Re Telewest Communications Plc

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice David Richards
Judgment Date21 June 2004
Neutral Citation[2004] EWHC 1466 (Ch),[2004] EWHC 924 (Ch)
Docket NumberCase No: 2518 of 2004,Case No: 2518 of 2004 & 2519 of 2004
Date21 June 2004

[2004] EWHC 1466 (Ch)





The Honourable Mr Justice David Richards

Case No: 2518 of 2004 & 2519 of 2004

In the Matter of Telewest Communications PLC
In the Matter of Telewest Finance (jersey) Ltd
In the Matter of the Companies Act 1985

Robin Dicker QC and Richard Snowden QC (instructed by Freshfields Bruckhaus Deringer) for the Telewest Communications Plc and Telewest Finance (Jersey) Ltd

Richard Sheldon QC (instructed by Fried, Frank, Harris, Shriver & Jacobson LLP) for the Bondholder Committee

Martin Moore QC and Sir Thomas Stockdale (instructed by Sherman & Sterling (London) LLP) for Opposing Bondholders

Hearing dates: 17 June 2004

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

Mr Justice David Richards Mr Justice David Richards

Telewest Communications plc (Telewest) and its wholly-owned subsidiary Telewest Finance (Jersey) Limited (Telewest Jersey) seek the sanction of the court to schemes of arrangement under section 425 of the Companies Act 1985. The schemes are proposed between each company and their respective bondholders, who are creditors for very substantial sums.


I set out some of the details of the proposed schemes and the background to them in a judgment which I gave on the companies' applications to convene the meetings to the schemes. Reference can be made to that judgment for the details.


For present purposes it is enough to say that Telewest has ten series of unsecured bonds outstanding, of which six are denominated in US dollars with a total principal amount of $3.987 billion and four are denominated in sterling with a total principal amount of £1.099 billion. Interest has not been paid on the bonds since October 2002 and if interest accrued to 30 April 2004 is added, the total amounts due on the dollar bonds is $5,172 billion and on the sterling bonds is £1,160 billion. Telewest Jersey has a single series of outstanding bonds with a total principal amount of $500 million on which interest has also accrued due. The Jersey bonds were guaranteed by Telewest and the proceeds of the issue were lent to Telewest. The holders of these bonds are therefore also creditors of Telewest, as is Telewest Jersey. The Telewest scheme is proposed to be made with its bondholders, the holders of the Telewest Jersey bondholders as creditors under the guarantee of their bonds and Telewest Jersey. The scheme also makes provision for ancillary claims arising in connection with the bonds, such as misselling claims, but none has yet been notified to Telewest. Under the terms of the scheme all ancillary claims will be barred unless notified in accordance with the terms of the scheme by the day following its effective date. The Telewest Jersey scheme is proposed to be made with its bondholders and any other persons with ancillary claims.


Telewest is the holding company of a large group of companies engaged principally in telecommunications. Its shares are listed in London and on Nasdaq in New York. It borrowed heavily in order to fund the capital costs of its network construction and the acquisition and operation of its UK cable business. In the course of 2002 it encountered severe financial difficulties and began negotiations with its senior lenders and bondholders. In October 2002 it defaulted on a swap transaction which resulted in a default under its banking facilities and under all its bonds. The swap counterparty presented a winding-up petition against Telewest on 29 October 2002 which has been adjourned from time to time to allow for the proposed financial restructuring, including the two schemes of arrangement now before the court. The petition will be dismissed if the schemes are sanctioned and the restructuring is completed.


It is accepted that the companies are heavily insolvent and that, in the absence of arrangements with the creditors, including the bondholders, the companies would have to be placed in liquidation or administration.


The proposals embodied in the schemes represent the product of difficult and protracted negotiations with an informal bondholders' committee and others. The principal feature of the schemes is that the bonds and claims arising under them will be cancelled in exchange for 98.5 per cent of the issued share capital of a new holding company, Telewest Global Inc. Substantially all of Telewest's assets will be transferred to Telewest Global Inc and the remaining 1.5 per cent of its shares will be held by the present shareholders of Telewest.


The shares in Telewest Global Inc will be denominated in US dollars and will be issued to an escrow agent for distribution among the bondholders and the other scheme creditors in proportion to the value of their claims.


In order to determine the number of new shares to be transferred to each scheme claimant, it is necessary to express all claims covered by the scheme in a single currency. For this purpose, the scheme provides for sterling claims to be converted into US dollars in accordance with a formula defined in the scheme as the Scheme Rate and described in argument as the Average Exchange Rate. This rate is the average of the closing mid-point spot rates in London for the conversion of sterling into US dollars, as reported by Bloomberg LP for each trading day in the period commencing 1 October 2002 and ending on 26 April 2004, the last practicable date before posting the explanatory statement for the scheme.


It is this choice of currency conversion rate which has been in dispute both on the application to convene the meeting to consider the Telewest Scheme and on the present application to sanction the scheme.


On the earlier application seven holders of sterling bonds appeared by counsel to argue either that no meeting should be convened unless the currency conversion rate were changed to the spot rate as at the date on which scheme claims were valued or, in the alternative, that separate meetings of the dollar and sterling bondholders should be convened instead of a single meeting of all bondholders. I rejected both submissions in the judgment which I delivered on 26 April 2004. On 30 April 2004 each of the companies proceeded to convene a meeting of scheme creditors to be held on 1 June 2004. On 10 May 2004 the opposing bondholders applied to the Court of Appeal for permission to appeal against my decision. Permission was refused on paper by Neuberger LJ on 24 May 2004 and by Mummery and Sedley LJJ at an oral hearing on 2 June 2004.


At the meetings of the Telewest and Telewest Jersey scheme creditors held on 1 June 2004, the schemes were approved by the statutory majorities provided by section 425(2) of the Companies Act 1985. I will go into more detail of the majority at the meeting of Telewest scheme creditors later in this judgment.


With the exception of Threadneedle Asset Management Limited (Threadneedle), the same sterling bondholders appear on this application to oppose the making of an order to sanction the Telewest scheme as previously appeared on the application to convene a meeting. Their holdings represent approximately 12.78 per cent of the sterling bonds, and they voted against the scheme at the meeting held on 1 June 2004. Threadneedle voted in favour of the scheme, but has filed evidence stating that it continues to take the view that the Average Exchange Rate unfairly benefits the dollar bondholders at the expense of the sterling bondholders.


Since October 2002 the market value of the US dollar has depreciated as against sterling. On 1 October 2002 the spot rate was about $1.557/£1 and on 30 April 2004, which is the date under the scheme for the ascertainment of scheme claims, the spot rate was $1.7754/£1. The Average Exchange Rate used in the scheme produces an exchange rate of $1.6650/£1.


It is the opposing bondholders' case that the Average Exchange Rate unfairly discriminates against the sterling bondholders to the benefit of the dollar bondholders. They submit that the fair exchange rate for use in the scheme is the spot rate on the Record Date, being the date under the scheme for the ascertainment of scheme claims.


Their starting point is that, as Telewest is insolvent and the scheme is proposed as an alternative to a distribution of assets in a winding-up, the relevant rights of the bondholders against which the terms of the scheme should be assessed are their rights in a liquidation. This applies the principle established in Re Hawk Insurance Co Ltd [2001] 2 BCLC 480 and other authorities. The choice of the Average Exchange Rate, as against the spot rate on the Record Date, involves a departure from those rights. For the reasons given in my previous judgment I accepted that submission, and I accepted that it could well produce, as in fact it has done, a less favourable result for the sterling bondholders and a correspondingly better result for the dollar bondholders. I held however that, taking the scheme as a whole, it did not involve such a disparity between the rights of the two groups of bondholders as to require separate meetings. The issue of fairness, which remained, was for consideration at the hearing to sanction the scheme. This approach was approved by the Court of Appeal. In paragraph 17 of his judgment, Mummery LJ said:

"In so far as there are matters of unfairness alleged by Mr Moore on behalf of his committee of sterling bondholders, I am satisfied, on the basis of the arguments which have been advanced by Mr Snowden and by Mr Sheldon, who are the respondents to the proposed appeal, that all of those matters can be satisfactorily dealt with by the judge at the sanctions hearing. In...

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