Dtek Energy B.v
| Jurisdiction | England & Wales |
| Judge | Sir Alastair Norris |
| Judgment Date | 08 June 2021 |
| Neutral Citation | [2021] EWHC 1551 (Ch) |
| Docket Number | Case No: CR-2012-1000681 |
| Court | Chancery Division |
| Date | 08 June 2021 |
[2021] EWHC 1551 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Royal Courts of Justice
The Rolls Building
Fetter Lane
London, EC4A 1NL
Sir Alastair Norris
Case No: CR-2012-1000681
CR-2021-000682
and
and
Tom Smith QC and Georgina Peters (instructed by Latham & Watkins LLP) for DTEK Energy BV and DTEK Finance plc
David Allison QC (instructed by Hogan Lovells International LLP for the Banks' Ad Hoc Committee and by Dechert LLP for the Noteholders' Ad Hoc Committee
Hilary Stonefrost (instructed by Enyo Law) for Gazprombank (Switzerland) Ltd
Hearing dates: 13 May 2021
Approved Judgment
On 13 May 2021 I heard applications by DTEK Energy B.V. (“Energy”) and by DTEK Finance PLC (“Finance”) seeking the grant of sanction for their respective inter-conditional schemes of arrangement (“the Bank Scheme” and “the Note Scheme” respectively). Having reflected overnight upon those applications and upon the objections of Gazprombank (Switzerland) Limited (“Gazprombank”) to the grant of sanction for the Bank Scheme, I decided to grant sanction for both schemes. I made orders on 14 May 2021 accordingly, indicating that I would give written reasons for my decision. This judgment sets out those reasons.
The background to each Scheme is set out in paragraphs [1] to [8] of the judgment which I delivered following the convening hearing (the neutral citation to which is [2021] EWHC 1169 (Ch)). I shall not repeat it. In this judgment I will adopt the definitions used in that convening judgment.
The role of the Court at the sanction hearing is well settled and frequently summarised. A further summary in this judgment would be of no benefit. It is entirely sufficient for present purposes to refer to the recent enumeration by Snowden J in Re KCA Deutag UK Finance plc [2020] EWHC 2972 (Ch) at [16]–[18] of the issues to be addressed, he having cited the well-known statement of principles by David Richards J in Re Telewest Communications plc (No.2) [2005] 1 BCLC 772 at [20]–[22]. I therefore turn to those issues.
First, it is unnecessary to review the conclusions reached at the convening hearing concerning jurisdiction (though it will be necessary to consider further some jurisdictional issues in the context of exercising the discretion to grant sanction).
Second, I find on the evidence both that the statutory requirements were satisfied and that the terms of the convening order were complied with in relation to each Scheme. No-one has suggested the contrary.
Third, no issue arises as to the constitution of either of the scheme meetings. In relation to the meeting of Bank Scheme Creditors Gazprombank did not continue the challenge it mounted at the convening hearing, but it deployed the same arguments in another context. In accordance with current practice I shall therefore not revisit the conclusion I reached at the convening hearing: Re New Look Financing Plc [2020] EWHC 3613 (Ch) at [14].
Fourth, it is clear that the statutory majorities were achieved at each meeting. Those attending each meeting voted unanimously in favour of the respective Schemes.
Fifth, I find that each meeting was fairly representative of those entitled to vote. The meeting of the Bank Scheme Creditors was attended (by proxy) by 20 out of the 21 entities entitled to vote. The non-attendee was Gazprombank (which opposes the Bank Scheme). Those attending were 95% by number and 95.83% by value of the Bank Scheme Creditors. The Note Scheme Meeting was attended by 256 Noteholders representing 89.99% by value of the Notes.
Sixth, I find that I can properly rely upon the outcome of each meeting. There is no suggestion of any deficiency in the information provided to scheme creditors, such that they were not fully informed upon the issues for decision. There was no challenge to the bona fides of those voting: and the vote at each meeting being unanimous no question of oppression of a minority arises. But there is one issue which I must squarely address.
The scheme which I am asked to sanction differs slightly from that presented to the scheme meetings. The scheme document itself anticipates that modifications may be required. Paragraph 34 authorises the scheme company to assent on behalf of scheme creditors to any terms which the Court may think fit to approve which are necessary or desirable for the implementation of the scheme, provided that they do not themselves constitute modifications that could reasonably be expected to have (directly or indirectly) a materially adverse effect on the interests of any scheme creditor. Quite apart from that, the grant of the Court's sanction is a matter of discretion, and the Court will be concerned to question whether the modifications proposed undermine the assent given by the scheme creditors.
At the hearing I was taken through the modifications, and I was subsequently able to review them. They are entirely technical in nature – supplying (and then using) a missing definition, recording changes in the structure of the formal implementing documentation, adding a party to the list of those giving undertakings. I am satisfied that such alterations are desirable for the smooth implementation of the schemes. I am satisfied that none of them can reasonably be expected to have any materially adverse effect on the interest of any scheme creditor. In my judgment if they had been in the scheme document at the time of the scheme meeting the vote would have been no different. The changes do not undermine the assent to the schemes given at the scheme meetings.
Seventh, I must assess whether each scheme is “fair” in the sense that it embodies a compromise or arrangement that might reasonably be entered into by an intelligent and honest class member addressing the issues for decision having regard to his or her ordinary class interests. I am satisfied that the Note Scheme satisfies this test: and nobody submits otherwise. But Gazprombank submits that the test is not passed in relation to the Bank Scheme.
Gazprombank does not say that the Bank Scheme is not an arrangement that an intelligent and honest lender might enter having regard to its ordinary class interests. It accepts that the 20 other banks might reasonably take the view that delayed payment in full is better than immediate payment of a small proportion of the due debt. But it submits that the scheme is “unfair” as regards its own position having regard to its rights, not against Energy as guarantor of borrowings by DTEK Holdings Ltd (“Holdings”), Gazprombank's customer, but as against other guarantors or sureties. Ms Stonefrost submits that the Bank Scheme (negotiated by an ad hoc committee of which Gazprombank was part) unreasonably requires Gazprombank to compromise its loan where there is no evidence to support the assertion that, absent the Bank Scheme, Gazprombank's obligors would be unable to repay the CHF21,629,302 due to it.
The argument runs as follows:-
i) In respect of its lending to Holdings Gazprom bank has the benefit of four English law governed guarantees and “eleven English law governed securities” with other Group companies (“the Gazprombank obligors”).
ii) This security package is more than all but one of the other Bank Scheme Creditors.
iii) This exact security package is shared with only two other lenders whose debts are very small.
iv) Energy' s evidence for the convening hearing included a report of Grant Thornton reviewing Energy's analysis of its financial situation. In that report Grant Thornton accepted the board's view and, on that basis, assumed that a failure of the Bank Scheme would result in one or more Group entities entering an insolvency process “which could realistically result in further insolvencies if inter-company debts were to be called for repayment”. Thus, Grant Thornton's views are based upon an assumption and upon the satisfaction of a condition.
v) Some Gazprombank obligors are “entities that, were they to go into insolvency proceedings, could not cause a domino effect by calling for the repayment of inter company debts because they do not have inter-company loans to call on, rather they owe monies to other members of the Group”. (The quotation is from Ms Stonefrost's skeleton argument).
vi) There was no specific evidence from Energy as to which of the Gazprombank obligors would face insolvency absent the schemes although Gazprombank had sought a statement of disaggregated liabilities.
vii) Late in the day Energy and Finance had produced a schedule of the Gazprombank obligors and of their adjusted net asset position: but this wrongly showed the same contingent liabilities appearing against each Gazprombank obligor, whereas if one Gazprom obligor discharged a particular contingent liability that liability should be removed from the contingent liabilities of other Gazprombank obligors.
viii) In these circumstances the Court should be concerned to protect Gazprombank as a minority dissenter and should refuse sanction to a scheme otherwise supported by Bank Scheme Creditors holding 95.8% by value of the claims against Energy.
I do not accept that the impact of the Bank Scheme upon Gazprombank is so materially disproportionate and so different from that of other Bank Scheme Creditors that the scheme fails the “fairness” test; or that (if it passes that test) I should, as a matter of discretion withhold sanction.
The evidence shows that, because the debt burden on the Group of US$2.157bn exceeds the value of the Group assets, there is a net Group liability of US$571 million. The Group is insolvent on a balance sheet basis. The evidence (the Grant Thornton report and the witness statements of Dr. Bastin) establishes that...
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Insolvency Insight - Issue 3 | July 2021
...on whether the debtor's address was his usual place of abode or home and was occupied with a degree of continuity. Re DTEK Energy BV [2021] EWHC 1551 (Ch). In sanctioning two inter-conditional schemes arrangement (in the face of opposition from one scheme creditor), Sir Alistair Norris emph......