Steinhoff International Holdings N.v and the Companies Act 2006
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 05 February 2021 |
| Neutral Citation | [2021] EWHC 184 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-004268 |
| Date | 05 February 2021 |
[2021] EWHC 184 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND & WALES
INSOLVENCY AND COMPANIES LIST
7 Rolls Building
Fetter Lane
London EC 4A 1NL
Mr Justice Adam Johnson
Case No: CR-2020-004268
Mark Arnold QC, Adam Al-Attar and Ryan Perkins (instructed by Linklaters LLP) for the Applicant
Tom Smith QC and Henry Phillips (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for Conservatorium Holdings LLC
Hearing dates: 26 – 27 January 2021
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.
Introduction
Steinhoff International Holdings NV (“ Steinhoff NV” or “ the Company”) is incorporated in the Netherlands but its principal place of business is in Stellenbosch, South Africa. It is the ultimate holding company of the Steinhoff Group.
Steinhoff NV applies for an order sanctioning a creditors' scheme of arrangement (“ the Scheme”) pursuant to Companies Act 2006, section 896. The Scheme relates to two classes of creditors, both lenders under financing documents which I will describe below (I will refer to them as the “ Facility A1 Lenders” and the “ Facility A2 Lenders”, or together, the “ Scheme Creditors”).
The Company issued the required Practice Statement Letter on 4 November 2020, and following a hearing before Sir Alastair Norris on 26 November, Sir Alastair made an Order (the “ Convening Order”) convening two scheme meetings of the Facility A1 Lenders and Facility A2 Lenders to be held on 15 December 2020. Sir Alastair's judgment given on the convening hearing is at [2020] EWHC 3455 (Ch).
Meetings of the Scheme Creditors have now taken place, and the vast majority, both in number and value, support the Scheme.
As I will explain below, however, a particular issue arises because of an objection to the Scheme by Conservatorium Holdings LLC (“ Conservatorium”). Conservatorium is not a Scheme Creditor, but says it has a sufficient interest to justify its intervention. That is because the Scheme represents the first step in a more complex overall arrangement designed to achieve a global settlement of many disputes involving the Steinhoff Group (the “ Steinhoff Group Settlement”). Those disputes arise out of alleged accounting irregularities affecting the Group which first came to light in late 2017, concerning possible overstatements of profits. Conservatorium is pursuing claims relating to the alleged irregularities, and says the proposals for settlement in the Steinhoff Group Settlement involve it being treated unfairly in respect of its claims. It says that because the present Scheme and the Steinhoff Group Settlement are connected, and in effect indivisible (its counsel, Mr Smith QC, used the vivid analogy of there being “ one big ball of wax”), such unfairness must be relevant for this Court in assessing whether to sanction the Scheme. Indeed it is said to constitute a “ blot” in the Scheme such that the Scheme should not be sanctioned.
A preliminary point was raised by the Company at the hearing before me, as to the standing of Conservatorium to intervene and make an objection at all. The parties agreed, however, that I should hear Conservatorium's submissions as part of an overall presentation of the Company's application for an order for sanction. I therefore agreed to hear Conservatorium's submissions de bene esse, on the basis that I would deal in this Judgment with the question of standing and, as necessary, with the substance of its objection. That is the approach adopted below.
Background
The Steinhoff Group operates in the household goods and general merchandise sectors. Among the members of the Group are Steinhoff International Holdings Proprietary Limited (“ SIHPL”) and Steenbok Lux Finco 2 Sarl (referred to as “ SEAG”). SIHPL is incorporated in South Africa. It is important because (prior to 2015) it was the main holding company in the Group. It is now a subsidiary of Steinhoff NV. SEAG is also a subsidiary company. It is important because it is party to the key financing documents sought to be amended by the present Scheme.
The suspected accounting issues announced in late 2017 caused huge turbulence within the Group, including to its relationships with its lenders. Its financing arrangements at the time included Facility A1 and Facility A2, in favour of SEAG. These facilities are governed by English law and contain submissions to the jurisdiction of the English courts.
In 2019, a restructuring of the Group's overall indebtedness was achieved ( “the 2019 Restructuring”). The objective was to buy some breathing space, to allow time to see whether the Group could weather the storm which followed the emergence of the accounting issues I have mentioned. It was hoped that by creating some breathing space, it might be possible for an overall settlement of the many disputes affecting the Group to be negotiated.
Among the arrangements affected by the 2019 Restructuring were Facility A1 and Facility A2 with SEAG. A number of changes to those Facilities were brought into effect. The relevant maturity dates were extended, and presently expire in December 2021. Further, by means of a new contingent payment undertaking, referred to as the “ SEAG CPU”, Steinhoff NV gave what is in effect a guarantee (subject to an agreed cap) in respect of SEAG's indebtedness to the Facility A1 and Facility A2 Lenders. Thus, the Facility A1 and A2 Lenders became contingent, unsecured creditors of Steinhoff NV, the promoter of the present Scheme. By means of an intercreditor agreement (“ the SEAG Intercreditor Agreement”), Facility A2 was subordinated to Facility A1.
The Group had other facilities in addition to Facility A1 and Facility A2. The other facilities had the benefit of their own CPUs. The interrelationship between the SEAG CPU and the other CPUs came to be governed by a document known as the “ Umbrella Agreement”.
By September 2020, the Company's exposure under the SEAG CPU was €5.5bn and under all CPUs was some €9.8bn.
I mention the SEAG CPU and the SEAG Intercreditor Agreement in particular because a key purpose of the present Scheme is to put arrangements in place which will result in their being amended on behalf of the Facility A1 and A2 Lenders. The need to achieve that objective by means of a scheme of arrangement has arisen as follows.
As noted, the 2019 Restructuring contemplated that efforts would be made to achieve a global settlement. The package of agreements which gave effect to the 2019 Restructuring set parameters for any settlement, including as to such matters as the settlement sum and the sources of funding for the payment of any such sum.
In June 2020, after a year of complex negotiations, the Group announced a proposal for a global settlement. This was the first iteration of the Steinhoff Global Settlement already mentioned. There was an issue, however. The proposed terms were outside the approved parameters required by the 2019 Restructuring, and reflected in the documents I have mentioned. Also, more time was needed, and so the Group looked to extend the maturity dates settled on in the 2019 Restructuring.
The documents constituting the 2019 Restructuring contained consent provisions, permitting amendments to be made subject to certain approval thresholds being met. In October 2020, a process of seeking consents was initiated under the relevant contractual mechanisms. The short point is that the relevant majorities were achieved in the majority of cases, but not all. Certain amendments affecting the Facility A1 Lenders and Facility A2 Lenders required unanimous consent, and that was not forthcoming. One Facility A1 Lender (holding 0.05% of Facility A1 by value) declined to give consent, and two of the Facility A2 Lenders (holding 6.6% of Facility A2 by value) voted against the proposed amendments. I understand that those Facility A2 Lenders are associated with Conservatorium.
Thus it comes about that the Company seeks to promote the present Scheme. It does so in order to effect amendments to the arrangements in place with the Facility A1 and Facility A2 Lenders, and those amendments are necessary to facilitate implementation of the hoped for Steinhoff Global Settlement. At the heart of the present Scheme is a proposal that authority be conferred on appointed agents of the Scheme Creditors to execute a suite of implementation documents on their behalf, following the practice described by Snowden J. Re ColourOz Investment 2 LLC [2020] EWHC 1864 (Ch) at [74]–[75].
The two key implementation documents are:
a) An agreement to amend the SEAG CPU (“ the SEAG CPU Amendment Agreement”), and
b) An agreement to amend the SEAG Intercreditor Agreement (the “ SEAG ICA Amendment Agreement”).
Among the key proposed amendments is an extension of the Maturity Date under the SEAG CPU from 31 December 2021 to 30 June 2023, and a reduction in the consent threshold required to effect further changes to the SEAG CPU and the Umbrella Agreement from “ all Lenders” to an 80% majority by value.
The Scheme also includes a release of the directors of the Company, professional advisers and various other persons from any liability arising out of or in connection with the preparation, negotiation or implementation of the Scheme. Essentially the same provision was approved by Snowden J in Re Far East Capital Ltd SA [2017] EWHC 2878 (Ch) at [13]–[14], and Re Noble Group Ltd [2019] BCC 349 (sanction...
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