Gategroup Guarantee Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Zacaroli |
| Judgment Date | 17 February 2021 |
| Neutral Citation | [2021] EWHC 304 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-004615 |
| Date | 17 February 2021 |
[2021] EWHC 304 (Ch)
Mr Justice Zacaroli
Case No: CR-2020-004615
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF GATEGROUP GUARANTEE LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
7 Rolls Building
Fetter Lane
London EC4A 1L
Felicity Toube QC and Dr Riz Mokal (instructed by Clifford Chance LLP) for the Applicant Company
Hearing dates: 3 & 4 February 2021
Supplemental submissions in writing: 7 & 10 February 2021
APPROVED JUDGMENT
Introduction
On 11 February 2021 I ordered the convening of two meetings of creditors of gategroup Guarantee Limited (the “Plan Company”) to consider and, if thought fit, to approve a restructuring plan (the “Plan”) under section 901C of the Companies Act 2006 (the “2006 Act”).
This is my judgment explaining the decision to make that order.
The Plan Company was incorporated on 8 December 2020 as a wholly owned subsidiary of gategroup Holding AG (the “Parent”), a company incorporated in Switzerland.
The Parent is the sole owner of gategroup Finance (Luxembourg) SA (the “Issuer”) and of gategroup Financial Services S.à.r.l. (“Luxco II”). Luxco II owns Gate Gourmet Luxembourg IV S.à.r.l., which in turn owns over 200 operating subsidiaries throughout the world.
The group comprising the Parent and its subsidiaries (the “Group”) is the world's largest provider of airline catering services. In 2019, the Group served over 700 million passengers, providing catering for more than 5 million flights. As a result of the Covid-19 pandemic worldwide flights and passenger numbers have reduced dramatically, precipitating a massive decline in the Group's business. In the period from 1 January 2020 to 30 September 2020 the number of flights and the number of meals served by the Group were down approximately 62% and 69% respectively.
This has led to the Group encountering serious financial difficulties, made worse by continuing restrictions on international travel. I address these in more detail below but, in short, without further funding (which will not be forthcoming in the absence of the approval of the Plan) the Group will run out of cash in April or May this year.
The Group is nevertheless confident that it retains a strong core business so that, if it can survive the global pandemic, as and when flight and passenger numbers increase it will be able to continue as a viable going concern.
The Plan is one part of a wider proposed restructuring (the “Restructuring”) to address the problems created by the pandemic.
The debt structure of the Group
The Group has three principal financing arrangements:
(1) A senior facilities agreement originally dated 20 October 2015 (the “SFA”) entered into by Luxco II and two of its indirect subsidiary companies, relating to (i) a EUR350 million revolving facility and a EUR250 million term loan facility (the “Senior Loans”). The Loans are due to mature on 20 October 2021. The lenders under the Senior Loans (the “Senior Lenders”) are financial institutions. The Senior Loans are guaranteed by the Parent and 20 of its subsidiaries. The SFA is governed by English law and has an exclusive jurisdiction clause in favour of the courts of England.
(2) CHF350 million bonds (the “Bonds”) issued by the Issuer on 28 February 2017 with a maturity date of 28 February 2022. The Bonds are guaranteed by the Parent alone. They are governed by Swiss law and contain an exclusive jurisdiction clause in favour of the courts of Zurich. The Bonds are listed on the SIX Swiss Exchange. They are represented by a permanent global certificate held by an intermediary. Financial institutions (“Participants”) hold accounts with the intermediary. In turn the ultimate bondholders (the “Bondholders”) hold the Bonds in a securities account with a Participant. The Bonds are held in denominations of CHF5,000. The identity of the Bondholders is not generally known to the Issuer. They are believed to be held predominantly by retail investors.
(3) An Interim Liquidity Facility dated 25 November 2020 (the “ILF”), due to mature on 25 May 2021. The lenders are Zeppelin Assets Holding Limited and Esta Investments Pte Ltd (the “New Money Lenders”), entities owned by the ultimate shareholders of the Group (the “Shareholders”). The borrower is the Parent. The ILF was entered into in order to provide the Group with liquidity in anticipation of the Restructuring. It was conditional upon the entry into the Lock-up Agreement described below.
In addition, and outside the Group structure, Holdco is the borrower under a EUR475 million term facility agreement dated 30 March 2019 (the “Mezzanine Facility Agreement”). This facility is due to mature on 3 April 2021.
By an intercreditor agreement dated 25 November 2020, the Senior Lenders subordinated their claims under the SFA to the claims of the New Money Lenders under the ILF.
The Restructuring
The Plan relates only to the SFA and the Bonds. These form part of a wider restructuring, comprising the following elements:
(1) The Shareholders have agreed to provide additional funding in the sum of CHF500 million, as to CHF25 million by way of subscription for new shares in the Parent and as to CHF475 million by way of an unsecured, subordinated convertible loan to the Parent. This funding is made available solely on the following basis:
(a) all of the Group's key financial stakeholders should make compromises;
(b) the Group is given sufficient time to stabilise its business and to recover, along with the rest of the aviation business, from the pandemic; and
(c) the Shareholders' additional liquidity should be used, first to repay the ILF, and otherwise only to fund the Group's general working capital and other business funding requirements (and none of it should be used to repay existing indebtedness other than the ILF).
(2) The maturity date under each of the SFA, the Bonds and the Mezzanine Facility Agreement is to be extended by five years (to October 2026, February 2027 and April 2026 respectively).
(3) The Mezzanine Facility Agreement will be amended to apply a minimum liquidity covenant of EUR25 million to the Group and to capitalise all interest.
(4) Certain other amendments will be made to SFA and the Bonds under the Plan (to which I refer in more detail below).
All elements of the Restructuring are inter-conditional. The arrangement with the Mezzanine Lenders is to be effected by a bi-lateral agreement.
The Group engaged in negotiations with the Senior Lenders, the lenders under the Mezzanine Facility Agreement and the New Money Lenders. As a result, on 25 November 2020 a lock-up agreement (the “Lock-up Agreement”) was entered into between those lenders (including all of the Senior Lenders), the Parent and Holdco.
There are no consent fees or similar payments payable under the Lock-up Agreement, although the Parent has agreed to pay the reasonable costs and expenses (including legal fees) of the Senior Lenders relating to the Lock-up Agreement and the Restructuring.
The incorporation of the Company and the Deed Poll
Pursuant to their terms, the Bonds can only be amended at a Bondholders' meeting attended by Bondholders collectively holding at least 66% of the aggregate principal outstanding amount, by a resolution passed by at least 66% of the votes cast.
The Group considers that, in view of the large number of Bondholders each holding relatively small amounts, the quorum requirement under the terms of the Bonds makes it practically impossible to effect an amendment pursuant to those terms.
The Group has taken steps to move the centre of main interests (“COMI”) of the Issuer to England. Such a COMI shift is sometimes relied upon to establish a sufficient connection with this jurisdiction for the purposes of enabling a scheme of arrangement to be sanctioned. That is not the case here, however. It is not a necessary part of the Plan Company's application to convene a meeting of Plan Creditors that the Issuer's COMI has been moved to England. It is relevant to the enforceability of the Plan abroad (for reasons I explain later), but that is a matter to be considered at the sanction hearing if I were to order a meeting or meetings to be convened, and those meetings approve the Plan.
The Issuer has not itself proposed a Part 26A plan because that would have constituted an event of default under condition 7(d) of the terms of the Bonds, leading to potential acceleration and enforcement action. While it might have been possible to mitigate the effect of that by applying for a moratorium under Part A1 of the Insolvency Act 1986, I was told that this would not have prevented cross-defaults occurring under contracts entered into by other Group entities, thus imperilling the Restructuring as a whole.
To address the quorum difficulty under the Bonds, the Group caused the Plan Company to be incorporated on 8 December 2020. On 10 December 2020 the Plan Company then executed a deed of indemnity and contribution (the “Deed Poll”). By clause 2 of the Deed Poll the Plan Company agreed as primary obligor to indemnify:
(1) Each “Senior Facilities Finance Party” (including, materially, the Senior Lenders) in respect of all sums from time to time to time due and payable by a “Senior Facilities Obligor” (being the borrowers under the SFA and the guarantors in respect of it); and
(2) Each “Bond Finance Party” (including, materially, the Bondholders) in respect of...
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