2013.
It is now necessary to say something about the legal basis for the proposed restructuring. It is not in dispute that the English court has jurisdiction to sanction a scheme of arrangement under Part 26 of the Companies Act 2006 in respect of a foreign company, provided that there is a "sufficient connection" with England. Vinashin, a Vietnamese company, has no assets or business interests here, but the facility agreement is governed by English law and is subject to the non-exclusive jurisdiction of the English court.
The courts have in recent years found a sufficient connection where the claims of the relevant creditors are governed by English law. The cases cited to me are Re Drax Holdings [2004] 1 WLR 1049 at para.29, Lawrence Collins J; Re Rodenstock GmbH [2012] BCC 459 at paras.68 to 69, Briggs J; Re Primacom Holding GmbH [2011] EWHC 3746 (Ch), paras.63 to 64, Hildyard J. It is not in dispute that an arrangement may properly be promoted between a company and only some of its creditors, here lenders under a particular facility: see Re Bluebrook Ltd. [2010] 1 BCLC 338, Mann J.
The procedure for promulgating a scheme of arrangements under Part 26 of the 2006 Act consists (in summary) of three stages. First, there is an initial hearing at which the court considers whether to convene a meeting of creditors to vote on the proposed scheme. Second, there is a meeting of creditors at which it is necessary for the scheme to be approved by a majority of the creditors present and voting, representing a simple majority by number and 75% by value. Third, if the necessary approval from creditors is obtained, there is a second hearing before the court to obtain sanction for the proposed scheme of arrangement. If it is forthcoming, the scheme becomes binding on the company and the relevant creditors.
I now come to consider the position in the present case. Here there is a sharp divergence between the parties. According to the submissions of FMSW, the tentative nature and timing of the proposed scheme does not provide a solid foundation for a stay to be imposed. The restructuring discussions have been going on for the last two-and-a-half years but even now no steps have been taken by Vinashin to seek the Companies Court's permission for the scheme, which remains outline in...
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