Re Magyar Telecom BV
| Jurisdiction | England & Wales |
| Judge | Mr Justice Richards |
| Judgment Date | 03 December 2013 |
| Neutral Citation | [2013] EWHC 3800 (Ch) |
| Docket Number | Case No: 7277 OF 2013 |
| Court | Chancery Division |
| Date | 03 December 2013 |
In the Matter of:
And In the Matter of
[2013] EWHC 3800 (Ch)
Mr Justice Richards
Case No: 7277 OF 2013
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Daniel Bayfield (instructed by White & Case LLP) for the Applicant
Hearing date: 29 November 2013
This is an application by Magyar Telecom B.V. (the company) for an order sanctioning a scheme of arrangement proposed by it pursuant to Part 26 of the Companies Act 2006. At a hearing on 29 November 2013, I sanctioned the scheme and I now set out in writing my reasons for doing so.
The company was incorporated and is registered in the Netherlands. The company is a member of a group, whose principal business is the operation of telecommunication services in Hungary. The main operating company is a Hungarian company called Invitel Távközlési Zrt (Invitel). All but a very small proportion of the share capital of Invitel is owned by the company, which also acts as the principal financing vehicle for the group. The ultimate parent of the group is Hungarian Telecom LP, a private investment firm incorporated in Guernsey and managed primarily by Mid Europa Partners Limited, which has its headquarters in London and is authorised and regulated by the Financial Conduct Authority.
The principal liabilities of the company arise under an issue of €345 million 9.5% Notes due 2016 (the Notes) which were issued pursuant to an indenture dated 16 December 2009. The Notes are governed by the law of the State of New York and are subject to the non-exclusive jurisdiction of the Courts of that state in favour of noteholders. The company's obligations under the Notes are guaranteed by Invitel and other companies in the group. The Notes are secured by a pledge over shares in the company and over the shares held by the company in Invitel and by other liens on substantially all the assets of the group.
Interests in the Notes are traded through Euroclear and Clearstream. The Notes are held in global form through the Bank of New York Depository (Nominees) Limited as common depository for Euroclear and Clearstream.
The scheme is proposed to be made with the persons described in the scheme as the Note Creditors. They are defined as the persons with a beneficial interest as principal in the Notes, excluding the company itself as owner of Notes with a principal value of €21.041 million. The Note Creditors are not strictly speaking creditors of the company unless and until Notes are registered in their names. There are, however, under the indenture circumstances in which Notes may be registered in their names, and they are accordingly contingent creditors of the company and thus "creditors" for the purposes of section 899 of the Companies Act 2006.
The scheme is proposed as part of a financial restructuring of the group. The company is presently unable to service its obligations under the Notes, having defaulted in the payment of half-yearly interest of over €15.6 million due in June 2013, and the group is unable to provide the necessary funds from its revenues or otherwise. The directors of the company believe that if the restructuring is not implemented, and in the absence of some other restructuring, it is likely that the company and other companies in the group will be forced to enter formal insolvency proceedings. Such a step would be likely to result in a significant destruction of value in the group, and recoveries for holders of the Notes would be likely to be significantly less than if the restructuring proceeds.
Under the proposed scheme, the Note Creditors will give up their rights under the Notes, including their rights against the guarantors of the Notes, in exchange for (i) new notes to be issued by the company with an aggregate nominal value of €155 million and (ii) a 100% equity interest in a new company which will hold 49% of the share capital of the company, thereby giving an indirect interest of almost 49% in Invitel.
By an order made on 28 October 2013 by Arnold J, the company was directed to convene a meeting of the Note Creditors to be held on 27 November 2013 for the purpose of considering and, if thought fit, approving the scheme. The order contained detailed directions as to the steps to be taken to convene and hold the meeting. The evidence filed in support of the present application shows that those directions were followed.
The meeting was duly held and the scheme was approved by very substantial majorities. Section 899(1) of the Companies Act 2006 requires a scheme to be approved by a majority in number representing 75% in value of the creditors present and voting in person or by proxy at the meeting. This scheme was approved by a majority of more than 97% in number representing more than 99% in value of those voting on the scheme. There was a very high turn-out at the meeting. 326 Note Creditors entitled in aggregate to almost 90% by value of the Notes attended and voted.
Before the court can exercise its power to sanction a scheme of arrangement, it must be satisfied that the company proposing the scheme is a "company" for the purposes of Part 26 and that the class or classes of creditors were properly constituted for the purposes of the scheme. The practice of the court is to address these issues at the earlier stage of the application to convene the meeting or meetings. This was the course followed in this case and Arnold J was satisfied on both counts.
The only jurisdictional requirement for a "company" is that it should be liable to be wound up under the Insolvency Act 1986: section 895(2). A foreign-incorporated company is so liable, even if its circumstances at the time of the application to the court are such that the English court would not at that time exercise its jurisdiction to wind up the company: Re Drax Holdings Ltd [2003] EWHC 2743 (Ch), [2004] 1 WLR 1049, Re DAP Holding NV [2005] EWHC 2092 (Ch), [2006] BCC 48, and Re Rodenstock GmbH [2011] EWHC 1104 (Ch), [2011] Bus LR 1245. The company in this case therefore satisfies that requirement.
As to the composition of the class of creditors, the rights conferred by the Notes and the rights to be received in exchange for the Notes under the scheme are identical as regards all Note Creditors. The only distinction between them is that some 70% of Note Creditors signed a restructuring agreement, committing them to vote in favour of the scheme and not to take any action in the meantime to enforce rights under the Notes. Under that agreement, a consent fee is payable to all creditors who signed it, in an amount which is small when compared to the claims of creditors. The opportunity to enter into the restructuring agreement and become entitled to payment of the fee was available to all Note Creditors. In these circumstances Arnold J was satisfied that it was proper to convene a meeting of a single class of the Note Creditors. No Note Creditor has appeared on this hearing to raise any contrary submissions and there is no basis for departing from the decision of Arnold J on that issue.
Because the company is registered in the Netherlands and because the Notes are governed by New York law, serious issues arise as to whether this Court would consider it appropriate to sanction the scheme. Although not going to jurisdiction, they are sufficiently fundamental to an exercise of the Court's power under Part 26 that the Court might decline jurisdiction even if there were no opposition from any creditors to the scheme. Accordingly, they were properly raised before Arnold J on the application to convene the scheme meeting and were the subject of detailed submissions to him by Mr Bayfield on behalf of the company, as they have been before me.
The fact that a foreign company would not be wound up by the English court in the circumstances prevailing at the time of the scheme is not a bar to the court sanctioning the scheme, provided that there is a sufficient connection with this jurisdiction. In Re Drax Holdings Ltd, Lawrence Collins J said at [29]:
" That the companies fall within the definition of companies for the purpose of section 425 [of the Companies Act 1985, now section 899 of the Companies Act 2006] does not, of course, mean that there are no limitations to the exercise of jurisdiction under section 425. The court should not, and will not, exercise its jurisdiction unless a sufficient connection with England is shown."
In that case, Lawrence Collins J found that there were many factors which pointed to the exercise of the jurisdiction being both legitimate and appropriate. Foremost among them was that the claims of creditors falling within the relevant class were governed by English law and were subject to a non-exclusive submission to the jurisdiction of the English court, as were the associated security documents, and that the security included very substantial assets within England.
In a number of recent cases, a sufficient connection has been found solely or principally in the fact that the rights of the relevant creditors were governed by English law and that the English Courts have an exclusive or non-exclusive jurisdiction in respect of disputes: see, among others, Re Rodenstock GmbH, Re Primacom Holdings GmbH (No.1)...
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