Rodenstock GmbH (The "Scheme Company"), Re

This is an application for the sanction by the court of a scheme of arrangement (“the Scheme”) pursuant to Part 26 of the Companies Act 2006. Although in the event unopposed, it gives rise to serious questions of jurisdiction and discretion arising from the facts that:

Due to an apprehension that, if the Scheme is not sanctioned, the Company may be unable to avoid insolvency significantly beyond the end of April, both stages of the court proceedings relating to the Scheme have been undertaken with considerable urgency, with a view to obtaining the court’s decision before the end of term, and the onset of the Easter holiday period on 22nd April 2011. The sanction hearing therefore took place on 19^th April 2011, and after considering the matter and concluding that the Scheme ought to be sanctioned, I made the appropriate order on 21st April 2011, stating that my reasons for doing so would be provided thereafter in a reserved judgment.

This judgment sets out those reasons. Although the creditors who voted against the Scheme have since withdrawn their objections I have nonetheless undertaken a detailed review of the jurisdictional and other issues arising from the German location of the Company. I have done so at greater length than is usual on an unopposed application, in part out of respect for the very thorough way in which the issues have been presented, in part because those issues may soon fall to be reviewed (in other litigation) by the ECJ, and finally because counsel suggested that those engaged in formulating schemes of this type would welcome guidance as to those issues for use in relation to future applications.

The Company is the main operating company in the Rodenstock group which is Europe’s fourth largest manufacturer and distributor of spectacle lenses and frames. Its headquarters are in Munich, its main production facilities are in Europe and Thailand and its products are, outside Germany, distributed by about forty sales offices across the globe operated by the Company’s subsidiaries. The Company’s turnover is approximately €258.3 million, out of a group turnover of approximately €365.5 million.

The Company has outstanding senior debt of approximately €305,335,000 (“the Senior Debt”) which has been advanced under a facilities agreement (“the Existing Senior Facilities Agreement”) which is expressed to be governed by English law and which contains a jurisdiction clause in the following terms:

“42.

ENFORCEMENT

42.1

Jurisdiction

(a)

The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

(b)

The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

(c)

This Clause 42.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.”

Some 56.5% (by voting value) of the Senior Lenders, with whose rights the Scheme is solely concerned (and who are described as the Finance Parties in the Existing Senior Facilities Agreement), are situated in England. The remainder are spread across Europe.

The Company currently has significant relationships with seven customers in England, generating total annual direct revenues for the company of some €4 million, in addition to those generated from England by the Company’s subsidiaries.

The Company has for some time suffered a deteriorating financial position which led it to fall into breach of its financial covenants under the Existing Senior Facilities Agreement in the second quarter of 2009. The Company is currently protected from the acceleration of its Senior Debt by a series of successive waivers, pending the extended consideration and negotiation of restructuring proposals. The waivers presently in place could be terminated at the end of April 2011.

The purpose of the Scheme is to bind the Senior Lenders to a variation of their rights under the terms of the Existing Senior Facilities Agreement sufficient to enable the Company to implement a restructuring which its directors believe will enable it to avoid going into a German insolvency process at the end of April 2011, or soon thereafter.

At a meeting of the Scheme Creditors on 6 December 2010 at the offices of Clifford Chance (solicitors to the Coordinating Committee of Senior Lenders (“Co Com”), the Scheme Creditors were given a presentation of the options which were (and are) considered open to the Company if the Scheme were not approved. In each of the four options considered to be open to the Company if the Scheme did not proceed and no other option could be agreed with the Senior Lenders, the Company would file for some kind of insolvency proceeding. The four options were as follows:

The Scheme Company was not able to propose a restructuring which would obtain the unanimous support of the Senior Lenders. However, the Scheme was proposed with the support of those Senior Lenders who had signed up to or acceded to an agreement (the “Restructuring Agreement”) committing them (subject to any material adverse change) to support the restructuring proposed to be implemented primarily through the Scheme (the “Restructuring”).

The outstanding Senior Debt of €305,335,000 is proposed to be restructured as follows:

The essentials of the Scheme comprise:

Outside the Scheme, the Restructuring will provide for:

By an order dated 23^rd March 2011 the Court ordered a single Scheme Meeting to be held of the Senior Lenders as the Scheme Creditors. The meeting was duly held on 14^th April pursuant to that Order and all the Scheme Creditors voted, either in person or by proxy. Of those, all but 11.4% in number and 6.64% by value voted in favour of the Scheme. The dissentient Scheme Creditors consisted of entities which were either managed by Alchemy Special Opportunities LLP (“Alchemy”) or which had sold their beneficial interest in their portion of the Senior Debt to one of those Scheme Creditors managed by Alchemy.

Alchemy had previously proposed an alternative proposal for restructuring the Company’s debts which had not found favour either with the directors or, more importantly, with a majority of the Senior Lenders. The dissenting Scheme Creditors have until recently expressed an intention to oppose the Scheme at the sanction hearing, on grounds relating to jurisdiction, to discretion and to the merits of the Scheme. At a late stage they notified their intention no longer to oppose the Scheme, but have not stated that they support it. The result is that the court must satisfy itself that the Scheme should be sanctioned and, in any event, that it has jurisdiction to do so.

The court’s statutory power to sanction a scheme of arrangement is to be found in Part 26 of the Companies Act 2006. Section 895 of the 2006 Act provides (so far as is relevant) as follows:

“(1)

The provisions of this Part apply where a compromise or arrangement is proposed between a company and—

(a)

its creditors, or any class of them

(b)

its members, or any class of them

(2)

In this Part—

… “company”—

(a)

in section 900 (powers of court to facilitate reconstruction or amalgamation) means a company within the meaning of this Act, and

(b)

elsewhere in this Part means any company liable to be wound up under the Insolvency Act 1986….”

The formula in section 895(2)(b) has stood substantially unchanged for over a century. In section 120(3) of the Companies (Consolidation) Act 1908 it took this form:

“In this section the expression “company” means any company liable to be wound up under this Act.”

The change in language whereby the reference is to companies liable to be wound up under the Insolvency Act 1986 occurred, of course, in connection with transfer of the court’s winding up powers (in relation both to insolvent and to solvent companies) from the Companies Acts to the Insolvency Act 1986.

The Insolvency Act confers powers upon the court to wind up both registered and unregistered companies. In relation to unregistered companies the relevant provisions are as follows:

“Section 220 Meaning of “unregistered company”

For the purposes of this Part, the expression “unregistered company” includes any association and any company, with the exception of a company registered under the Companies Act 2006 in any part of the United Kingdom.

221 Winding up of unregistered companies

(1)

Subject to the provisions of this Part, any unregistered company may be wound up under this Act; and all the provisions of this Act about winding up apply to an unregistered company with the exceptions and additions mentioned in the following subsections.

(4)

No unregistered company shall be wound up under this Act voluntarily, except in accordance with the EC Regulation.

(5)

The circumstances in which an unregistered company may be wound up are as follows—

(a)

if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b)

if the company is unable to pay its debts;

(c)

if the court is of opinion that it is just and equitable that the company should be wound up.”

It is apparent therefore that the Insolvency Act confers jurisdiction on the court to wind up both insolvent and solvent unregistered companies, with no express jurisdictional restriction referable to the company’s place of incorporation, COMI or establishment.

The court did not, however, treat the very broad provisions of the Insolvency Act (formerly in the Companies Acts) as giving it carte blanche to wind up foreign companies, regardless of the presence or absence of any connection with England, or of the utility or otherwise of making a winding up order. On the contrary, there evolved three judge-made conditions for the making of a winding up order in relation to a foreign company namely:

The second and third of what Knox J called the “three core requirements” may be said to serve the practical purpose of ensuring that the court will only make orders where some useful purpose will be served. The first requirement has been repeatedly described as serving the purpose of ensuring that the English court declined to exercise a prima facie exorbitant jurisdiction save where it was appropriate to do so. The exorbitancy arises from the fact that the court has no territorial jurisdiction over the place of incorporation or, as the case may be, place of business of the unregistered company and because, all other things being equal, the appropriate forum for the winding up of a company is the court having jurisdiction in its place of incorporation: see per Knox J in Re Real Estate Development Co at page 217d to e, Re Latreefers Inc per Lloyd J (at first instance) at 180B to C and Re Drax Holdings Ltd [2004] 1 WLR 1049 at 1054 per Lawrence Collins J at paragraph 24.

Judicial opinion varied as to whether the three core requirements were judge-made limits on the court’s jurisdiction to wind up foreign companies, or factors to be taken into account in the exercise of its discretion: see Re Latreefers Inc at paragraphs 29 to 30 in the judgment of the Court of Appeal, where the matter was left unresolved. Nonetheless in Re Drax Holdings Ltd, at paragraphs 23 to 26, Lawrence Collins J concluded that the three core requirements went to discretion rather than to jurisdiction in relation to the winding up of a foreign unregistered company. He did so in the context of having to decide (apparently for the first time) the question whether the phrase “liable to be wound up under this Act” as the touchstone for jurisdiction to sanction a scheme under what was then section 425 of the Companies Act 1985 necessarily incorporated by reference all three of the core requirements as limits upon the court’s scheme jurisdiction.

In that case the two companies in respect of which the judge was invited to sanction schemes were incorporated respectively in the Cayman Islands and Jersey. Although neither scheme was opposed, so that he heard no adversarial argument on the issue, he was nonetheless required to satisfy himself as to his jurisdiction. I consider that the absence of adversarial argument detracts little from the force of the reasoning of the judgment of such a pre-eminent writer in the field of private international law, and I am content to adopt his analysis that the three core requirements go to discretion rather than to jurisdiction in relation to the winding up of foreign companies by the English court, at least in circumstances in which (as he thought in that case) the jurisdictional restrictions imposed by the Council Regulation (EC) No 1346/2000 on insolvency proceedings (“the Insolvency Regulation”) are not engaged.

Lawrence Collins J also considered that, in relation to a Cayman or Jersey company, the Judgments Regulation was not engaged either: see Re Drax Holdings Ltd at paragraph 28. That conclusion was consistent with the then Court of Appeal authority on the point in Re Harrods Buenos Aires Ltd [1992] Ch 72, to the effect that the Judgments Regulation was concerned only to resolve issues as to jurisdiction between contracting states, leaving otherwise intact the common law forum conveniens doctrine in relation to conflicts of jurisdiction between England and non-contracting states. As Lord Collins has since acknowledged in the 14^th edition of Dicey Morris & Collins on the Conflict of Laws, at paragraph 12-020, it is now impossible to argue that Re Harrods Buenos Aires Ltd has not been comprehensively overruled by the ECJ in Owusu v. Jackson Case C-291/02 [2005] QB 801. As will appear, this leaves unresolved a difficult aspect of the analysis called for by the present case, to which I will have to return.

The effect (if any) on the court’s international jurisdiction to sanction solvent company schemes created by the passing into English law of the Judgments Regulation and the Insolvency Regulation lies at the heart of the present analysis, but it would have been convenient first to describe how the court applied the “liable to be wound up” test for its scheme jurisdiction prior to the coming into force of those Regulations, (or in relation to the Judgments Regulation, its predecessors, namely the Brussels and Lugano Conventions). It is in fact impossible for me to describe a settled approach to the interpretation of that phrase at that time, since counsel could not identify any reported case in which it had been considered at a sufficiently early date. There are nonetheless three more recent decisions in which, on an assumption that (although in force) neither of those Regulations or their predecessors applied, the court has addressed, directly or by implication, the meaning of that elusive phrase.

In Sea Assets v. PT Garuda Indonesia [2001] EWCA Civ 1696, the Court of Appeal dismissed an objector’s appeal against the sanctioning by Lloyd J (in an unreported judgment) of a creditors’ scheme in relation to a solvent Indonesian airline operating company. It was apparently common ground at first instance that, because the company had assets and operations at Gatwick airport, within the jurisdiction, the jurisdictional requirements of what was then section 425 of the Companies Act 1985 were satisfied. Nonetheless, objection was taken on the ground that some of the scheme debts were governed by Indonesian law, and that the Indonesian courts could not be assumed to recognise the scheme if a dissentient creditor pursued a claim in Indonesia against the company for payment in full. The objection was taken as an aspect of the alleged insufficiency of the Explanatory Statement, but Lloyd J treated it also as a matter relevant to discretion.

He rejected the allegation that the Explanatory Statement was inadequate, and since the overwhelming majority of scheme creditors had contracted to abide by the Scheme, he did not regard the possibility that what he described as a “small residue of debt not affected by this contractual provision” might be enforced without regard to the Scheme as sufficient to cause the court to decline to sanction it, on grounds of ineffectiveness. In fact, the Scheme was promoted in conjunction with a similar scheme in Singapore where the company had more substantial airline operations than at Gatwick, and its effectiveness therefore needed to be considered in that wider context, rather than in isolation.

In the Court of Appeal the same objection on the grounds of ineffectiveness was pursued but summarily rejected: see per Peter Gibson LJ at paragraph 59. In addition it was argued for the objectors that it was in principle wrong for the English or Singaporean courts to sanction the scheme since the place of incorporation and head office of the company (namely Indonesia) meant that it had no sufficient connection with either England or Singapore. The application for sanction in England was described as forum shopping. Again, the Court of Appeal rejected that allegation on the facts, there being both a sufficient connection with England and good reason for not promoting a parallel scheme in Indonesia.

Although therefore the judgments in the Garuda case do not deal directly with the question of jurisdiction (it being apparently common ground that there was jurisdiction) their general approach appears to recognise the need for a sufficient connection to be demonstrated between the Scheme and the English jurisdiction for it to be proper for the English court to sanction a scheme, and appears to treat the question of the efficacy of the court’s order as a matter going to discretion.

The second case is Drax Holdings itself, decided on the assumption that the Judgments Regulation and the Insolvency Regulation could safely be left out of account although, of course, they were by then in force. Lawrence Collins J’s view that the three core requirements for winding up a foreign company went only to discretion meant that it was easy for him to conclude that the phrase “liable to be wound up” in section 425 of the Companies Act 1985 required only that the companies the subject of the scheme were unregistered companies. This is implicit in paragraph 29 of his judgment, as follows:

“That the companies fall within the definition of companies for the purpose of section 425 does not, of course, mean that there are no limitations to the exercise of jurisdiction under section 425. The court should not, and will not, exercise its jurisdiction unless a sufficient connection with England is shown. Thus it is almost impossible to envisage circumstances in which the England court could properly exercise jurisdiction in relation to a scheme of arrangement between a foreign company and its members, which would essentially be a matter for the courts of incorporation….”

At paragraph 30, continued:

“In the case of a creditors’ scheme, an important aspect of the international effectiveness of a scheme involving the alteration of contractual rights may be that it should be made, not only by the court in the country of incorporation, but also (as here) by the courts of the country whose law governs the contractual obligations. Otherwise dissentient creditors may disregard the scheme and enforce their claims against assets (including security for the debt) in countries outside the country of incorporation.”

Drax Holdings was a strong case for exercising the scheme jurisdiction, both in terms of sufficient connection and efficacy. The underlying business of the group of which the scheme companies formed part concerned the acquisition of a power station in England. There were parallel schemes being promoted both in the Cayman Islands and Jersey. In common with the present case, the creditors’ rights were all governed by an agreement which specified English law and contained a non-exclusive submission to the jurisdiction of the English court.

The third case which assists in the interpretation of the phrase “liable to be wound up” on an assumption that the Judgments Regulation and Insolvency Regulation are both irrelevant is Re: Sovereign Marine & General Insurance Co Ltd [2006] BCC 774 in which Warren J ordered the convening of a creditors’ meeting to approve a scheme under section 425 of the Companies Act 1985 on the application of sixteen insurance companies. All but one of them were solvent. They were incorporated and regulated variously in the UK, France, Ireland, New York and Bermuda. At paragraph 62 Warren J held that the Insolvency Regulation was irrelevant. As for the Judgments Regulation, he concluded only that “none of the jurisdictional rules in Chapter II is wide enough to encompass schemes of arrangement”. I shall return to that question in due course. For present purposes it is sufficient that Warren J regarded the Judgments Regulation, like the Insolvency Regulation, as irrelevant to the issue as to the court’s solvent scheme jurisdiction.

After a lengthy review of Drax Holdings, at paragraphs 28 to 31, Warren J concluded, at paragraph 32, that:

“Drax is not, therefore, authority for the proposition that a solvent unregistered company is “liable to be wound up”...”

This was because he concluded that both companies in the Drax case were insolvent. He therefore addressed the meaning of the phrase “liable to be wound up” afresh in relation to solvent companies in paragraph 33, as follows:

“It was not, however, suggested to me that the court has no jurisdiction to sanction a scheme in relation to a solvent foreign company outside the EU/EEA unless one of the conditions in s.221(5) is in fact fulfilled. That would be a surprising conclusion and one which I consider to be incorrect for the reasons which follow. The question “Is this company liable to be wound up under IA 1986?” could be taken in two senses: first, in the sense whether it could be subject to a winding-up process under IA 1986 on the facts as they stand at present; secondly, in the sense whether the company is the sort of company which is capable of being wound up under IA 1986. In my judgment the latter sense affords the correct approach to the meaning of “liable to be wound up” in s.425(6)(a): it is not necessary to show that any of the conditions of s.221(5) is in fact fulfilled. Thus a foreign (non-EU/EEA) company is a company which is capable of being wound up in the sense that, if any of the circumstances set out in s.221(5) arises, then the court has power, subject to its discretion and thus, in particular, to the three conditions considered in Drax, to wind it up.”

It is to be noted that Warren J was careful to confine the foregoing analysis to non-EU/EEA companies. This was not because he regarded the question of jurisdiction in relation to EU/EEA companies as affected by either the Insolvency or Judgments Regulations, but because he was required to (and did) consider whether the Directive 2001/17 on the reorganisation and winding up of insurance companies, and the Insurers Regulations made by way of their implementation in the UK, had any relevant effect.

There is no doubt that the combined effect of the Insolvency Regulation and the Judgments Regulation has been very substantially to curtail the international jurisdiction of the English court to wind up companies. In relation to insolvent companies the combined effect of Articles 1.2(a), 3.1 and 3.2 of the Insolvency Regulation is that, in relation to a company with its COMI in a Member State other than the UK, the English courts have jurisdiction to wind up only if the company possesses an establishment within the UK. Such a winding up is to have effect only in relation to the assets of the debtor situated within the UK. This is because a winding up by the court constitutes insolvency proceedings within the meaning of Article 2(a) and is one of those proceedings listed in Annex A.

The position in relation to the English court’s jurisdiction to wind up a solvent company is less clear. It is not a form of proceedings excluded by Article 1 of the Judgments Regulation, since Article 1.2(b) excludes only proceedings relating to the winding up of insolvent companies. The more difficult question is whether such proceedings are, within the meaning of Article 22.2:

“Proceedings which have as their object … the dissolution of companies …”

If so, then exclusive jurisdiction is given to the courts of the Member State (if any) in which the company has its seat.

In paragraph 55 of the report of Professor Dr Peter Schlosser (“the Schlosser Report”) on the accession of the UK, Denmark and Ireland to the Brussels Convention (the predecessor of the Judgments Regulation) it is said that:

“A common feature of all winding-up proceedings is a disposal of assets and the distribution of their proceeds among the persons entitled thereto with a view to bringing the company to an end. The start of winding-up proceedings corresponds, therefore, to what is understood by ‘dissolution’ on the continent. The dissolution of a company on the other hand is identical with the final result of a liquidation under continental legal systems.”

At paragraph 58 he adds:

“The term ‘dissolution’ in Article 16(2) of the 1968 Convention (the predecessor of Article 22.2 of the Judgments Regulation) is not to be understood in the narrow technical sense in which it is used in legal systems on the Continent. It also covers proceedings concerning the liquidation of the company after ‘dissolution’….”

In my judgment the English court’s jurisdiction to wind up a solvent company is, by Article 22.2 of the Judgments Regulation, excluded in circumstances where, as in the case of Rodenstock GmbH, the company has its seat in a Member State other than the UK.

The only form of winding up proceedings not affected, in terms of jurisdiction, by either the Insolvency or Judgments Regulations is winding up on the public interest ground. This is because such proceedings are brought in the public interest and are not therefore a “civil and commercial matter” within the meaning of Article 1.1 of the Judgments Regulation: see Re Senator Hanseatiche Verwaltungsgesellschaft [1996] 1 BCLC 562, at 577, where Sir Richard Scott V-C also concluded (obiter) that if such proceedings had been within the scope of the (then) Brussels Convention, they would have been subject to the exclusive jurisdiction provisions of what was then Article 16(2), now Article 22.2.

The result is therefore that, for as long as the Company continues to have both its seat and COMI in Germany, and has no establishment in the United Kingdom, the English court has no jurisdiction to wind it up, whether solvent or insolvent save on the public interest ground.

In Re: Sovereign Marine (supra) at paragraph 41 Warren J said this:

“One might therefore think that if some law—be it an Act of Parliament or an overriding piece of EU legislation—were passed which provided expressly that the English court should not have jurisdiction to wind up a particular class of unregistered company, it could no longer be said that a company within that class was “liable to be wound up under this Act”. That, I do not doubt, is the literal meaning of the words; and if schemes of arrangement had been invented and introduced only after such a jurisdictional law as I have just mentioned had been made, it is, I venture to suggest, inconceivable that any judge would say that the company was “liable to be wound up under this Act”. It is only the history of the legislation which opens up the possibility of the argument which Mr Moss puts forward.”

Mr Moss QC’s argument was that since there was nothing in either of the Regulations which was intended to restrict a Member State court’s jurisdiction to sanction schemes in relation to solvent companies, and since the “liable to be wound up” touchstone for jurisdiction had never itself been amended in substance during its one hundred years’ existence, the court should not conclude that the Regulations, or any other EU legislation, thereby accidentally cut down the scope of the court’s jurisdiction in relation to solvent schemes.

It is apparent from paragraph 45 that Warren J found it unnecessary to resolve this question directly, in particular because all the relevant companies before him were insurance companies governed by a separate regime.

Substantially the same question had already been asked and answered by Lewison J when approving an unopposed scheme of arrangement under section 425 in relation to eighteen Dutch companies: see Re: DAP Holding NV [2006] BCC 48. One of them was a re-insurer rather than an insurer, and therefore not excluded from the effect of the Insolvency Regulation by Article 1(2).

Following the lead given by Lawrence Collins J in Re: Drax Holdings (supra) Lewison J concluded, at paragraph 11, that the expression “liable to be wound up” did not depend upon transient considerations which might change from time to time, such as whether the company was or was not solvent, and that the location of a debtor’s COMI or establishments were also transient in the same way, because the debtor could perfectly properly choose to relocate its business or open an establishment in the territory of another Member State. He continued:

“There is logically no warrant for distinguishing between transient matters of that kind and transient matters such as the day-to-day financial position of the corporation. Consequently, there is nothing in the Insolvency Proceedings Regulation which precludes the court from concluding that a foreign corporation like DAP Holding NV, with neither its centre of main interest in this Member State nor an establishment in this Member State, is liable to be wound up. Of course there must be a sufficient connection with England and Wales in order for this court to exercise jurisdiction, but that is a matter of discretionary exercise of jurisdiction rather than the existence of the jurisdiction itself.”

Lewison J took a rather different course in relation to the possible limiting effect on the court’s jurisdiction created by the Judgments Regulation. At paragraph 14 he said:

“… Article 1(2)(b) of that Regulation excludes from its scope “bankruptcy proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings”. Since judicial arrangements are expressly excluded from the scope of that Regulation, it seems to me to be clear that the court should not, through arguments based on the hypothesis the company may be liable to be wound up when solvent, permit that clear exclusion to be displaced by some sought of implied exclusion. I consider, therefore, that the sanction of a scheme under section 425 and 426 of the Companies Act is expressly excluded from the scope of the Judgments Regulation.”

In Re: Sovereign Marine (supra) at paragraph 62, Warren J took a slightly more cautious approach. He said:

“Although that Regulation applies “in civil and commercial matters” (see Art 1) and although there is a dispute between the parties whether the exclusion of “judicial arrangements, compositions and analogous proceedings” in Art 2(b) extends to schemes of arrangement in relation to solvent companies, I do not need to resolve that difference because, as I have just said, none of the jurisdictional rules in Ch. II is wide enough to encompass schemes of arrangement.”

Warren J made no reference in his lengthy judgment to Re: DAP Holding NV, in which judgment had been given some nine months previously. I infer that it was not drawn to his attention. Lewison J had himself drawn comfort from paragraph 10 of the judgment of Pumfrey J in Re: La Mutuelles du Mans Assurances IARD [2006] BCC 11, in which he had also concluded that the Judgments Regulation was wholly inapplicable to schemes of arrangement.

There are a number of difficulties with the conclusion that schemes of arrangement (at least in relation to solvent companies) are wholly excluded from the scope of the Judgments Regulation by Article 1.2(b). The first is that, as is asserted in paragraph 53 of the Schlosser Report, the Judgments Regulation and the Insolvency Regulation were “intended to dovetail almost completely with each other”. Although what is now the Insolvency Regulation was, at the time of his Report, still in discussion as a planned convention, nothing which thereafter occurred appears to me to have been intended to detract from the plan that the bankruptcy exclusion should exclude from the Judgments Regulation nothing more, and nothing less, than what was included within the scope of the Insolvency Regulation.

Secondly I was shown expert evidence from Hans-Peter Kirchhof, a retired judge of the Bundesgerichtshof (Germany’s Federal Supreme Court) to the effect that the German language version of Article 1.2 of the Judgments Regulation clearly excludes only such judicial arrangements, compositions and analogous proceedings as arise in a bankruptcy or insolvency context. The same approach is adopted by Miguel Virgos and Francisco Garcimartin in their commentary on the Insolvency Regulation, at paragraphs 77 to 78, on page 56.

A further substantial difficulty in the conclusion reached by Lewison J and Pumfrey J is that if schemes in relation to solvent companies are wholly excluded from the Judgments Regulation, they are not capable of being recognised or enforced under Chapter III, a conclusion which would be likely to detract from the utility of the sanction by an English court of a scheme relating to a solvent company having its COMI, establishments or assets in other Member States.

True it is (as I shall later describe) that in Germany a regional appeal court has concluded that the sanction by this court of a scheme relating to Equitable Life was not liable to be recognised in Germany, but this was because the court took the view that the English court’s sanction was not a judgment within the meaning of Article 32, rather than because proceedings relating to such schemes fell wholly outside the scope of the Judgments Regulation.

In my judgment, proceedings seeking the court’s sanction of a scheme in relation to a solvent company do fall within the scope of the Judgments Regulation. They are plainly ‘civil and commercial matters’ within Article 1 and it was no part of the purpose of the bankruptcy exclusion in Article 1.2(b), construed having regard for example to the Schlosser Report, to exclude any civil or commercial matter which was not to fall within the scope of the Insolvency Regulation or, more generally, which was not connected with bankruptcy or insolvency. Mr Snowden QC for the Company submitted that, notwithstanding the literal meaning of Article 1.2(b), schemes in relation to insolvent companies are within the scope of the Judgments Regulation as well, provided that they are not made as part of insolvency proceedings (and therefore within the scope of the Insolvency Regulation), but that is not a matter which I need to decide on this application.

Nonetheless there is nothing in Chapter II of the Judgments Regulation (relating to jurisdiction) which, on its face, purports to restrict or exclude the English court’s traditional jurisdiction in relation to the sanctioning of such schemes. In particular, I do not consider that such proceedings fall within the exclusive jurisdiction conferred by Article 22.2.

That leaves unresolved the question whether, because Article 22.2 does deprive the English court of jurisdiction to wind up any solvent company which has its seat in a Member State other than the UK, that restriction impacts adversely on the meaning of “liable to be wound up” as the touchstone for the court’s scheme jurisdiction. It might be said that Lewison J’s test based upon the transience of circumstances such as a company’s COMI or the location of its establishments is less easily applied to the identification of a company’s seat.

There is nonetheless a broader reason why I consider that neither the Judgments Regulation nor the Insolvency Regulation has narrowed the court’s jurisdiction in relation to schemes, by impacting restrictively on the circumstances when a company is liable to be wound up. My conclusion derives from a direct answer to the question posed, but not answered, by Warren J in Re: Sovereign Marine. Given that neither of the two Regulations appear on their face to have been directed at restricting the English court’s international jurisdiction in relation to solvent schemes, and given that all company law consolidation since either of them was introduced as part of English law has re-enacted the “liable to be wound up” touchstone for jurisdiction in an unaltered form, it seems to me improbable on a purposive interpretation of those Regulations as part of English law that any such narrowing of the English court’s jurisdiction was intended.

In Re: Sovereign Marine, at paragraph 37 Warren J said (obiter) that, in relation to the phrase “liable to be wound up”:

“I would have thought that the provision was inserted simply to provide a definition of “company” for the purposes of schemes which went beyond the ordinary meaning of “company” as defined in the legislation and did so in a shorthand, referential, way.”

I agree. It was a convenient phrase designed to broaden rather than restrict the scope of the court’s jurisdiction in relation to schemes. It was designed simply to identify the types of company and association to which the jurisdiction applies. At least so far as concerns solvent companies, nothing in either the Judgments Regulation or the Insolvency Regulation was intended to impact restrictively upon the scope of that jurisdiction. Subject only to one final reservation, it seems to me therefore that the English court’s scheme jurisdiction has continued unimpaired, and extends to a scheme relating to the Germany company Rodenstock GmbH.

My final reservation arises from a perception that Chapter II of the Judgments Regulation may have been intended to provide a comprehensive code regulating the international jurisdiction of each of the Member States in relation to all civil and commercial matters within the scope of the Regulation. That code may have been the quid pro quo for the obligation on each Member State to recognise and enforce, subject only to limited exceptions, every other Member State’s judgments, without (subject again to limited exceptions) its own examination of the originating court’s jurisdiction: see Article 35.3.

In Dicey, Morris and Collins (op.cit.) at p.305 it is stated as a general principle that the court’s in personam international jurisdiction in relation to matters within the scope of the Judgments Regulation is indeed defined solely in accordance with the provisions of the Regulation; i.e. chapter II. At p.306 the editors attempt both a positive and a negative definition of a claim in personam. The positive definition, namely a claim brought against a person to compel him to do or refrain from doing a particular thing, does not lie easily with an application to sanction a scheme of arrangement. The negative definition, namely all claims other than a narrow list which makes no reference to scheme proceedings, causes no similar difficulty. Furthermore, the sanction of a scheme of arrangement by the court may be said to operate in personam in the sense that its effect is to deprive a creditor of some part of his contractual rights as against the company, and thereby prevent him from a full enforcement of those rights.

Generally speaking, but subject to important exceptions, Chapter II allocates jurisdiction by reference to the domicile of the intended defendants. None of the exceptions are apt to address the international jurisdiction of the courts of Member States in relation to solvent company schemes of arrangement, even though, as I have concluded, such proceedings are within the scope of the Regulation.

The primary basis for the allocation of Member States’ international jurisdiction is singularly ill-equipped to deal with proceedings for the sanctioning of schemes of arrangement, since they are not, at least in form, proceedings aimed at specific defendants at all. They may nonetheless be adversarial proceedings, in the sense that affected members and creditors of the scheme company may appear and oppose the grant of sanction and, for that purpose, serve evidence and make submissions just like any ordinary defendant. Furthermore, the process for obtaining sanction requires all such interested persons to be notified of the proceedings. As noted above, the effect of sanction will be to alter the rights of a defined class of persons, creditors or members.

The solution to this conundrum may be that, where there appears a lacuna in Chapter II in relation to proceedings within the scope of the Judgments Regulation, then each Member State may continue to apply its own private international law, by analogy with Article 4. Alternatively it may be necessary to shoehorn proceedings which do not in form involve suing anybody into the structure of Chapter II, by identifying the place or places of domicile of persons with a right to appear and oppose the relief sought, so as, for example, to apply Article 6.1 in a case where one or more members or creditors of a company affected by a proposed scheme is domiciled in the UK, as if such persons were all quasi defendants.

It is unnecessary to resolve that conundrum in the present case, because more than 50% (by value) of the Scheme Creditors are indeed domiciled in England, so that the English court would have jurisdiction whichever solution to the conundrum were to be adopted. I shall leave to another day a case in which a scheme is sought to be sanctioned in England where all the affected members or creditors are domiciled in Member States other than the UK.

In conclusion therefore, I consider that jurisdiction to sanction the present Scheme is established. Rodenstock GmbH is a company “liable to be wound up” under the Insolvency Act, in accordance with the meaning which that phrase, purposively construed, has in section 895(2)(b) of the Companies Act 2006, and nothing in either the Judgments Regulation or the Insolvency Regulation has narrowed the scope of the meaning of that phrase, or, therefore, the definition of “company” which it provides.