Re Codere Finance 2 (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Falk |
| Judgment Date | 06 October 2020 |
| Neutral Citation | [2020] EWHC 2683 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-003544 |
| Date | 06 October 2020 |
[2020] EWHC 2683 (Ch)
Mrs Justice Falk
Case No: CR-2020-003544
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
David Allison QC and Ryan Perkins (instructed by Clifford Chance LLP) for the Company
Hearing date: 6 th October 2020
This is my decision on the application of Codere Finance 2 (UK) Limited (the “Company”) for an order sanctioning a scheme of arrangement between the Company and certain of its creditors (the “Scheme creditors”) under Part 26 of the Companies Act 2006.
I heard the Company's application for an order convening a single meeting of Scheme creditors. That application was strongly opposed by Kyma Capital Limited (“Kyma”) on behalf of a fund managed by it, on the basis that members of ad hoc committee of Scheme creditors (the “AHC”), who hold around 55% by value of the Existing Notes (see below) and who had negotiated the proposed restructuring with the Group, should be treated as a separate class.
I decided that it was appropriate to convene a single meeting of Scheme creditors. I handed down a judgment in respect of that decision on 13 September 2020 ( [2020] EWHC 2441 (Ch)) (the “convening judgment”).
The background to the proposed Scheme is set out in greater detail in the convening judgment. In summary, the Company is part of the Codere group of companies (the “Group”), an international gaming operator. Its financial position has worsened significantly during the COVID-19 pandemic, resulting in a liquidity crisis.
The Group's financing arrangements include two series of notes with face values of €500 million and US$300 million respectively (together, the “Existing Notes”). The Company is a co-issuer of the Existing Notes alongside Codere Finance 2 Luxembourg SA (“Codere Finance”). It is the ultimate beneficial owners of the Existing Notes who are the proposed Scheme creditors.
If the Scheme is implemented, the maturity of the Existing Notes will be extended from 1 November 2021 to 1 November 2023. The interest rate on them will be increased and certain changes will be made to covenants. In addition, Codere Finance will raise €165 million of new money (the “New Notes”), which will be offered pro rata to holders of Existing Notes and, to the extent not taken up by them, will be subscribed by four out of five members of the AHC under the backstop arrangement described in my earlier judgment. The Group's expectation is that it will then be able to continue trading and repay the Existing Notes in full at the revised maturity date. In contrast, if the Scheme is not implemented, the most likely alternative would be a liquidation resulting in far lower returns for Scheme creditors (see paragraphs 19 to 22 of the convening judgment).
The terms of the Scheme authorise the Company to enter into restructuring documents on behalf of the Scheme creditors and also set out the mechanism under which the New Notes will be acquired. As explained in the convening judgment at paragraph 138, the object of the Scheme is to compromise the claims of Scheme creditors against all obligors in respect of the Existing Notes, including the co-issuer (Codere Finance) and Group guarantors. It is well established that this is possible as a matter of jurisdiction, to ensure that effect can be given to the arrangement by preventing so-called “ricochet claims” which would defeat the purpose of the Scheme, including in this case the claim for a contribution that the co-issuer could bring if a claim was made against it that was not compromised by the Scheme: see, for example, Re Lecta Paper UK Limited [2020] EWHC 382 (Ch) at [21].
The Scheme meeting was held remotely on 29 September 2020. I have read the chairman's report and related witness evidence, which indicate that there were no technical difficulties for Scheme creditors wishing to attend or participate in the meeting. At the meeting the Scheme was approved by 249 out of the 250 Scheme creditors present in person or by proxy, representing 99.99% by value of those creditors. In terms of turnout, Scheme creditors voting at the meeting in person or by proxy represented 94.76% by value of the amounts outstanding to all Scheme creditors. For these purposes, Scheme creditors' holdings of Existing Notes that are denominated in US dollars were notionally converted into euros at a spot rate of exchange on the business day immediately preceding the record time.
Therefore, only one Scheme creditor, holding 0.01% by value, voted against the Scheme. That creditor has not appeared before me to object to the Scheme being sanctioned, and neither has any other person.
The creditors voting in favour included Kyma, who had dropped its opposition to the Scheme. Mr Allison, for the Company, confirmed to me that Kyma received no additional payment or disguised consideration in respect of its support for the Scheme. The Group has agreed to pay a proportion of Kyma's costs of the convening hearing, which was a matter left outstanding following the last hearing, but nothing more. Mr Allison also confirmed on instruction that around €108 million of the New Notes have been taken up by holders of Existing Notes, leaving around €57 million to be taken up under the backstop arrangement.
Scheme sanction: the principles
The principles to be applied in determining whether to sanction the Scheme are well known. They were considered by David Richards J in Re Telewest Communications (No 2) [2005] BCC 36 at [20] to [22], where he cited a passage from Plowman J's judgment in Re National Bank Limited [1966] 1 WLR 819, which in turn set out the test by reference to a passage in Buckley on the Companies Acts.
In summary, the first step is to consider whether the provisions of the statute have been complied with. The second is to determine whether the class was fairly represented by those who attended the meeting, and that the statutory majority were acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent. The third is to determine whether the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The question is whether in that sense the Scheme is a fair one.
As David Richards J explained, the Scheme need not be the only fair Scheme or even the best Scheme. Furthermore, whilst the court's function is not simply to register the decision of the meeting, it will, at the same time, be slow to differ from it, unless the class has not been properly consulted, the meeting has not considered the matter with a view to the interests of the class, or there is some other blot (a defect) in the Scheme. This is because the courts recognise that in commercial matters the creditors or members voting are much better judges of their own interests than the court.
Statutory requirements
I am satisfied that the statutory requirements have been met. The Scheme meeting was convened in the manner that I directed, and at the meeting the necessary majorities, being a majority in number and 75% in value of members of the class present and voting in person or by proxy, were comfortably achieved.
Class issues were considered by me in depth in the...
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