Lecta Paper UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 28 January 2020 |
| Neutral Citation | [2020] EWHC 382 (Ch) |
| Date | 28 January 2020 |
| Docket Number | Case No: CR-2019-008403 |
| Court | Chancery Division |
In the matter of
[2020] EWHC 382 (Ch)
Mr Justice Trower
Case No: CR-2019-008403
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURT
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Mr D Bayfield QC, Mr R Perkins and Ms S Wilkins (instructed by Linklaters LLP) appeared on behalf of the Claimant Company
This is an application by Lecta Paper UK Ltd (“the Company”), which, as its name suggests, is incorporated in England and Wales, for an order sanctioning a scheme of arrangement between the Company and certain of its creditors, pursuant to Part 26 of the Companies Act 2006.
The Company is part of the Lecta group, which is the largest manufacturer of speciality and coated wood-free paper products in southern Europe, a business which has been in structural decline over the past decade. The group has taken steps to improve its trading performance, but recently that performance has been weak with significant deductions in net sales and ( inaudible) and a declining liquidity in the nine months period ended 30 September 2019.
The group is heavily indebted and the evidence justifies a finding which if the scheme is not sanctioned the group's working capital facilities are likely to be withdrawn, which will cause the group to run out of money in February 2020, with the consequence that the Company and several other group entities will enter into formal insolvency procedures.
The Company's ultimate parent is a Luxembourg company, Lecta SA. Its interest in the Company is held through another Luxembourg company, Sub Lecta SA, and a Spanish company, Torraspapel SA, which is itself the debtor under a fully drawn €65 million revolving credit facility, the refinancing of which through a new €115 million super senior facility is a separate part of the restricting of which the scheme itself forms part.
The debt with which this application is concerned is two series of senior secured notes (“SSNs”) with an aggregate face value of €600 million, comprising €225 million floating rate senior secured notes due in 2022, issued pursuant to an indenture dated July 2016; and €375 million 6.5 per cent fixed rate senior secured notes due in 2023, issued pursuant to an indenture dated on the same day. Interest totalling some €10 million is accrued and without standing. The existing SSNs (as I shall call them) are held through Clearstream and Euroclean and the scheme creditors with whom the scheme entered into were therefore the beneficial owners of the existing SSNs.
The existing SSNs were originally issued by Lecta SA and guaranteed by a number of group companies. The indentures were originally governed by New York law and subject to the jurisdiction of the New York court. In circumstances to which I will come the Company is now a co-issuer of the existing SSNs and the governing law and jurisdiction clauses in the indentures now provide for English law and English jurisdiction.
If the scheme comes into effect the whole of Sub Lecta's share capital will be transferred to a NewHoldCo1 with a chain of parent companies. The scheme will then release the existing SSNs in consideration of a combination of new senior notes with a face value of some €200 million issued by NewHoldCo2, new junior notes with a face value of some €95 million issued by NewHoldCo3 and 95 per cent of the share capital in the new Topco to be contractually stapled to the new junior notes. As Mr Bayfield QC, Mr Perkins and Ms Wilkins in their skeleton argument, “The scheme thus involves the conversion of the existing SSNs into new debt instruments with a reduced face value, coupled with a partial debt for equity swap.”
The steps which have been taken to implement the scheme can be shortly stated. A coordinating committee of creditors was formed in early September 2019 to negotiate the terms of the restructuring. The key commercial terms were agreed in principle and announced to the market at the end of the month. A lock-up agreement was then entered into at the beginning of November, in consideration for which all signatories who acceded by 29 November and who vote in favour of the scheme are entitled to receive a consent fee. The consent fee will consist of an entitlement to an additional pro rata allocation of new junior notes and shares in Topco provided out of a pool consisting of new junior notes with a face value of €5 million and 5 per cent of the share capital of Topco. The value of this fee has been calculated to amount to between 2.9 per cent and 3.6 per cent of the consideration to be received under the scheme. As is now not unusual there are also fees payable to members of the CoCom, which are thought to amount to approximately 3.6 per cent of the total scheme consideration for which the evidence confirms are directly referable to the work that they have carried out and the time they have expended in negotiating the scheme in the new finance documents.
All other creditors under the existing SSNs in the RCF were invited to accede to the lock-up agreement prior to the launch of the scheme, such that shortly before the convening hearing some 92 per cent of the beneficial owners of the existing SSNs by value and a significant majority of the lenders under the RCF by value had acceded to the lock-up agreement.
Meanwhile, on 27 November the parent, which was still then the sole debtor under the indentures, proposed certain amendments in accordance with section 9.02 of each indenture. The amendments provided for the company to become a co-issuer of the existing SSNs together with the parent, also for the governing law of the indentures to be changed from New York law to English law and for the jurisdiction clause in each indenture to be amended to confer non-exclusive jurisdiction on the English court. The requisite majority of noteholders provided their consent to their relevant amendments on 4 December, as a result of which the note trustee entered into a supplemental indenture for each series of the existing SSNs.
The Company has adduced expert evidence of New York law from Mr Daniel Glosband, which confirms that to the extent that consents were required from existing SSN holders, they were validly given by more than 90 per cent of the holders and that the supplemental indentures, therefore, validly amended the indentures in accordance with New York law.
At the convening hearing held on 19 December, Zacaroli J made an order convening a single meeting. He gave reasons for his decision. I have read those reasons, from which it is clear that he was satisfied that adequate notice of the hearing was given to scheme creditors and that the class meetings proposed by the Company was correctly constituted. He considered questions going to international jurisdiction on the basis that there would be no point in the scheme going any further if there was no jurisdiction to sanction it. I shall revert to that issue in a moment.
He also declared that Andrea Minguzzi had appointed to be the foreign representative for the purpose of making an application for Chapter 15 relief in the United States. The scheme meeting was held on 23 January 2020. Having considered the Chairperson's report and the evidence adduced by the Company and Andrea Minguzzi and Victor Parzyjagla, I am satisfied that the provisions of the convening order were sufficiently complied with. I note in particular that the scheme documents were to be sent by email to the information agent and that this was done on the day of the convening order and that the scheme notice was then sent by email to the corporate actions areas for both Euroclear and Clearstream.
The outcome of the meeting can be summarised as follows. The scheme was approved by 100 per cent in number of the scheme creditors present and voting at the meeting in person or by proxy. A total of 200 scheme creditors holding claims of in excess of €580 million voted in favour of the scheme, with no-one voting against. And the turnout was very high; it was some 96.79 per cent of the total scheme creditors by value voting in person or by proxy. I agree that this can properly be said to be overwhelming support for the scheme.
The courts ( inaudible) on an application to sanction is well-known. It was explained by David Richards J in Telewest and I can simply summarise the relevant part of his judgment as follows. He approved the well-known statement of principle in Re National Bank Ltd:
“In exercising its power of sanction the court will see (1) that the...
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