Rodenstock GmbH (the "Scheme Company") and Another

Hearing date: 19 th April 2011

This is an application for the sanction by the court of a scheme of arrangement ("the Scheme") pursuant to Part 26 of the Companies Act 2006. Although in the event unopposed, it gives rise to serious questions of jurisdiction and discretion arising from the facts that:

i) the applicant Rodenstock GmbH ("the Company") is incorporated in Germany and has its Centre of Main Interest ("COMI") there;

ii) the Company has no establishment in the UK, nor any assets here likely to be affected by the Scheme;

iii) there exists no comparable jurisdiction under German law to sanction schemes of arrangement concerning solvent companies ("solvent schemes");

iv) a recent decision of a German court has declined to recognise an English judgment sanctioning a solvent scheme in comparable, but not identical, circumstances, pursuant to Chapter III of the Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters ("the Judgments Regulation"), upon the ground that an order for sanction by the English court is not a judgment within the meaning of Articles 32 and 33 of the Judgments Regulation;

v) the small minority of the Company's creditors who voted against the Scheme have, through solicitors, asserted that the court has no jurisdiction to entertain the application or, in the alternative, that the court should not do so as a matter of discretion.

Due to an apprehension that, if the Scheme is not sanctioned, the Company may be unable to avoid insolvency significantly beyond the end of April, both stages of the court proceedings relating to the Scheme have been undertaken with considerable urgency, with a view to obtaining the court's decision before the end of term, and the onset of the Easter holiday period on 22nd April 2011. The sanction hearing therefore took place on 19 ^th April 2011, and after considering the matter and concluding that the Scheme ought to be sanctioned, I made the appropriate order on 21st April 2011, stating that my reasons for doing so would be provided thereafter in a reserved judgment.

This judgment sets out those reasons. Although the creditors who voted against the Scheme have since withdrawn their objections I have nonetheless undertaken a detailed review of the jurisdictional and other issues arising from the German location of the Company. I have done so at greater length than is usual on an unopposed application, in part out of respect for the very thorough way in which the issues have been presented, in part because those issues may soon fall to be reviewed (in other litigation) by the ECJ, and finally because counsel suggested that those engaged in formulating schemes of this type would welcome guidance as to those issues for use in relation to future applications.

THE FACTS

The Company is the main operating company in the Rodenstock group which is Europe's fourth largest manufacturer and distributor of spectacle lenses and frames. Its headquarters are in Munich, its main production facilities are in Europe and Thailand and its products are, outside Germany, distributed by about forty sales offices across the globe operated by the Company's subsidiaries. The Company's turnover is approximately €258.3 million, out of a group turnover of approximately €365.5 million.

The Company has outstanding senior debt of approximately €305,335,000 ("the Senior Debt") which has been advanced under a facilities agreement ("the Existing Senior Facilities Agreement") which is expressed to be governed by English law and which contains a jurisdiction clause in the following terms:

"42. ENFORCEMENT

42.1 Jurisdiction

(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a "Dispute").

(b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

(c) This Clause 42.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions."

Some 56.5% (by voting value) of the Senior Lenders, with whose rights the Scheme is solely concerned (and who are described as the Finance Parties in the Existing Senior Facilities Agreement), are situated in England. The remainder are spread across Europe.

The Company currently has significant relationships with seven customers in England, generating total annual direct revenues for the company of some €4 million, in addition to those generated from England by the Company's subsidiaries.

The Company has for some time suffered a deteriorating financial position which led it to fall into breach of its financial covenants under the Existing Senior Facilities Agreement in the second quarter of 2009. The Company is currently protected from the acceleration of its Senior Debt by a series of successive waivers, pending the extended consideration and negotiation of restructuring proposals. The waivers presently in place could be terminated at the end of April 2011.

The purpose of the Scheme is to bind the Senior Lenders to a variation of their rights under the terms of the Existing Senior Facilities Agreement sufficient to enable the Company to implement a restructuring which its directors believe will enable it to avoid going into a German insolvency process at the end of April 2011, or soon thereafter.

At a meeting of the Scheme Creditors on 6 December 2010 at the offices of Clifford Chance (solicitors to the Coordinating Committee of Senior Lenders ("Co Com"), the Scheme Creditors were given a presentation of the options which were (and are) considered open to the Company if the Scheme were not approved. In each of the four options considered to be open to the Company if the Scheme did not proceed and no other option could be agreed with the Senior Lenders, the Company would file for some kind of insolvency proceeding. The four options were as follows:

a. Option 1 – share pledge enforcement with no insolvency – the loss of liquidity consequent upon share pledge enforcement would prompt the managing directors to file for insolvency proceedings;

b. Option 2 – share pledge enforcement with exit through liquidation – an insolvency administrator would wind down the Company with a sale of its assets as soon as possible;

c. Option 3 – share pledge enforcement with exit through an insolvency "Asset Deal" – a preliminary insolvency administrator would seek to sell the Company's assets along the lines of an English law pre-pack administration;

d. Option 4 – share pledge enforcement with going concern exit following an Insolvency Plan – a rarely used restructuring tool used by an insolvency administrator to preserve the going concern of the insolvent business.

The Scheme Company was not able to propose a restructuring which would obtain the unanimous support of the Senior Lenders. However, the Scheme was proposed with the support of those Senior Lenders who had signed up to or acceded to an agreement (the "Restructuring Agreement") committing them (subject to any material adverse change) to support the restructuring proposed to be implemented primarily through the Scheme (the "Restructuring").

THE ESSENTIALS OF THE SCHEME

The outstanding Senior Debt of €305,335,000 is proposed to be restructured as follows:

The Company will discharge the facilities shown as not being Scheme Claims, and therefore those facilities are not shown in the right-hand columns. The terms for the borrowing provided by the Senior Lenders shown as having Scheme Claims will be amended as shown in the right-hand columns.

The essentials of the Scheme comprise:

a. Amendment of the terms of the Existing Senior Facilities Agreement and an Inter-creditor Deed to permit a €40m New Money Facility to be provided to the Company on a super senior basis, comprising a super senior revolving facility and a super senior term facility.

b. An increase in interest on the senior term loan facilities...