Global Garden Products Italy S.P.A.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 27 June 2016 |
| Neutral Citation | [2016] EWHC 1884 (Ch) |
| Docket Number | Case No: CR-2016-002355 |
| Court | Chancery Division |
| Date | 27 June 2016 |
[2016] EWHC 1884 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Snowden
Case No: CR-2016-002355
In the Matter of
Mr. Robin Dicker QC (instructed by Linklaters LLP) appeared on behalf of the Applicant
(As Approved)
No of Words: 9,000
No of Folios: 125
This is an application by Global Garden Products Italy S.p.A. ("the Company") for an order sanctioning a scheme of arrangement under Part 26 of the Companies Act 2006. The Company is a limited liability company incorporated and domiciled in Italy with its headquarters and registered office in Castelfranco, Veneto, Italy. The Company is a wholly owned subsidiary of a Luxembourg company, Global Garden Products C S.á.r.l. ("the Parent"). Both companies are part of a group which is one of the European leaders in the manufacture and sale of lawnmowers, machines for garden maintenance and related equipment. The group employs approximately 1500 people worldwide and operates in 17 jurisdictions.
The Financial Background
The Company is the borrower in respect of term facilities made available pursuant to a credit agreement with Intesa Sanpaolo S.p.A. as the existing lender ("the Facilities Agreement"). That agreement is governed by English law and contains a jurisdiction clause in favour of the English courts in the following terms:
"37.1 Jurisdiction:
(a) Unless otherwise set out in any other finance documents, the English courts have exclusive jurisdiction to settle any dispute in connection with any finance document.
(b) The English courts are the most appropriate and convenient courts to settle any such dispute in connection with any finance document. Each Obligor agrees not to argue to the contrary and waives objection to those courts on the grounds of inconvenient forum or otherwise in relation to proceedings in connection with any finance document.
(c) This clause is for the benefit of the Finance parties only. To the extent allowed by law a finance party may take (i) proceedings in any other court; and (ii) concurrent proceedings in any number of jurisdictions.
(d) References in this clause to a dispute in connection with a Finance Document include any dispute as to the existence, validity or termination of that finance document."
Under the Facilities Agreement the existing lender acts in large part as a fronting bank for a group of international financial institutions together with other investors who have acquired their interests in the secondary market. This structure was designed to facilitate the international syndication of the Facilities Agreement having regard to Italian tax rules and regulatory restrictions limiting the type of financial institutions that are eligible to be direct lenders to Italian companies.
To give effect to this structure, the existing lender has entered into arrangements with the other lending institutions pursuant to a Credit Support Agreement, which is governed by English law and contains a jurisdiction clause in favour of the English courts in the following terms:
"30.1 Jurisdiction:
(a) Each party irrevocably agrees that the English courts have exclusive jurisdiction to settle any dispute in connection with disagreement.
(b) The English courts are the most appropriate and convenient courts to settle any such dispute in connection with this agreement. Each party agrees not to argue to the contrary and waives objection to those courts on the grounds of inconvenient forum or otherwise in relation to proceedings in connection with this agreement.
(c) References in this clause 30 to a dispute in connection with this agreement include any dispute as to the existence, validity or termination of this agreement."
Under the Credit Support Agreement, the other institutions who are referred to as "the credit support providers" have, in effect, provided a commitment to fund a proportion of the facilities made available to the Company. The mechanism employed is that each credit support provider has provided a guarantee to the existing lender for a proportion of the Company's liabilities to the existing lender under the term facilities, and has deposited an amount with the existing lender equal to such credit support commitment. In the event that a credit support provider satisfies any of its guarantee obligations, including if the existing lender utilises only part of the sums deposited, the credit support provider will have an immediate and automatic right of subrogation to the rights of the existing lender against the Company under the Facilities Agreement and related security and guarantees. The overall commercial effect of this structure is that the lenders to the Company are the existing lender and the credit support providers and, in commercial terms, the Company has always regarded its creditors as being that group of institutions, rather than just the existing lender.
For the purposes of the scheme jurisdiction under Part 26 of the Companies Act, I am satisfied that the credit support providers can be regarded as "creditors" of the Company because they are contingent creditors pursuant to their rights of subrogation and indemnity under the Credit Support Agreement and the Facilities Agreement. That approach follows a number of cases, including Re Castle Holdco [2009] EWHC 3919 and Re PrivatBank [2015] EWHC 3186 at paragraphs 9 to 16.
That appears also to have been the view taken by Henry Carr J at the convening stage in this case, because he ordered that the existing lender and the credit support providers were together to constitute a single class of scheme creditors for the purposes of the scheme meeting. In addition, to the extent that the rights of the existing lender and the credit support providers overlap, the convening order was made on the basis of an assurance from the existing lender that it would only vote for its uncovered commitment, which would avoid double-counting.
The existing lender and the credit support providers are also shareholders in the ultimate holding company of the group, which I shall refer to as "Topco", having acquired their shares pursuant to a restructuring in 2010. There is a high, although not exact, correlation between the credit support providers' respective credit support commitments and each parties' or affiliates' holding of shares.
As at 30 April 2016, the principal indebtedness of the Company under the Facilities Agreement amounted to about €224 million. This comprised two tranches: the first of about €99 million (due on 31 August 2016); and the second of €125 million (due on 31 August 2017). The scheme has become necessary because the board of the Company has concluded, following various unsuccessful initiatives in 2015 that it will not be possible to refinance these borrowings on commercially acceptable or affordable terms prior to the maturity of the first tranche of the existing loan on 31 August 2016.
The Scheme in outline
In outline, the scheme is intended, amongst other things, to extend the final maturity date of both tranches of the existing term facilities to 31 December 2020. It is hoped that this will place the group on a secure footing in the short term and facilitate a refinancing on more favourable economic terms in the medium term. The board of the Company considers that a failure to conclude the scheme prior to the maturity of the first tranche on 31 August 2016 will cause considerable damage and uncertainty for the Company and its creditors.
The scheme also forms part of a wider restructuring, which is referred to in the documents as the "A&E Transaction". The terms of the scheme contemplate that the A&E Transaction will be brought into effect by the execution by a nominee, pursuant to powers of attorney granted under the scheme by the scheme creditors, of an "Amendment and Restatement Agreement" relating to the existing Facilities Agreement, together with the execution of a number of other "A&E Transaction Documents". Under those documents, in essence, the existing two tranches of the loan will be consolidated and split into two new tranches: Tranche A, being a debt of the Parent; and Tranche B, being a debt of the Company. Both tranches will have a maturity date of 31 December 2020, and the restructured debts will be owed directly to the scheme creditors rather than through the existing lender and credit support arrangements. The reason for the split debt is to enable creditors who cannot lend directly to the Company, which is Italian, to lend instead to the Luxembourg Parent. Both tranches are, however, designed to offer precisely the same commercial terms and benefits to the lenders
In addition, the financial and information covenants of the borrowers will be re-set. There will be scope for the Company to enter into new receivables financing arrangements and factoring arrangements, a new revolving credit facility and new interest rate hedging and foreign exchange currency hedging arrangements. Further, and pursuant to various resolutions passed outside the scheme by the relevant companies, various steps will be taken to amend the equity arrangements, corporate governance and constitutional documents of Topco, the Parent and the Company.
The Coordinators and the transaction fees
The terms of the A&E Transaction were the result of negotiations which commenced in about September 2015, and which were initially conducted between the Company and two of the credit support providers, together holding about 25 per cent of the credit support commitments. These were Alcentra...
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