: Vue International Bidco Plc
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Joanna Smith |
| Judgment Date | 27 July 2022 |
| Neutral Citation | [2022] EWHC 2681 (Ch) |
| Docket Number | Case No: CR-2022-002286 |
| Court | Chancery Division |
[2022] EWHC 2681 (Ch)
Mrs Justice Joanna Smith
Case No: CR-2022-002286
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
Mr D Bayfield QC appeared on behalf of the Applicant
The applicant Vue International Bidco plc, (“ the Company”) applies for an order pursuant to section 896 of the Companies Act 2006 (“ CA 2006”) convening a meeting of its scheme creditors, (“ the Scheme Creditors”) to consider a scheme of arrangement under Part 26 of CA 2006 (“ the Scheme”). The claim form was issued on 25 July 2022.
I have received a comprehensive and very helpful skeleton from Mr Bayfield QC, together with detailed oral submissions today in support of the application for which I am most grateful. I have read witness statements from Alison Cornwell, CFO of the company and Victor Parzyjagla of Kroll Issuer Services Limited, the Calculation Agent tasked, amongst other things, with optimising communications between lenders and borrowers. I have also read the Explanatory Statement, the Practice Statement letter dated 13 July 2022 and the Scheme itself, certain paragraphs of which I was taken to by Mr Bayfield during the course of his submissions this morning.
No-one else attends court today with a view to making any representations in opposition to the application.
The background to the Scheme, as set out in Mr Bayfield's skeleton which faithfully summarises the witness statements and exhibits, is as follows:
The Company is incorporated in England and together with its subsidiaries, all of which I will refer to as “ the Group”, it operates a well-known cinema chain across the UK, Europe and Taiwan. Numerous operating companies have been incorporated in various jurisdictions to operate these cinemas. The Group's ultimate shareholders include various entities controlled by a Canadian pension fund (“ OMERS”), various entities controlled by a Canadian fund manager, and the Group's management and other individuals. Mr Bayfield referred me to a structure chart illustrating these points.
The Group presently has two key tranches of financial indebtedness:
a. First, a debt under what I will refer to as “ the Senior Finance Documents”, namely a Senior Facilities Agreement and a Senior Secured Term Loan, both governed by English law. The Senior Facilities Agreement, in turn, involves two groups of facilities, namely the Senior Facilities (which have an aggregate principal amount of €634 million and mature in June 2026) and the Revolving Credit Facility (which has an aggregate principal amount of £65 million and matures in July 2025). The Senior Secured Term Loan has an aggregate principal amount of £150 million and matures in November 2024. All these facilities are fully drawn, and the Company is the borrower.
b. Second, a series of junior notes referred to as the Second Lien Notes. The aggregate principal amount of the Second Lien Notes is £165 million and they mature in June 2027. The vast majority of these Second Lien Notes are, I understand, held by OMERS.
The Second Lien Notes are not involved in the Scheme and their rights are unaffected by it. The Scheme Creditors consist solely of the lenders under the Senior Finance Documents.
Liabilities under these various forms of financial indebtedness are secured by fixed and floating security over various Group assets (including the immediate wholly owned subsidiary of the Company) and are guaranteed by various Group companies. The ranking of the debt and the security is governed by an Intercreditor Agreement which is governed by English law. Under this agreement the debt under the Senior Finance Documents ranks equally (pari passu) and ranks in priority to the Second Lien Notes. The Group has various other financial obligations ranking below the Second Lien Notes, including a number of unsecured shareholder loans whose rights are also not affected by the Scheme.
Due to the COVID 19 pandemic the Group's cinemas were forced to close for an extended period of time and faced serious difficulties upon reopening. The business had been producing significant growth prior to the pandemic, but the effects of the pandemic have resulted in significant deterioration in liquidity. Essentially, the Group is over-leveraged and is now facing a liquidity crisis. Its financial difficulties have been compounded by the commencement, in June 2022, of arbitration proceedings against the Scheme Company by two companies, referred to during the hearing as Event, who seek damages initially estimated at €129.5 million plus interest for the alleged breach of a sale agreement. I shall return to a letter sent by Event yesterday to the Company, in relation to this hearing, at the end of this judgment.
Current projections indicate that the Group will have a shortfall in its cashflow in September 2022 and as such will not be able to meet its obligations as they fall due. This position will further deteriorate in October 2022 and has been updated by reference to a 16 week liquidity forecast provided to me this morning. This shows that by the week ending 7 October 2022, there will be a cash deficiency of some £14 million sterling. Prior to that date, the Group is also projected to breach its financial covenant under the Revolving Credit Facility, absent an injection of new money. The directors consider that the Group and its business cannot continue as a going concern. The Scheme is designed to avoid an accelerated sale process with its consequent devaluation of the business and the potential for administration or liquidation.
In these circumstances, the Group has engaged in extensive negotiations with an ad hoc group of the five largest lenders under the Senior Finance Documents (“ the Ad Hoc Group”) and on 13 July 2022 the Company entered into a lock up agreement with the members of the Ad Hoc Group, the shareholders and various other parties (“ the Lock Up Agreement”). The Lock Up Agreement has been made available to all Scheme Creditors who have been encouraged to accede to it. At the time of this hearing, Mr Bayfield tells me that more than 90% by value of Scheme Creditors have locked up to support the Scheme. A substantial proportion of these are not members of the Ad Hoc Group. There is no opposition today, as I have already indicated, from any Scheme Creditors.
Pursuant to the Lock Up Agreement, the parties are required to support the implementation of the Scheme. The purpose of the Scheme is to amend the Senior Finance Documents and thereby to facilitate entry into a new loan facility on a “super senior” basis (“ the New Money Facility”) ranking in priority to the Group's existing financial indebtedness. This will also require entry into a new subordination and turnover agreement (“ the Subordination Deed”) as between the lenders under the New Money Facility and the lenders under the Senior Finance Documents, who will be the Scheme Creditors. All of the Scheme Creditors (which for the avoidance of doubt do not include the Second Lien Noteholders) will be entitled, but not obliged, to subscribe for lending commitments under the New Money Facility on a pro rata basis. The deadline for participating in the New Money Facility will be three business days after the Scheme Meeting.
The New Money Facility will enable the Group to raise £75 million in the short term, thereby solving its immediate liquidity crisis and ensuring that it can continue as a going concern and so create a stable platform from which it intends to implement a planned financial restructuring and de-leveraging of its balance sheet by entering into a debt for equity swap with the Scheme Creditors (“ the Financial Restructuring”). The Financial Restructuring does not form part of the Scheme, although its proposed terms are set out in the Lock Up Agreement and summarised in the Explanatory Statement and it is obviously important context for the consideration of the Scheme. I need not go into the detail here, but suffice to say that the New Money Facility will ensure, I am told, that the Group does not collapse into insolvency proceedings during the implementation of the Financial Restructuring.
Mr Bayfield tells me that the Scheme is similar to various other recent schemes which have been used to enable a debtor to borrow new money on a “super senior” basis by amending the debtor's existing senior debt documents and allowing all scheme creditors to lend new money if they wish to do so. In this regard, my attention was drawn to the case of Re Swissport...
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