Drax Holdings Ltd, Re; Re InPower Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Lawrence Collins
Judgment Date17 November 2003
Neutral Citation[2003] EWHC 2743 (Ch)
Date17 November 2003
Docket Number7080 of 2003; 7089 of 2003

[2003] EWHC 2743 (Ch)




Royal Courts of Justice


London WC2A 2LL


Mr Justice Lawrence Collins

7080 of 2003; 7089 of 2003

7080 Of 2003 In The Matter Of

Drax Holdings Limited

7089 Of 2003 In The Matter Of

Inpower Limited

Mr John Cone (instructed by Norton Rose) for Drax Holdings Ltd

Sir Thomas Stockdale (instructed by Slaughter and May) for InPower Ltd

Mr Justice Lawrence Collins

I Introduction


On November 13, 2003 I made orders in these matters under section 425(1) of the Companies Act 1985 that Drax Holdings Ltd ("Drax Holdings") and InPower Ltd ("InPower") convene meetings of scheme creditors to consider and (if thought fit) to approve their respective Schemes of Arrangement ("the Schemes").


The liabilities which are the subject of the Schemes relate to the funding of the acquisition of the Drax Power Station, a coal powered power station in Yorkshire (accounting for 8% of the electricity generated in England and Wales), by the AES Group from National Power plc in 1999. The acquisition of the Power Station was effected by a series of transactions involving a group of subsidiaries ("the Drax Group") of The AES Corporation, a Delaware corporation ("AES").


It is proposed that the Schemes should be approved both in the jurisdictions in which Drax Holdings and InPower are incorporated, respectively the Cayman Islands and Jersey, and in England. Similar applications were therefore made in Jersey and the Cayman Islands, and one meeting will be held for each company in London, on which to base the final hearings on the Schemes in the three jurisdictions.


Drax Holdings was incorporated in the Cayman Islands in 1999 as AES Drax Holdings Ltd, and is a subsidiary of AES. InPower was incorporated in 1999 in Jersey company. Because the companies were foreign companies, I heard submissions on the jurisdiction of the court to summon meetings and sanction schemes under section 425 in relation to foreign companies, and these are the written reasons for my having been satisfied that the court has jurisdiction to do so, which differ from the way in which the matter was originally presented to me on behalf of the companies.

II The Schemes


Drax Power Ltd, one of the members of the Drax Group and the owner of the Power Station, entered into a long-term power purchase agreement with TXU Europe Energy Trading Ltd ("EET"), pursuant to which EET pre-purchased the right to call for a substantial proportion of the electricity generated by the Power Station. EET and its guarantor are now in administration and the purchase agreement with EET has been terminated. As a consequence, Drax Holdings, which relied upon distributions made by Drax Power Ltd to service certain of its liabilities, is in default under the terms of its debt instruments. Drax Holdings accepts that, by virtue of putting forward the current proposals, it would be likely to be insolvent if the creditors were not willing to extend the standstill arrangements.


The debts which are the subject of the Schemes amount to some £1 billion in sterling, and about $300 million in US dollars. Drax Holdings issued US dollars bonds, of which some $300 million is outstanding, and sterling bonds, of which £200 million is outstanding, together called "the Senior Bonds".


The principal activity of InPower consists of its participation in the financial arrangements in relation to the acquisition by the Drax Group of the Power Station. InPower subscribed for Eurobonds (maturing in 2015) issued by Drax Holdings in an aggregate face value of £1.725 billion, carrying interest at a fixed rate. InPower assigned to Bondpower Ltd (its subsidiary) its interest in the principal amount of the Eurobonds, but it retains its interest in a series of coupons payable to bearer and located in London ("the Eurobond Coupons") each of which represents interest payable on the Eurobonds falling due prior to the Maturity Date. InPower financed its acquisition of the Eurobonds by borrowing approximately £1.3 billion under a facility agreement in 1999 with a group of banks, which was used to finance the purchase of the Power Station. InPower now owes approximately £843 million to the banks. Because the Drax Group is unable to meet the interest payments due on the Eurobond Coupons, InPower is unable to meet its own obligations to the banks under the Facility Agreement.


In December 2002, Drax Holdings and InPower entered into a standstill agreement with their financial creditors. In late August 2003, an offer to participate from International Power plc ("IPR") was accepted and exclusivity granted with a view to a proposed restructuring on the basis outlined in the Schemes.


The Senior Bonds were issued in August 2000 in global bearer form with the Bank of New York as Trustee and as Custodian. The Global Depository has issued a certificateless depository interest to the Depository Trust Company in respect of the US Dollar Bonds and a certificated depository interest with respect to the Sterling Bonds in accordance with the rules and procedures of Euroclear and Clearstream.


Under this ownership structure the legal creditor of Drax Holdings in respect of the Senior Bonds held in global form is the Global Depository, although holders of beneficial or other proprietary interests may have their names entered into the Register and become holders of Senior Bonds in definitive form. Definitive Holders will, to the extent of their registered holdings, be creditors of Drax Holdings.


In connection with the financing of the acquisition of the Power Station and the issue of the Bonds, Drax Holdings and Drax Power Ltd entered into various arrangements (including hedging arrangements) in relation to currency swaps, and Drax Holdings is now responsible for termination payments due to banks, "the Hedging Termination Payments" due to the "Hedging Banks."


The Eurobonds are constituted by a trust deed dated 30 March 1999 between (among others) Drax Holdings and JP Morgan Chase Bank as the Eurobond Trustee, and the Eurobond Coupons, which are held in London by the Eurobond Trustee in its capacity as depositary, are held under a system under which they are held, in effect, on behalf of InPower. Although they are held on behalf of InPower, the creditor of Drax Holdings in respect of them is the Eurobond Trustee, under covenants contained in the Eurobond Trust Deed and in its capacity as the bearer of the coupons.


The Eurobond is represented by a single global bond in bearer form. Outstanding interest payable in respect of the Eurobond principal sum is represented by a series of coupons in bearer form. The principal sum is repayable in June 2015. For the purposes of the Scheme the relevant value of the Eurobond Coupons has been assessed in order that it should represent a particular value, which is referred to as "Included Eurobond Coupons". The Eurobond and the Eurobond Coupons are both held by J P Morgan Chase Bank.


Various, but not all, of the agreements to which Drax Holdings is a party are governed by English law and the security for liabilities under the Eurobonds and the Senior Bonds includes land situate in England (including the Power Station) and shares in companies registered in England.


The details of the Schemes are extremely complex, and it is not necessary to set them out in detail for the purposes of this judgment. The two Schemes are linked. In relation to Drax Holdings, the Scheme Creditors will be the holders of the US dollar and sterling Senior Bonds; the holders of the Included Eurobond Coupons; and the Hedging Banks. In relation to InPower, they will be the banks to which InPower is indebted under its facility agreement.


In summary (and at the risk of over-simplification), under the Schemes, the Scheme Creditors will be entitled to receive by way of compromise of their claims a mixture of new secured indebtedness of a new Jersey company, InPower 2 Ltd, cash and shares in Drax Group Ltd, which will be the new holding company of the Drax Group and therefore the ultimate owner of the Power Station. The indebtedness due to the Scheme Creditors will be consolidated as indebtedness of InPower 2 Ltd, and the terms...

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