DTEK Finance Plc and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 02 December 2016 |
| Neutral Citation | [2016] EWHC 3562 (Ch) |
| Docket Number | Case No: 4538 of 2015 |
| Court | Chancery Division |
| Date | 02 December 2016 |
[2016] EWHC 3562 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Rolls Building
Fetter Lane
London EC4A 1NL
Mr Justice Newey
Case No: 4538 of 2015
Mr D Bayfield QC and Mr H Phillips (instructed by Latham & Watkins LLP) appeared on behalf of the company.
I have before me an application for an order to be made pursuant to section 896 of the Companies Act 2006 convening a meeting of creditors for the purposes of considering and, if thought fit, approving a proposed scheme of arrangement. The key objective of the scheme is to implement a restructuring of two series of notes issued in 2013 and 2015 by the relevant company, DTEK Finance plc. The plan is to replace those series of notes with a new single note.
DTEK Finance plc (which I shall call "the company") is a wholly owned subsidiary of DTEK Energy BV, a company which, along with its subsidiaries, operates the largest privately-owned energy business in Ukraine as measured by metric tonnes of coal produced, net output of electricity and electricity distributed. The company has run into financial difficulties as a result of events occurring in Ukraine. Since 2014 there has been a deterioration in the level of cash collected by the Group due to severe operational and logistical difficulties stemming from the armed conflict in the non-Government controlled territory of the Donbass region, a decrease in electricity generation levels and transmission and in coal extraction and transportation. To compound that, there has been a sharp contraction in the Ukrainian economy which, when taken in conjunction with other matters, has had a serious impact on the Group's business and financial situation.
The Group has for some time been in active discussions with its creditors. For relevant purposes, it is the discussions relating to the two series of notes which principally matter. So far as those are concerned, a noteholder steering committee was formed to negotiate the terms of a note restructuring and on 18 November 2016 binding heads of terms for such a restructuring were agreed with the noteholder steering committee. Under the agreed terms, the existing notes would be exchanged for a new single note with an extended maturity date that is about seven years further in the future than is the case under the current notes.
The application before me now seeks to take forward that proposed restructuring. At this stage, the question is whether I should make an order convening a meeting of the relevant creditors.
Mr Daniel Bayfield QC, who appears with Mr Henry Phillips, has drawn to my attention particular matters that call for consideration. One such matter relates to class composition. The company proposes that there should be a single meeting of scheme creditors.
One point that arises there is whether the holders of the two sets of notes can appropriately be treated as a single class. The two notes differ in two particular respects. First, the maturity dates are different: for one the date is 28 March 2018 and the other is 4 April 2018. That cannot be a distinction that matters. Another difference relates to interest rates: the 2013 series of notes bears interest at the rate of 7.875 per cent, whereas the 2015 notes have a somewhat higher interest rate. It may well be that, even were the company solvent, that distinction would be considered not to be so great as to prevent creditors from consulting together with a view to their common interest and therefore not so significant as to require two separate meetings. However, whether or not that is so, what is at issue here is a company which in the absence of a scheme such as that proposed would be likely to fall into a formal insolvency procedure under which, on the face of it, creditors could not hope to receive a return of more than 20 per cent. Looked at in that way, the noteholders of the different classes can appropriately be treated alike because on an insolvency event the different nominal rates of interest would be immaterial.
The other point that arises in relation to classes relates to certain fees for which there is provision:
(i) One such fee, which is to be paid to the steering committee, is referred to as a "work fee". It is not dependent on the outcome of the restructuring and it seems to me to be of no importance.
(ii) The second fee is a "restructuring fee" equating to 0.75 per cent of the outstanding principal, which is again intended to be paid irrespective of how creditors vote. In the circumstances it seems to me that this, too, is not of any real significance.
(iii) The third fee is a "lockup fee" payable to creditors who agree, or have agreed, to vote in favour of the scheme. I was told by Mr Bayfield that some 83 per cent of creditors have now signed up to this agreement and that they stand to receive a fee equal to approximately 0.76 per cent of principal.
As regards that last fee, there might be somewhat more room for argument than the other two that I have mentioned, but, again, the amount involved is as I see it too small to be likely to exert any material influence on creditors' voting decisions. It is substantially smaller than, for example, the consent fee of 2.5 per cent of face value that Morgan J considered in ( Re Avangardco Investments Public Limited unreported, 24 September 2015). I therefore do not see any need for there to be more than one creditors' meeting.
The point which Mr Bayfield aired with me which I think requires slightly more comment relates to the recast Judgments Regulation. As is well...
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