Smile Telecoms Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 19 March 2021 |
| Neutral Citation | [2021] EWHC 685 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: CR-2021-000079 |
| Date | 19 March 2021 |
[2021] EWHC 685 (Ch)
Mr Justice Trower
Claim No: CR-2021-000079
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
NEUTRAL CITATION NUMBER
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Felicity Toube QC and Charlotte Cooke (instructed by Latham & Watkins) for the Claimant
Hearing date: 19th March 2021
APPROVED JUDGMENT
Approved Judgment
This is an application by Smile Telecoms Holdings Limited (“the company”) for an order pursuant to section 901F of the Companies Act 2006 (“the 2006 Act”) sanctioning a restructuring plan in respect of the company (“the plan”).
On 19 February, I made an order convening three separate meetings of creditors: super senior lenders, senior lenders and a subordinated lender for the purposes of considering and, if thought fit, approving the plan. In the judgment I gave before making that order, the neutral citation number for which is [2021] EWHC 395 (Ch), I described in summary form the company and the group of which it is part. I also explained the nature and extent of the liabilities, the terms of which were sought to be varied by the plan. I shall assume that anyone reading or listening to this judgment is familiar with that description.
For today's purposes, it is necessary for me to say a little more about the terms of the plan itself for reasons which will become apparent. The essence of the arrangement is to amend the existing group facility agreements in order to facilitate a managed sale process as part of a wider restructuring. This will involve an immediate sale of the group's assets in Tanzania, Uganda and the Democratic Republic of Congo, which are referred to in the papers as the minor assets, on a going concern basis and the provision of sufficient funding to implement a business plan for the group's Nigerian business with a view to it being sold in the medium term in an orderly manner.
This strategy required funding in order to enable the businesses to continue to operate without falling into immediate insolvency proceedings. For that purpose, c.US$50 million is required and has in principle been obtained. The source of that funding is a newly incorporated Luxembourg entity (“LuxCo”) which is owned by members of a family some of who are also shareholders in the company's majority shareholder, Al Nahla Technology Co (“Al Nahla”). This funding will only be made available if what are called the Al Nahla Funding Conditions are satisfied. There are two of those conditions.
The first is that the subordinated creditor should abandon its proposal to call on its guarantee and to convert its preference shares under the Preference Share Subscription Agreement. This condition has or will be satisfied. Nothing turns on it for today's purposes.
The second of these two conditions is that the Government Employees Pension Fund of South Africa (“GEPF”), which is also one of the six senior lender plan creditors, should agree to a year-long extension of a put option by which it is entitled to require shares to be purchased by various other parties, including Al Nahla, at a price of $1.28 per share.
Option notices under the put option agreement have already been served and are required to be complied with on or before 24 March 2021. The current put option period expires on 31 March 2021.
I will have to come back to the position in relation to the second of these two conditions but for present purposes, it suffices that GEPF has appeared at this hearing by counsel and, amongst other matters, has made clear by its skeleton argument that it will not agree to an extension of its put option agreement to 31 March 2022. In a letter dated 12 March 2021 from its representative, Public Investment Corporation SOC Limited (“PIC”), to Latham & Watkins, solicitors to the company, it explained its position as follows:
“5. The Company's Restructuring Plan was presented to the PIC investment committee on the 11 th March 2021. The outcome of the PIC investment committee meeting was to support the implementation of the Restructuring Plan, subject to the specific condition that it will not waive and/or withdraw and/or extend any of its rights and/or the terms of the Option Agreement as required in paragraph 9.1(a) of the Explanatory Statement (“PIC Approval Condition”).
6. The purpose of this letter is to confirm and communicate the outcome of the PIC Approval Condition and to record that the PIC remains interested in supporting and approving the restructure contemplated in the Explanatory Statement, however, it will only do so if it has assurance from the Company and the Grantors confirming that the condition relating to the PIC extending its Option Agreement to the 31 st March 2022 will be removed and/or waived as a condition to the implementation of the restructure.”
I should add that the rights which GEPF has under the put option agreement are secured by letters of credit under which it also says that it will claim. Ms Toube QC, who appears for the company, draws my attention to the fact that GEPF's ability to take this course means that it will be able to effect a recovery in respect of the put option agreement in any event.
The meetings convened pursuant to the February convening order were held on 12 March 2021. At each of the three meetings, all of the members of the relevant class were present and voting. There was therefore a full turnout. At the super senior lender meeting and the subordinated creditor meeting, the vote in favour of the plan was 100 per cent. There were two super senior lender plan creditors with claims totalling in excess of US$16 million, and a single subordinated plan creditor with a claim totalling in excess of US$33 million.
At the senior lender meeting, the aggregate amount of all claims was just in excess of US$230 million. Five of the six creditors voted in favour, but GEPF voted against. As well as its rights under the put option agreement, GEPF is also a creditor of the company with a claim admitted to vote in the sum of just in excess of US$65 million. This amounted to 28.29 per cent of the total senior lender claims. It follows that, at the senior lenders plan meeting, the majority which voted in favour of the plan was only 71.71 per cent, therefore falling short of the statutory majority of 75 per cent required by section 901F(1) of the 2006 Act.
Nonetheless, the company seeks the court's sanction of the plan by relying on section 901G of the 2006 Act. This defines a class of creditor which does not agree a plan by a number representing at least 75 per cent in value of creditors present and voting as a “dissenting class” and provides that the fact that a dissenting class has not agreed the arrangement does not prevent the court from sanctioning it if two statutory conditions are fulfilled.
The first is Condition A, and is defined by section 901G(3). The court must be satisfied that, if the arrangement were to be sanctioned under section 901F, none of members of the dissenting class would be any worse off than they would be in the event of the relevant alternative. The relevant alternative is whatever the court considers would be most like to occur in relation to the company if the arrangement were not sanctioned (section 901G(4)).
The second is Condition B and is defined in section 901G(5). The compromise or arrangement must have been agreed by the statutory majority at another class meeting whose members would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative.
In Re Deep Ocean 1 UK Limited [2021] EWHC 8138 (Ch), building on the decision of Snowden J in Virgin Atlantic Airways Limited [2020] EWHC 2376 (Ch), I explained that several aspects of the approach the court adopts to the sanctioning of a scheme of arrangement under part 26 of the 2006 Act and the sanction of a restructuring plan under part 26A of the 2006 Act where section 901G is not engaged, remain applicable in a case where section 901G is relied on. There are, however, some differences.
In Re Telewest Communications No 2 Limited [2005] BCC 36 at [20], David Richards J explained the general principles as follows:
“The classic formulation of the principles which guide the court in considering whether to sanction a scheme was set out by Plowman J in Re National Bank Ltd [1966] 1 All ER 1006 at 1012, [1966] 1 WLR 819 at 829 by reference to a passage in Buckley on the Companies Acts (13th edn, 1957) p 409, which has been approved and applied by the courts on many subsequent occasions:
‘In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but at the same time the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme.’”
The first question, therefore, is whether there has been compliance with the statutory requirements. The first of these is that the relevant company must be a...
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