Zlomrex International Finance S.A. and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Mann |
| Judgment Date | 26 November 2013 |
| Neutral Citation | [2013] EWHC 4605 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. 8146 of 2013 |
| Date | 26 November 2013 |
[2013] EWHC 4605 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Rolls Building
Mr. Justice Mann
Claim No. 8146 of 2013
Mr. D. Bayfield (instructed by White & Case) appeared on behalf of the Applicant Company.
This is an application inviting the court to convene a meeting of one class of creditors of this company, the company being Zlomrex International Finance SA. There is a heavy international, or cross-border, element involved. I deliver a short judgment to deal with a few of the issues arising. It is not intended to deal at any length with most of the detailed matters which counsel relied on establishing the jurisdiction of the court and the propriety of convening a meeting in the present circumstances. I have been much assisted by the extremely helpful skeleton of Mr. Bayfield, a model of its kind, and his even clearer oral submissions.
THE COMPANY AND THE INTERNATIONAL ELEMENT
The company is part of a Polish group which trades in scrap metal. The position of the company within the group is that it is the finance company. It issued the Loan Notes involved in the Scheme and on-lent into the group. Its function was essentially the raiser of funds and the channelling of funds. As such it did not have need of office staff to conduct its day-to-day activities. The rights of repayment in respect of loans on-lent within the group are its principal asset.
The Loan Notes in question in this case, which are to be the subject of the Scheme, secure payment of €118 million. The Notes are repayable on 1 st February, 2014. They are subject to New York Law and the non-exclusive jurisdiction of the New York courts. The Notes have a single trustee or note-holder. The beneficiaries of the Notes trade their interests on various trading registers and exchanges. Under certain circumstances the beneficial owners of the Notes may be able to, or may be required to, take over the Notes themselves, and that makes them contingent creditors. That has a significance to the structure of the Scheme.
The company itself is a French-registered company. As I have indicated, it does not need to conduct a lot of activity a lot of the time, but until recently all such activities as it had to conduct took place essentially in France. It will be apparent that so far there is not a very great connection with this jurisdiction.
However, circumstances have recently changed. In August the company moved its principal place of business and its principal office to London. The avowed intention behind that move was to give the company a close connection with this jurisdiction and, so far as necessary, to move its centre of main interest ("COMI") here. The concept of COMI is conceivably, but not necessarily, significant for the purposes of the Insolvency Regulation and to jurisdiction and, potentially, to certain interests that might arise in New York if the Scheme itself be approved. In that context the company took on phone lines; it acquired English premises. It acquired two English directors. It opened a bank account here and transferred its funds into that account. Correspondence is now received here. The contact details for those who would need to be contacted from time to time have been amended so that it will now be contacted here. It is in the course of acquiring a Certificate of Tax Residency from HMRC. It has entered into a contract with an English company for corporate management functions. All key meetings now take place in this jurisdiction. Bar one board meeting, all board meetings since August have taken place here. All that is left in France is the registered office. The company needs to retain a French-registered office since it is a French-registered company but that is, in essence, all that remains in France. All other facilities and activities are to take place here. The witness statement of Mr. Zola, a director of the company, who gives evidence of these facts, adds the following,
"The move to England is permanent and there is no intention of moving its [the company's] COMI back to France, although [the company's] role as part of the Group post-restructuring is still to be confirmed".
The purpose of this move was to establish jurisdiction to order the Scheme, whose meeting I am now asked to consider. No attempt has been made to hide that motivation. Had it not been for the desire to have an English Scheme the move would no doubt not have taken place. An English Scheme is preferred over alternatives. A French re-structuring would be likely to trigger an event of default with further cross-defaults within the Group which would lead to worse recoveries for creditors than they currently hope to get out of the Scheme. Indeed, there would be worse recoveries for other creditors as well. Restructuring in New York is said to be more expensive to the extent of being prohibitive, or almost prohibitive, with the possibility of difficulties being caused by non-consensual releases which are part of the Scheme. There are said to be more uncertainties arising in that context than arise in this jurisdiction and that those uncertainties could only be avoided in New York by promoting additional Schemes elsewhere in the group with the concomitant additional costs and the negative effect on relationships with customers and suppliers of the group. In all those circumstances an English Scheme is perceived as being the most cost-effective and clearest way of restructuring the debts of the company. A full-restructuring in the sense of acquiring additional replacement funding is thought to be not possible in the current commercial climate.
My attention has been drawn to authorities on COMI — how COMI is established and, to a degree, the extent to which it can be changed. So far as is relevant and necessary for the purpose of this application, I am satisfied on the facts and the law that for the purposes of the Insolvency Regulation the company's COMI is now in England and Wales so far as that matters and it was in England and Wales at the commencement of these proceedings.
THE BACKGROUND TO THE SCHEME
The company is insolvent. It will not be able to repay the Notes in full at their due date. If nothing is done, then some form of insolvency proceedings will be likely, if not inevitable. The Scheme of Arrangement which is proposed is intended to avoid that. It affects only the Notes to which I have referred. That is the vast bulk of the debt of the company. Under the Scheme, the beneficial owners — and not the single technical note-holder — will be treated as the creditors. They are, as I have indicated, contingent creditors and they will be voting in that capacity. The note trustee will not vote under the proposed scheme. The scheme involves the substitution of debts due in the future for the present debts. The amounts payable on the Notes, which would otherwise be payable on 1 st February next year, will become repayable under two separate Notes, either in 2020 or in 2021. The aggregate of those separate Notes is the same as the amount due under the current Notes. The debtor will be replaced as well. A new English company, constituted for the purpose, will replace the company as the debtor under the new Notes. There will be one or two new guarantors and the release of at least one existing guarantor. I do not need to go into any further details of the proposed Scheme.
The Scheme proceedings are to run parallel with other proposals, potentially taking effect independently of a Companies Act Scheme and which it is hoped will engage a sufficient body of the beneficial holders of the Notes to make a Scheme unnecessary in the end. However, there is no time to try that first and then, if it fails, to put a Scheme in place because of the proximity of the date on which the Note will fall due. I accept that in those circumstances it is appropriate to do what the company is seeking to do — that is to say, to run the proposed statutory Scheme proceedings and the contractual Scheme in parallel.
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