Seat Pagine Gialle Spa, Re

There is before the court an application to convene meetings of three classes of creditors to consider and if thought fit approve a scheme of arrangement proposed between Seat Pagine Gialle SPA ("the Company") and those classes of creditors. If approved at the meetings, the Company will apply to the court to sanction the scheme.

The Company is incorporated in Italy and is the holding company of a large group of companies with substantial operations, not only in Italy but in other countries including the United Kingdom. It is currently facing significant financial difficulties and a complex restructuring of the Group has been the subject of negotiation and development over the past few months. The scheme proposed here is part of that restructuring process.

The creditors concerned are institutions and others which provided indemnities to secure substantial borrowings of the Company. The principal lender has called on those indemnities, with the result under the relevant legal arrangements that the providers of the indemnities have become direct creditors of the Company. Those arrangements and those claims are governed by English law and there is an exclusive English jurisdiction clause in the documentation, although it is a jurisdiction agreement for the benefit of the lenders, so that it would be open to the lenders or those who stand in their shoes to litigate in an alternative forum.

Although the Company has subsidiaries which are incorporated in the United Kingdom and operate in the United Kingdom, there is no question but that the Company itself has its centre of main interests in Italy and does not, I believe, have an establishment in the United Kingdom. The question, therefore, arises on this application as to whether the court would have jurisdiction to sanction the scheme if approved at the relevant meetings.

In accordance with the Practice Direction dealing with this type of application, this hearing has come before me, first, to give an opportunity to the company or any creditors who wish to be heard to raise issues -- principally as to jurisdiction -- and, secondly, for the court to raise concerns that it may have as to jurisdiction.

The fact that these issues are addressed now does not shut out a consideration of them at the sanction hearing, although if a creditor sought to raise such points at that stage they would be expected to explain why they had not appeared today to raise them. In fact, no creditors do appear before me today. Notice of this hearing and the precise terms of the scheme were only recently notified to creditors, although it is fair to say that the broad thrust of the proposals and indeed much of the detail had been circulated amongst creditors at an earlier stage.

Mr Trower QC, appearing with Mr Goodison on behalf of the Company, has carefully taken me through not only the proposals themselves, but the issues that might arise or be thought to arise as to jurisdiction, given in particular that the Company itself has no presence in the United Kingdom and could not in its present circumstances be the subject of winding up proceedings in the United Kingdom having regard to the terms of the EC Insolvency Regulation.

So far as jurisdiction issues are concerned, the first is whether in those circumstance the Company is “a company” for the purposes of section 895 of the Companies Act 2006, that is “ a company liable to be wound up under the Insolvency Act 1986”. Such a company is not restricted to an English or other UK company.

The question as to whether a foreign company would be liable to be wound up has been the subject of previous decisions, in particular those of Lawrence Collins J in re Drax Holdings Ltd [2004] 1 WLR 1049, Lewison J in re DAP Holdings NV [2006] BCC 48 and Briggs J in re Rodenstock GmbH [2011] BusLR 1245. The next question is whether this is a company which is liable to be wound up given that its centre of main interest is not in this country and equally does not have an establishment here. That is an issue which has been addressed both by Lewison J in re DAP Holdings NV and by Briggs J in re Radenstock GmbH. In both cases, the conclusion was that the fact that at this time and at the time when the court comes to sanction the scheme the company in question could not, as a matter of distribution of jurisdiction under the EC Insolvency Regulation, be the subject of winding up proceedings here does not mean that it is not a company liable to be wound up within the meaning of that expression as used in the Companies Act.

It is fair to say that the judges in those cases arrived at that conclusion by somewhat different routes. I take my role to be that, unless I am satisfied that they are wrong in the conclusion they came to, I should follow their decisions. I am certainly not satisfied that they were wrong in their decisions and, indeed, I would conclude that they were right, but it is unnecessary for me at this stage to say anything about which route I would prefer.

The next issue is whether there is a sufficient connection between the company and the jurisdiction of this court for it to be appropriate for a scheme of arrangement to be promoted in this jurisdiction? In my judgment there is, given that the liabilities in question are governed by English law.

The other issue which has arisen in this context is the application of the Judgments Regulation. That too is a matter which has been the subject of consideration by Briggs J in re Radenstock GmbH and by Hildyard J in re Primacom Holding GmbH [2011] EWHC 3746 (Ch). Briggs J was able to resolve the issue for the purposes of the case before him by reference to the fact that, as it appeared from the evidence, a majority of the creditors to be effected by the scheme were resident in England and Wales. No such evidence is put before me in respect of this scheme, nor was it put before Hildyard J in re Primacom Holding GmbH. Hildyard J considered a number of arguments which supported the proposition that the Judgments Regulation did not apply so as to exclude the jurisdiction of the court on the scheme before him.

Much the same arguments apply on this scheme. First, it is submitted that article 2 of the Regulation does not apply at all. Without deciding that issue, it appears to be there are substantial reasons for thinking it does not. But, in any event, Article 23 dealing with exclusive jurisdiction clauses led Hildyard J to the conclusion that the Judgments Regulation did not deprive the English court of jurisdiction, and the existence of the exclusive jurisdiction clause in the agreement in the present case leads me to the same conclusion. I do not think the fact that the lender (or lenders) could waive the exclusive jurisdiction of the English court provides a basis for saying that Article 23 does not apply. In my judgment, it does. I, therefore, reach the same view as Hildyard J and would in any event, as I say, follow his decision unless I was satisfied either that it was wrong, which I am certainly not satisfied, or that for other reasons it did not apply in this case.

The only other matter which requires mention is this. As in re Primacom Holding GmbH and in re DX Holdings Ltd [2010] EWHC 1513 Ch, a decision of Floyd J, the Company has entered into lock-up agreements with a number of creditors, whereby they have agreed to vote in favour of the scheme and, conditional on the scheme taking effect, they will receive a payment which is equal to one per cent of the amount outstanding to them respectively. The agreements were made at an early stage in the process and were designed principally to commit those creditors to the whole process, so that a reconstruction negotiation was not started which would prove to be futile in the event of opposition from a significant number of creditors.

There is now a proposal to extend the lock-up agreement and make it available to all scheme creditors. The offer will be open for acceptance on or before 3 August 2012. Mr Cristofori, the Chief Financial Officer of the Company, states that the Company has been in discussions with certain scheme creditors who, due to concerns in respect of elements of the proposed restructuring, have not previously confirmed their support for it. Following those discussions, the Company can confirm that at least one scheme creditor which had not previously confirmed its support has now changed its position. With a view to treating scheme creditors fairly and equitably, the Company has informed scheme creditors that it will pay them a consent fee in an amount equal to one per cent of their scheme claim, excluding interest, if they provide their consent by no later than 5.00 pm on 3 August 2012.

In re Primacom Holding GmbH and in re DX Holdings Ltd, Hildyard J and Floyd J considered whether lock-up agreements of this sort resulted in the relevant creditors constituting a separate class from those creditors who had not signed such agreements. In both cases they concluded that they did not do so. Floyd J in paragraph 7 of his judgment said:

It was essentially similar considerations which led Hildyard J to conclude in re Primacom Holding GmbH that the lock-up agreements in that case did not constitute the consenting creditors a separate class.

The only factor which is different in the present case is the recent re-opening of the offer so close to the meeting. This is not a case in which the motivation or part of the motivation for the lock-up is to enable difficult negotiations to proceed. As I see it, on the whole the negotiations have already occurred and a proposal is to be put before creditors.

On the other hand, it is an offer which is to be made available to all scheme creditors and it remains the case that it is a relatively small amount of money. Looked at objectively, I doubt whether a creditor with substantial objections on commercial grounds to the proposals would be swayed in their view by a consent fee at the proposed level. There is certainly no evidence before me to suggest that thiswould be the case.

If it could be shown that the lock-up agreement did have a serious impact on the way in which creditors voted, that is a matter which plainly could be raised at the sanction hearing and the court could consider whether either it meant that the classes had been wrongly constituted or, perhaps more probably, whether the discretion should be exercised against sanctioning the scheme.

In this context in re Telewest Communications plc [2004] BCC 356, I had to consider a similar question in relation to commitments given by bond holders to vote in favour of a scheme, but in circumstances where no consideration was being provided to them. I concluded, and I am not sure the point had previously been the subject of decision, that such commitments did not constitute those creditors giving the commitments a separate class and that it was an issue which was relevant to the court's discretion at the sanction stage. I did, however, say at paragraph 54:

In the light of factors to which I have referred and on which Floyd J and Hildyard J relied, I would not consider the simple fact that a benefit was conferred in return for the agreement to vote in favour of the scheme as being sufficient to require the relevant parties to be constituted as a separate class. I am satisfied, as those judges were, that it is highly fact specific and that the facts present in this case, as I have described above, do not lead to the conclusion that the relevant creditors should be segregated into a separate class.

In all other respects, this is an application which raises no significant problems and I have made the order convening the meetings and approving for distribution the relevant documents.

There is before the court an application by Lighthouse International Company SA (the company), a company incorporated in Luxembourg, for the appointment of administrators under Schedule B1 to the Insolvency Act 1986. Before considering whether to exercise the discretion to make the order, the court must be satisfied that it has jurisdiction to do so.

The first issue that arises is whether, given that the company is incorporated in Luxembourg, it is a company in respect of which this court can make an administration order having regard to the terms of the EC Insolvency Regulation. The purpose of the company within the group of which it is a member is to act as vehicle for the raising of finance. Beyond that, it does not, as I understand it, undertake any substantial business.

Its centre of main interest was until November 2011 in Luxembourg where it had an office and its single employee was based. From November 2011, steps have been taken with a view to establishing its centre of main interest in England, in circumstances where it was anticipated that it might be necessary to use English insolvency procedures.

The evidence which has been filed in support of the application, comprising a witness statement of David Frauman, the managing director and chairman of the Company, details at some length the steps which were taken to transfer the operations of the Company from Luxembourg to England. It is clear from that evidence that the operations, direction and management of the Company and its assets have been centred in England since November 2011. Furthermore, there have been repeated steps taken to notify creditors of the Company, and others dealing with it, that it is operating from England not Luxembourg.

The decisions of the European Court of Justice, including the recent decision in Interedil SRL v Fallimento Interedil SRL (Case C-396/09), establish that the relevant time for determining the centre of main interests of a company is when the request to open insolvency proceedings is made. It is, in my judgment, abundantly clear from the evidence that for the past eight or nine months the centre of main interest of the company has been in England and that, accordingly, England is the only state within the EU with jurisdiction to open main proceedings.

So far as the requirements of schedule B1 to the Insolvency Act are concerned, I must be satisfied first that the Company, putting it shortly, either is or likely to become insolvent. As to that, the company is clearly insolvent, as the evidence establishes.

The court must also be satisfied that the administration is made for one of the statutory purposes set out in paragraph 3.1. The evidence shows that if the administration is successful as part of a wider restructuring of the Europe-wide group of which the Company forms part, a better result will be achieved for the Company's creditors as a whole than would be likely if the Company were wound up. It may also be that the aim of rescuing the Company as a going concern could be said to be achieved, but on the facts that is a more complex issue, as it is intended that, following the restructuring, the Company will be merged under an Italian law procedure with the holding company of the group. Nonetheless, I can be entirely satisfied that the administration order will be made for at least one of the required purposes.

Accordingly, I am satisfied the court has jurisdiction to appoint administrators.

So far as the exercise of discretion is concerned, there is, in my judgment, every reason to make the order sought and in that way to assist with what will, it is to be hoped, be a successful restructuring of this substantial group.

Accordingly, I make the order sought.