Apcoa Parking (UK) Ltd & Ors, Re

This is the hearing of an application for an order to convene scheme meetings for the purpose of considering, and if thought fit approving, schemes of arrangement, nine in all, pursuant to Part 26 of the Companies Act 2006 and for related directions especially with respect to those meetings.

The Scheme Companies comprise two English incorporated companies, a holding company and another company incorporated in Germany, and five other subsidiaries incorporated elsewhere in Europe. They are as follows:

The group of which the Scheme Companies are part is the leading European car park operator. I understand that it offers over 1.3 million parking spaces at some 7,413 locations, and has over 4,500 employees. It is centrally managed by the holding company (which I shall call APHG) from Germany. There are in all 39 subsidiaries in the group, in 12 countries.

Each Scheme Company is a borrower under a facilities agreement dated the 23^rd April 2007 as amended and restated and entered into by, amongst others, APHG as the company, Mizuho Bank Limited and Royal Bank of Canada as mandated lead arrangers, the agent as Agent, issuing bank and security trustee and the lenders named therein. That is called the “Facilities Agreement.”

The facilities made available under the Facilities Agreement include:

The background or context for this scheme is that the management of the Scheme Companies, having duly deliberated the matter, consider that they will be unable to repay their indebtedness under the Facilities in full on the termination date.

In addition there are further challenges or threats to the continuing financial position of the Scheme Companies in that each guarantees the other in respect of liabilities so that there is the danger of a cascade effect in the event of a breach by any one of them.

The Scheme Companies have been in discussion with the lenders since September 2013 for the purposes of negotiating a restructuring of their obligations under the Facilities Agreement. Progress has been made, as I understand it, to that end but it is thought unlikely that negotiations will be concluded prior to the termination date.

In these circumstances it is necessary, in order to secure the future of the Scheme Companies, to ensure some extension of the termination date if that is possible. It had been hoped that this might be possible by agreement of the creditors as I describe below; but the unanimous consent required has not been achieved. The process by which it is now thought to be possible is by a scheme of arrangement under Part 26 of the Companies Act.

As will be evident from my description of the nature of the application, my role today is a limited one. This is not the occasion for determining the fairness or otherwise of the scheme. The only purposes of today’s hearing are first, to determine whether the classes selected for consideration of the scheme are appropriate and second, whether there are presently apparent jurisdictional impediments to the scheme such as to demonstrate even at this preliminary stage that it is unlikely that the scheme could properly and effectively be sanctioned by the court at the end of the day, whatever might be the decision in the class meetings which are convened.

Jurisdiction in that context, as usual, covers two rather different concepts. The first is whether the court has jurisdiction to exercise power. The second is whether there is some obvious and inescapable reason why it should not exercise its discretion pursuant to that power. An example of the latter would be where its exercise of power in sanctioning a scheme, although effective domestically, would not be recognised and enforced in other jurisdictions in which it is necessary that the scheme should have effect.

Before 2001 it was not the practice of the court to consider at this stage either of the questions raised before me: under that previous practice, the Court simply was concerned to approve the logistics and procedures for class meetings selected by the proponents of the scheme, and it was not concerned either to consider the appropriateness of the classes and class meetings proposed, nor any questions as to its jurisdiction (in either sense). All that was left to the final hearing, when the question whether the scheme should be sanctioned was addressed.

The well-known case in the Court of Appeal of Re Hawk Insurance Company Limited [2001] 2 BCLC 480 substantially changed the practice in this regard; and pursuant to the guidance in that case, and after that a practice direction which gave expression and assistance with respect to the conclusions reached in Re Hawk Insurance Company Limited, it is now at this first stage, the scheme meetings stage, that the court offers the company and its creditors an opportunity to ventilate any concerns as regards the proposed classes and for the court itself to raise concerns in that regard or in regard to its jurisdiction.

In doing so the court does not and could not bind itself as regards the sanctions hearing, even on issues relating to class constitution or its jurisdiction. Nothing I say today can resolve ultimately the question of whether the classes and class meetings are properly constituted and whether the court has jurisdiction. The function today is whether there are factors which make it plain that the proposed class meetings are not appropriate and/or that it has no jurisdiction (in both the narrow and broader sense).

Of course, in order to give substance to the new practice, proponents of the scheme must do their best to identify potential objections or glitches, and to notify creditors of their opportunity to put forward their arguments on issues of classes and jurisdiction. Likewise, with such assistance, the court must do its best to address such arguments, so that the process thereafter is not invoked in vain. But its determination at this stage is preliminary only, and not final. That is especially so in circumstances where, as here, creditors may not have had sufficient time to marshal all arguments against the scheme; or where such arguments are complex or novel, and may only safely be adjudicated after a process of adversarial argument.

I should say also that at the present stage no-one appears to object to the class meetings proposed, nor on the basis of jurisdiction, though there are what I might call rumblings in correspondence suggesting that at the sanctions stage that there may be opposition.

Each scheme itself, if viewed in an entirely domestic context, is a simple one. All it provides for is for the termination date in respect of the Facilities to be extended to the 25^th July 2014 or further off than that until an end date of the 25^th October 2014 if the requisite majority of creditors so agrees. None is a scheme which otherwise alters the rights of any creditors. None is a scheme of reconstruction. Each is simply concerned with extending the termination date in order to enable or facilitate a more substantial reconstruction of the Scheme Companies’ borrowings.

However, the schemes do raise novel questions of jurisdiction because of what I might compendiously describe as their cross-border elements. The reason why I am giving this judgment and the reason why it has taken the court the morning and some part of this afternoon to deal with the matter, even at this preliminary stage, is that this is not an entirely domestic scheme. As indicated, various of the Scheme Companies are not UK companies; but, more than that, the Facilities Agreement, when incepted, was not governed by English law nor did it contain a jurisdiction clause selecting England as the relevant jurisdiction for dealing with matters under it.

The most novel feature is that the selection of English law as the governing law and the selection of the English court as having exclusive jurisdiction in the matter has come about pursuant to a change of law pursuant to provisions within the Facilities Agreement which it is said enable such a change and, as I understand it, pursuant to provisions of the Rome Regulations which allow such a change of governing law, although they do not themselves enable a change in the jurisdiction clause.

The changes of governing law and jurisdiction have been effected by the requisite majority of creditors under specific provisions contained in the Facilities Agreement providing for such a change to be effected by a specified majority.

However, although majorities were sufficient for that purpose, they were not sufficient for the purpose of extending the termination date without intervention of the court. As indicated above, under the Facilities Agreement that may only be achieved by unanimous approval of all the scheme creditors, which could not be achieved.

The novelty of the position is this. There are a number of authorities in the recent past which confirm (at least at this level, and without in any case contrary argument) the jurisdiction of the English court to approve a Part 26 scheme in respect of a foreign company and a company with its COMI elsewhere than England, where the English court is satisfied first, that there are sufficient contacts with this jurisdiction to warrant its intervention (which is usually demonstrated by the governing law and jurisdiction selection in the facilities agreement itself) and secondly, that its order will be recognised and given effect in the foreign jurisdictions concerned. However, there is no case, so far as I am aware, where the English court has intervened where originally the agreements concerned were governed by some other law.

One particular concern, of course, is lest it be argued or arguable that a provision in the Facilities Agreement such as I have foreshadowed, to the effect that a given provision may only be altered by unanimous consent, may not be alterable by some other process, particularly where that process is introduced by a court which was not initially selected as the forum and by reference to a foreign law which was not the governing law when the creditors made their agreement.

I therefore need to address, on the preliminary basis I have indicated, the following questions. First, the question whether it appears to me, as at presently advised, that the change of governing law and the change of jurisdiction provision was either ineffectual under the law governing it, which would be the law governing the original contract, or such as in effect to preclude the intervention of the English court by reference to the later change. Secondly, I have to reconsider the various authorities which I have made brief and composite reference to as to the jurisdiction of the English court to intervene in circumstances where the company is not an English incorporated company. Thirdly, I have to consider the constitution of classes.

I will deal with the last first, since it seems to me to be relatively straightforward. The composition of classes which are proposed have been considered, no doubt carefully, by the Scheme Companies in consultation with relevant creditors, as it is the Scheme Companies’ responsibility under the Re Hawk guidance to do. The test for the composition of classes is well known and settled and is summarised by reference to Re T&N No 3 [2006] EWHC 1447 (Ch) [2007] 1 BCLC 563 and Re UDL [2002] 1 HKC 172 in Mr Isaacs QC’s helpful skeleton argument as follows:

“(1)Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings. Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting.

(2)

The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings.

(3)

The application of this test requires a consideration of (a) the rights of creditors in the absence of the scheme and (b) any new rights to which the creditors become entitled under the scheme. If there is a material difference between the rights of different groups of creditors under (a) or (b), they may constitute different classes. Whether they do so will depend on a judgment as to whether such differences make it impossible for the different groups to consult together with a view to their common interest.

(4)

In considering the rights of creditors which are to be affected by the scheme, it is essential to identify the correct comparator. In the case of rights against an insolvent company, where the scheme is proposed as an alternative to an insolvent liquidation, it is their rights as creditors in an insolvent liquidation of the company.”

The golden thread is that the proponent of the scheme and the court must be astute to ensure that a class should be comprised only of individuals who can commune and discuss the proposals together with a view to their common interest. If their rights (before and after the scheme) differ in such a way as to make it, in sensible and practical terms, impossible for them to consult together with a view to their common interest, then the class is improperly constituted.

In this case, the classes proposed are as follows. As regards the APHG scheme it is proposed that the priority senior lenders and the second lien lenders should vote together in a single meeting. The justification for that is that their rights as against the company, which is the appropriate test, are not so dissimilar as to make it impossible for them to consult together with a view to their common interests. Put another way, the differences in their respective rights as against the company, whether as regards termination or as regards repayment or fees and margins payable in respect of the indebtedness, are not such that acting sensibly they cannot discuss together what is best for them in the circumstances which have arisen.

Insofar as the APHG scheme is concerned, the second justification advanced is that if the APHG scheme does become effective, the rights of the lenders in both, as it were, constituencies will be affected in materially the same way. The maturity date of the Facilities will each be extended to the same date and each lender, excluding APCOA Finance Lux S.a.r.l. for reasons which I need not presently deal with, will be entitled to the same pro-rata consent fee.

As regards the non APHG schemes, again it is submitted that all Priority Senior Lenders should vote together in a single meeting, again for broadly similar ultimate justifications: that their rights against the company are not so dissimilar as to make it impossible for them to discuss the matter with a view to their common interest, that any differences in the fees and interests payable to them are not such as to make that impossible, and that the scheme will affect their rights in the same way across the board.

As has been stressed in the authorities, particularly recently, it is important in assessing the constitution of classes which is proposed to consider the comparator: that is, what would be the alternative if the scheme does not proceed: for that will necessarily inform, and in many if not most cases be the most important factor in the discussions. The comparator in this case flows from the determination of the management that unless the termination date is extended there is a real likelihood, which I understand the management consider to be a high likelihood, that at least in the case of the holding company, some insolvency process in Germany, which has strict rules in that regard, would have to be implemented.

In short, given the comparator of liquidation and given the limited effect of the scheme and the similarities in the rights between the various constituencies, I consider at this stage, at any rate, that the classes proposed are appropriate. I will approve the class meetings accordingly. I should repeat, in this regard, that whilst Re Hawk makes clear that it is incumbent both on the company and, so far as it is able, the court to try and identify objections to the class constitutions at this stage, nothing that I say, nor the company could say, can ultimately resolve the question until the final sanction hearing, and although creditors will be required to state why it is that they did not object now, if they object later, the matter goes to jurisdiction and it cannot be foreclosed at this stage.

In this particular case I should also mention that the notice which as it were is a clarion call to creditors to state any objections was only given seven days ago, some four business days ago, which would also be relevant if, on a subsequent occasion, the class constitution was sought to be challenged. All that, however, is a matter for another day.

I turn to the issues which go to the international element. The question of whether a change to the governing law and the jurisdictions clause may properly be effected is ultimately a matter to be determined by the law which governed the arrangements at the start. I have been provided, in the case of each of the relevant legal systems, with an opinion from a suitably qualified expert that the changes are valid under the laws which applied to the instruments before they were changed. Mr Isaacs QC, who has given a very full and helpful presentation, made clear that although the experts sing broadly the same song, the emphasis is different in each case; but he assured me (and my own reading confirmed) that in no case is there any real equivocation in terms of their ultimate conclusion, which is to the effect that the change can and has been lawfully effected.

I raised in that context a question with respect to the material which was before the creditors when voting for the proposed alterations. That is obviously important: for I cannot conceive that in any of the jurisdictions concerned a vote would be considered effective if the proposal to be voted upon had not been sufficiently and accurately described, and in any event, that would be a material consideration in terms of the exercise of this court’s jurisdiction. My particular concern in that regard was that the letters of request, which I was shown, did not expressly state that the purpose of altering the governing law and jurisdiction clause to England included to enable the implementation of a scheme under English statutory provisions, which would permit (for example) a deferral of the termination date under the Facilities. However, on instructions Mr Isaacs QC was able to tell me that further to regular calls with the creditors and in particular one call on 3^rd March 2014, that possibility or objective was expressly mentioned and he has undertaken on behalf of his clients to provide a witness statement confirming that. That seems to be important so that it is clear to the court which is faced with the question of sanction that it knows the basis on which the court proceeded.

For present purposes I am content that the expert evidence which has been provided is at least sufficient to demonstrate that there is no obvious reason why the alteration was not validly effected and no obvious reason, therefore, why I should forsake intervention by the court under Part 26.

The other matter which I have to consider in the international aspect, in a sense may be divided into two. One is whether the fact that some of the Scheme Companies are not English incorporated entities and do not have their COMI here, precludes the court proceeding to sanction a scheme. Part of the answer to that is clear, at least at this level, from Re Drax Holdings Ltd [2004] 1 W.L.R. 1049 because for the purposes of Part 26 a “company” means not only a company incorporated here but any company liable to be wound up here under the Insolvency Act 1986, including a foreign company (see s.895(2) of the Companies Act 2006).

The second aspect is whether there are sufficient connections or contacts with this jurisdiction to warrant this intervention by this court. That too is dealt with by Re Drax Holdings and also by Mr Justice David Richards in a more recent decision in Re Magyar Telecom B.V. [2013] EWHC 3800 (Ch). As I have foreshadowed, the importance of establishing sufficient connection is central; but it seems to me, at least for present purposes and assuming the validity of the alteration of the governing law and the jurisdiction clause to English law and the English court, that this court would have jurisdiction. In that context I take comfort from a line of cases, Re Rodenstock GmbH [2011] EWHC 1104 (Ch), [2011] Bus LR 1245, Re Vietnam Shipbuilding Industry Group [2013] EWHC 2476 (Ch) and an earlier decision of my own in Re Primacom Holdings GmbH (No.1) [2011] EWHC 3746 (Ch) and (No.2) [2012] EWHC 164 (Ch), [2013] BCC 201.

The last aspect which I need to address is the question whether, whatever the English court might conclude as to its jurisdiction in the matter, its assumption of jurisdiction and its intervention under Part 26 would be recognised and enforced in the countries which matter: principally, the countries where the Scheme Companies are resident.

In that regard, and in the same series of expert opinions dealing with German, Belgian, Danish, Norwegian and Austrian law, I am assured that the courts in those jurisdictions would, if otherwise satisfied as to the process, give effect to any scheme formally sanctioned by this court.

As I have sought to emphasise, this is in effect a preliminary indication. These matters can be tested by others on another occasion, which is the occasion of sanction. In that regard I should refer to what I earlier termed rumblings of discontent from other creditors. In that context I have been provided with correspondence between Ropes & Gray Solicitors, and Messrs Clifford Chance on behalf of the Scheme Companies, in which Ropes & Gray express on behalf of their creditor client concern both as regards the future (in the sense of what sort of further scheme the Scheme Companies might have in mind) and as regards the effectiveness of the alterations to the governing law and jurisdiction provisions of the Facilities Agreement. However, whilst, as I have indicated, these may be matters which will have to be canvassed at greater length, assuming the scheme meetings approve the scheme proposed, at the sanctions hearing, as I read Ropes & Gray’s letter, particularly that of the 25^th March 2014, they have expressly reserved their right to appear on the application for sanction of the scheme to address the court with respect to the effectiveness of those amendments to the Facilities Agreement, but do not seek to challenge them at this scheme meeting stage. They do not, I think, expressly object either at this stage to the class constitution, although it may well be that they will seek to argue that point too, at a subsequent stage, though they will have to surmount the difficulty that I have indicated.

I have also been provided with letters from FMS Management, in particular a letter of the 25^th March 2014. That does appear to challenge the Scheme Companies’ assessment of the class composition and fully reserves their right to challenge any further schemes proposed by the Scheme Companies. Although they sound that challenge, they do not appear today. That may be because in light of the notice period they have not been able fully to appreciate the position and it may be that they revert to that argument at a subsequent stage. For the present my job is, as I have said, a limited one. It seems to me as presently advised, without the benefit of contrary argument, that the scheme class composition is not inappropriate and I therefore propose to approve it, to allow the scheme to proceed to the next stages and to leave all other matters to the care and attention of the court at the sanctions hearing.

Last but not least, and as I should have mentioned earlier, I should record that I have also had the comfort of the attendance by leading counsel (Mr Simon Mortimore QC), of Centerbridge Lenders; they hold more than 50% of the debt under the Facilities Agreement. Their approval or their consent to the arrangements, whilst it does not carry the court over the hurdle of itself, is naturally a reassurance. I am grateful to Mr Mortimore QC and to Mr Isaacs QC for their assistance.