Vietnam Shipbuilding Industry Groups, Re

This an application under s.896 of the Companies Act 2006 made by Vietnam Shipbuilding Industry Group for an order convening a meeting of scheme creditors (which is a term defined in the scheme and to which I shall shortly refer) for the purposes of considering, and if thought fit, approving a proposed scheme of arrangement between the Company and the scheme creditors.

The Company is incorporated in Vietnam and is wholly owned by the Government of Vietnam. It is, as its evidence before the Court shows, insolvent and it has defaulted on a number of occasions in the payments due under a facility agreement governing loan facilities totalling US$600m. It is in the process of a restructuring affecting both the loan facilities and its other liabilities.

The proposed scheme of arrangement concerns only the lenders under the facility agreement. Put very shortly, the effect of the scheme, if approved, will be to replace the existing claims of lenders against the Company and against guarantors, which are companies within the same group, with notes to be issued by a State-owned entity, which will be guaranteed by the Government of Vietnam, waiving for this purpose sovereign immunity. The replacement notes will have a maturity date some years after the maturity dates of the current loans and will carry interest payable on a rolled-up basis at maturity.

The Company is a shipbuilding enterprise on a very significant scale. The downturn in global shipping demand has led to the current financial circumstances of the Company.

The Company has no connection with England, so far as the evidence discloses, except that the facility agreement is, by its express terms, governed by English law and confers non-exclusive jurisdiction on the English Courts. The terms of the jurisdiction clause provide in clause 36.1 for the English Courts to have non-exclusive jurisdiction to settle any dispute in connection with any finance document and in clause 36.1(b) that:

“The English Courts are the most appropriate and convenient courts to settle any such dispute in connection with any finance document. Each of the obligors agrees not to argue to the contrary and waives objection to those courts on the grounds of inconvenient forum or otherwise in relation to proceedings in connection with any finance document.” (Quote unchecked)

Paragraph (c) of clause 36.1 states that the clause is for the benefit of the finance parties only, that is to say the lenders, and they are permitted, to the extent allowed by law, to take proceedings in any other court and concurrent proceedings in any number of jurisdictions.

The first issue which arises on this application is therefore whether the English Court has jurisdiction to sanction the proposed scheme of arrangement and, if it has jurisdiction, whether there is a reasonable prospect that it will exercise its discretion to sanction the scheme.

I am satisfied on the evidence and on the authorities that the Court has jurisdiction to sanction the proposed scheme. The Company is unquestionably a company “liable to be wound up” by the English court, having regard to the very wide meaning given to that expression, for example by Lawrence Collins J in Re Drax Holdings Limited [2004] 1WLR 1049.

The second point is whether there exists a sufficient connection between the Company and this jurisdiction, to make it a scheme which the Court would be prepared to consider and, if thought fit, sanction. In my judgment, the fact that the facility agreement is governed by English law is sufficient for this purpose. As Lawrence Collins J, in Re Drax Holdings said at paragraph 30:

“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.”

It will, of course, always depend upon the private international law of each country, but it is likely that most, if not all, countries would not recognise a change in the rights of lenders under this facility, unless it has been effected in accordance with English law.

The fact of English law governing the relationship between the Company and the relevant class of creditors was recognised also by Hildyard J in Re Primacom Holding GmbH [2011] EWHC 3746 Ch, as giving rise to a sufficient connection with the jurisdiction for the purposes of the scheme of arrangement: see paragraphs 18,63 and 64 of the judgment. For good measure the non-exclusive jurisdiction clause also creates, in my judgment, a sufficient connection with the jurisdiction, but I take the view that the fact that the loan agreement is governed by English law is of itself sufficient to create that necessary connection.

A further issue in relation to jurisdiction arises, as is frequently the case with schemes such as the present, by reason of Council Regulation (EC) No 44/2001 (the Judgments Regulation). It is known that at least two of the lenders are domiciled in EU member States other than the UK. Each of them has commenced proceedings in the Commercial Court to enforce the loan agreement. The issue arises under the Judgments Regulation whether, in the light of the domicile of those and perhaps other loan creditors in other member States, this Court has jurisdiction in relation to the scheme of arrangement. This is an issue which has been considered at first instance by judges in a number of cases, including by Briggs J in Re Rodenstock GmbH [2011] EWCH 1104 (Ch), [2011] Bus LR 1245; Hildyard J in Re Primacom, to which I have already referred, and by Hildyard J and by Vos J in Re NEF Telecom B.V. [2012] EWHC 164 Ch and [2012] EWHC 2944 Ch.

There are a number of issues which arise under the Judgments Regulation. The first is whether the Judgments Regulation applies at all to a scheme of arrangement, having regard to the terms of Article 2.1. Article 2.1 requires that persons domiciled in a member State shall, whatever their nationality, be sued in the Courts of that member State. There is no definition given in the Regulation of what is meant by “be sued” for these purposes, although the recitals refer to the person being sued as a defendant: see, for example, recital 11.

This raises the question whether a scheme of arrangement involves anyone being “sued” for the purposes of the Judgments Regulation. Hildyard J in the Re Primacom case was inclined to the view that it did not. Looked at purely in English domestic law terms, there is clearly a great deal to be said for his view, and it may be the correct reading of the Regulation. However, I have in mind that terms used in the Regulation will have autonomous meanings and without greater research and submissions than it has been necessary to make on this application I would not wish to express a view as to whether Article 2.1 applies to a scheme of arrangement. A scheme of arrangement involves notice being given to creditors, creditors having the opportunity of being heard in opposition to approval of the scheme and, if the scheme is sanctioned, an order binding all creditors. It may therefore be that, given a broad construction, Article 2.1 does apply to schemes of arrangement. But this is an issue, which if it ever needs to be resolved, can wait for another day.

I shall proceed on the assumption that the Regulation does apply. In those circumstances, Mr Smith, who appears today for the Company and has concisely and ably presented the relevant arguments, relies on the exceptions to the general rule under Article 2.1.

He relies in particular on Article 23 which provides:

“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing...”

I have already referred to the relevant provisions of clause 36 of the facilities agreement. It is an agreement in writing conferring non-exclusive jurisdiction on the English Court.

The previous cases concerning schemes of arrangement in which reliance has been placed on Article 23 have all involved exclusive jurisdiction clauses. The fact, however, that this is a non-exclusive jurisdiction clause does not, in my judgment, make any difference. Article 23 applies to a non-exclusive jurisdiction clause, as the second sentence makes clear: “Such jurisdiction shall be exclusive unless the parties have agreed otherwise.” That is the view stated without qualification in Dicey, Morris & Collins on the Conflicts of Laws (2012 15^th ed.) at paragraph 12-142.

Accordingly, I am satisfied for the purposes of this application that this Court will have jurisdiction to sanction the proposed scheme, both as a matter of the Court’s jurisdiction under the relevant sections of the Companies Act 2006 and under the Judgments Regulation.

The other matter which needs to be considered at this stage is the composition of the proposed class of creditors. This is a straightforward case. The test as to whether more than one meeting of creditors is necessary is whether the rights of the creditors are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The class proposed in this case comprises all the loan creditors under the facility agreement. Their rights under that agreement are the same and they will be treated equally under the scheme. They will all receive, in place of their rights under the loan agreement, the replacement notes to which I have referred. There is therefore nothing, either in their existing rights or in the rights which the scheme, if approved, will confer upon them, to distinguish in any way between loan creditors under the facility agreement.

Scheme creditors representing sufficient majorities in number and value to enable the scheme to be approved at the proposed meeting have given irrevocable undertakings to vote in favour of the scheme. The issue whether such undertakings render those giving them a separate class has been considered in a number of cases, starting with Re Telewest Communications plc No. 1 [2005] 1 BCLC 752. The unanimous view has been that the existence of such undertakings is not sufficient to require the creation of a separate class. It therefore seems to me clear that it is right to constitute a single class for the purposes of this scheme.

As I mentioned earlier, this scheme is proposed between the Company and one class of creditors only. It has other creditors, whose rights are governed by laws other than the law of England, and a scheme of arrangement is not proposed with them. There is not, however, any inhibition on a scheme being proposed with just one class of creditor, as was held by the Court of Appeal in Sea Assets Limited v. P T Garuda (Indonesia) [2001] EWCA Civ 1696.

As is required by the procedure originally laid down in Re Hawk Insurance Company Limited [2001] 2 BCLC 480, a letter was sent dated 5 June 2013 to each of the scheme creditors. It described the purpose and effect of the proposed scheme. It enclosed a copy of the claim form seeking the permission of the Court to convene a scheme meeting and it notified creditors of the application being made today and it notified them too, of the terms of the Hawk practice direction, including that the purpose of this application or this hearing would include considering any issues or objections that might arise to the jurisdiction of the Court to sanction the scheme.

The thinking behind this is that there is no point in the Company going to the cost and trouble of proposing a scheme if at this initial stage it can be seen that the Court will lack jurisdiction to sanction it when it comes back to the Court. For that reason persons affected, including in particular, of course, scheme creditors, are encouraged to bring to the attention of the Court any objections that they have to the jurisdiction of the Court or to the proposed composition of the class. It is not possible for the Court to shut out submissions as to jurisdiction which may be made subsequently at the sanction hearing, but as the Hawk practice direction makes clear and as was clearly stated in the letter sent by the Company, any scheme creditor who does not at this stage raise an objection as to jurisdiction, but seeks to do so at the sanction hearing, will be required to explain why the objection was not raised at this hearing.

The two claimants in the Commercial Court actions, through their solicitors, have in the last few days been in correspondence with the solicitors acting for the Company. It is noteworthy that, notwithstanding that the Hawk letter dated 5 June was sent to and received by all scheme creditors, including those two claimants, they or their solicitors did not contact the Company’s solicitors with a view to raising any points or seeking copies of the evidence in support of this application, which I can take it would readily have been supplied if requested.

In their letters to the Company’s solicitors, these claimants’ solicitors seek to put the responsibility for receiving the evidence until a late stage, on the Company or its solicitors. It seems to me that this is putting the boot on the wrong foot. If they had been concerned to see the detail of the evidence they need only have asked for it. I do not therefore regard it as satisfactory for the solicitors acting for those claimants to write in terms which include a general reservation of rights as to points going to the jurisdiction of the Court. The letter from Simmons & Simmons, acting for one of the claimants, states that their client has not been provided with sufficient evidence to enable it to determine whether or not the classes of creditor have been properly constituted and its position in this regard is reserved. Also Dentons UK MEA LLP, acting for the other claimant, states that it reserves its right to object to the scheme at any sanctioning hearing, including on the basis that the English Court does not have jurisdiction to sanction the scheme in the circumstances of this case.

As I have said, the Court cannot shut out arguments as to jurisdiction, but in my judgment, the circumstances are such that the onus will be on those claimants, if they do raise objections going to jurisdiction, to explain why they have not attended today to raise them.

By way of background, I should say that the Company applied successfully in the Commercial Court for a stay of the actions brought by those two claimants pending this application and putting the proposals for a scheme of arrangement to the loan creditors. It can be seen by what is occurring today that the Company is certainly serious in its intent to put a scheme of arrangement before the loan creditors.

In all the circumstances I consider it right to make the order sought by the Company, which will include permission to convene a meeting of the loan creditors under the facility agreement. The order makes detailed provision in the usual way for notice of the meeting to be given to scheme creditors and for an explanatory statement, proxy forms and so on. The meeting is to be held in Singapore. Some objection to that venue was raised by the solicitors to one of the claimants, but I am satisfied that it is an appropriate venue for the proposed meeting.

Accordingly, I shall make the order asked by the Company.