This is an extract of our Schemes Of Arrangement document, which we sell as part of our Debt Restructuring Notes collection written by the top tier of King's College London students.
The following is a more accessble plain text extract of the PDF sample above, taken from our Debt Restructuring Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
● Involves only scheme companies and scheme creditors:
○ The company can select the classes of creditors that the scheme will engage.
○ Scheme usually involve only in-the-money senior creditors.
○ Valuation is therefore extremely important.
● Senior secured facility agreement of €730 million:
○ Existing priority senior lenders:
■ Non-guaranteed lenders (Tranche and RCF) of €660 million;
■ Bank guarantee facility of €48 million; and
■ Interest and PIK interest of €15 million.
● Super senior unsecured facility agreement of €34 million.
● Turnover agreement: Consenting senior lenders to turn over to SSFA lenders any proceeds received until SSFA is paid in full.
● Nine interdependent schemes: ○ Senior lenders received new debt at the OpCo level + new debt at the HoldCo level.
○ The consenting senior lenders were also rewarded with equity at the HoldCo level.
○ Centre Bridge had acquired a majority stake in the senior debt under a loanto-own strategy.
○ "Loan-to-own" strategy = Acquiring debt with a view to being converted into a majority shareholder under a restructuring.
○ Centre Bridge was therefore in favour of the scheme, but two other lenders opposed it.
● Proposal of scheme between company and creditors.
● Application to the court to summon meetings.
● Convening hearings.
● Meetings of creditors in classes to vote.
● Sanction hearing.
● Order delivered to Registrar of Companies.
● No automatic stay or moratorium, although the court may impose a stay on the basis of the rules of the civil procedure on application of the debtor (Bluecrest).
Compromise or Arrangement?
● Some element of"give and take".
● Not merely a surrender of (trust) property (Lehman).
○ The London-based investment bank of Lehman found themselves sitting on massive piles of client money.
○ Their recording system was however so bad that the assets and monies could not be attributed to their respective clients.
○ The liquidator sought to liquidate to pile of the assets and make a pro rata distribution to creditors based on the nominal value of their claims.
○ The problem is that the monies were actually held on trust. The court held that the scheme could not be used to surrender the trust monies.
○ Is this because there is only "giving" and no "taking"?
● The company must be party to the arrangement.
● The "give and take" may involve the release of third parties.
○ The creditor's rights against the third party may be closely connected to its rights against the company in, say, guarantees.
○ Creditor benefits from the release.
● Any company liable to be wound up under the Insolvency Act 1986.
● Companies under the Companies Act 2006.
● Foreign companies, provided there is a sufficient connection.
○ The underlying documentation must be governed by English law.
○ Even if they were subsequently brought under the jurisdiction of English law.
Application to the court:
● For an order to summon meetings of creditors.
● This application can be made:
○ By the company;
○ By any creditor or member of the company; or
○ By the liquidator or administrator.
● The company itself must consent.
● Such consent can be given:
○ Through the liquidator or administrator;
○ The Board; or
○ The General Meeting.
● Discretion to order meetings on terms as the court thins fit.
● Order will identify the chairman, time, and place of the meeting.
● Summons to be accompanied by an explanatory statement.
● The main issue: The formation of classes
○ Prior to 2001, the issue would be considered later at the sanctions hearing.
○ This wasted time and incurred expenses where the scheme was rejected on the very basis of the determination of classes.
Buy the full version of these notes or essay plans and more in our Debt Restructuring Notes.