Codere Finance (UK) Ltd, Re

I have before me an application for an order sanctioning a scheme of arrangement under Part 26 of the Companies Act 2006.

The application is made by Codere Finance (UK) Ltd., an English incorporated subsidiary of Codere SA, a Spanish company. Codere SA is the ultimate parent of a group of companies that carries on business by way of gaming and similar activities in Latin America, Italy and Spain. Codere SA's shares are listed on a number of Spanish stock exchanges.

Financing for the group has principally been provided under a senior facilities agreement and, more importantly for present purposes, by the issue of notes. Two series of notes have been issued by Codere Finance (Luxembourg) SA, a Luxembourg incorporated subsidiary of Codere SA. Both series of notes are governed by New York law, guaranteed by Codere SA and other group companies and subject to an English law intercreditor agreement originally made in 2005.

As at 28^th August of this year, the group had outstanding gross debts of some €1,460 million. The notes accounted for the great majority of that indebtedness: about €1,214 million. The group is not in a position to meet all its debts.

Negotiations with a view to achieving a restructuring began more than two years ago. Consideration was given to invoking the restructuring mechanisms available in jurisdictions other than this one. It was concluded, however, that the available options would involve some form of insolvency proceedings. That, it was thought, could put at risk licences on which the group depends and so diminish its value. The view was thus taken that the best course was to seek to use the scheme jurisdiction that exists in England and Wales. As was stressed to me by Mr. Antony Zacaroli QC, who appears with Miss Charlotte Cooke for an ad hoc committee of creditors, the use of the English scheme jurisdiction has been driven from the outset by creditors.

Codere Finance (UK) Ltd. (which I shall call "the company") was acquired to that end. Its shares were acquired by Codere SA in October of last year, and in February of this year it agreed to assume a primary, joint and several obligation in respect of all Codere Finance's obligations as regards the notes. The accession of the company as a co-obligor in relation to the notes was undertaken pursuant to an instruction from Codere SA as the company's sole shareholder and with the agreement of more than 97 percent of the noteholders.

The restructuring that the scheme is intended to achieve is complex. It relates to both the obligations under the notes and the structure of the group. In the broadest of terms, it provides for the existing notes to be cancelled in exchange for shares and other notes; for €400 million of new money to be injected; and for the hive down of Codere SA's assets to a new Spanish company and the subsequent interposition of two Luxembourg-registered entities between Codere SA and the new Spanish company.

Implementation of the scheme is to be conditional on the company obtaining an order recognising the scheme and its effects under Chapter 15 of the US Bankruptcy Code. In that regard, a hearing has been arranged for next Tuesday. Chapter 15 approval is a non-waivable condition precedent.

The scheme is expected to result in noteholders receiving recoveries equal to at least 47 percent of liabilities. In contrast, the group has been advised that the recovery rate could drop to zero if the scheme does not proceed. In other words, scheme creditors could lose some €600 million.

That being so, it is not surprising that the scheme has received strong endorsement from noteholders. At the meeting held on 14^th December 140 creditors, with claims totalling US$ 1,370,324,488 (or 98.78 percent of the total indebtedness), voted in favour of the scheme and not a single creditor voted against it. The chances are that the scheme would have enjoyed even greater support but for the fact that the company has not succeeded in identifying some 1.22 percent of the scheme creditors.

Guidance as to the approach that the court should take when deciding whether to sanction a scheme of arrangement is to be found in the much-quoted judgment of Mr. Justice Plowman in Re National Bank Ltd. [1966] 1 WLR 819. Mr. Justice Plowman endorsed a passage from Buckley on the Companies Acts (13^th ed.) which read as follows:

In the present case, Mr. David Allison QC, who appears with Mr. Ryan Perkins for the company, has satisfied me on each of the three particular points identified in Buckley. It is evident that the relevant provisions of the Companies Act have been complied with; that the creditors who voted at the meeting fairly represented those who will be bound by the scheme, if approved, and are not coercing a minority; and that the scheme is one that an intelligent and honest person could reasonably approve.

The point on which I should say something further arises from the fact that the group acquired the company only quite recently and with a view to using this court's scheme jurisdiction. This feature was evidently of some concern to Mr. Justice Nugee when the matter came before him on 29^th October. He remarked in para.8 of his judgment that this seemed to him, "at first blush, to be quite an extreme form of forum shopping, in which the restructuring is brought in the UK purely by incorporating a company to take on very large liabilities".

Mr. Justice Nugee's observation has been the subject of submissions to me from both Mr. Allison and Mr. Zacaroli. With the benefit of those submissions (which have been far more extensive on this aspect than were advanced to Mr. Justice Nugee), I am satisfied that the concern that Mr. Justice Nugee understandably expressed should not deter me from sanctioning the scheme.

The scheme relates to an English company which has its centre of main interests here. In the light of the line of authorities culminating most recently in Re Van Gansewinkel Groep BV [2015] EWHC 2151 (Ch), I do not think that either the Insolvency Regulation or the recast Judgments Regulation could present any obstacle to my making an order. So far as the Judgments Regulation is concerned, the evidence indicates that some 18 creditors holding around €250 million of notes (approximately 22 percent by value of scheme creditors) are domiciled in England. Further, the expert evidence placed before me indicates that the scheme is likely to be effective in other relevant jurisdictions, either directly or as a consequence of the grant of relief in the United States under Chapter 15. As I have already mentioned, the grant of such relief is a condition precedent of the scheme.

It can also be noted that, even apart from the group's recent acquisition of the company, there are other connections with this jurisdiction. I have referred already to the intercreditor agreement dating back to 2005 which, as I have said, is governed by English law. I have mentioned, too, the fact that a significant percentage of the noteholders are domiciled in England, and it is noteworthy too that some 97 percent of the noteholders by value have now submitted to the jurisdiction of the English court. On top of those features, it can be said that the note trustee and security trustee have, since the notes were issued, performed their functions from offices in London and that other relevant documents, including for example the lock-up agreements which have been entered into, are also governed by English law. In the circumstances, the fact that the company is incorporated in England is not the only connection with this jurisdiction.

Aside, however, from that fact, the authorities show that over recent years the English courts have become comfortable with exercising the scheme jurisdiction in relation to companies which have not had longstanding connections with this jurisdiction. Mr. Allison has reviewed the authorities in detail in his skeleton argument, referring me, for example, to cases dealing with companies which have shifted their centres of main interest; a relatively recent authority in which there was a change of governing law; and, by way of perhaps particular analogy to the present case, a line of authorities including the decision of Mr. Justice Norris this year in Re A I Scheme Ltd. reported at the convening stage at [2015] EWHC 1233 (Ch) and, at the sanction stage, at [2015] EWHC 2038 (Ch). In that case, a company had voluntarily assumed liabilities with a view to the scheme jurisdiction being exercised. Mr. Justice Norris did not consider that that fact prevented the English court from sanctioning the proposed scheme.

In a sense, of course, what was done in the A I Scheme case, and what is sought to be achieved in the present case, is forum shopping. Debtors are seeking to give the English court jurisdiction so that they can take advantage of the scheme jurisdiction available here and which is not widely available, if available at all, elsewhere. Plainly forum shopping can be undesirable. That can potentially be so, for example, where a debtor seeks to move his COMI with a view to taking advantage of a more favourable bankruptcy regime and so escaping his debts. In cases such as the present, however, what is being attempted is to achieve a position where resort can be had to the law of a particular jurisdiction, not in order to evade debts but rather with a view to achieving the best possible outcome for creditors. If in those circumstances it is appropriate to speak of forum shopping at all, it must be on the basis that there can sometimes be good forum shopping.

In the particular circumstances of this case, I cannot see that the fact that the company has been acquired only recently, and with a view to invoking the scheme jurisdiction, should cause me, in the exercise of my discretion, to decline to sanction the scheme. For reasons I have already touched on, the scheme appears to be very much in the interests of the group's creditors. I bear in mind in that context the fact that it was devised following close consultation with creditors; the overwhelming level of support that it has enjoyed from creditors; the fact that no creditor has opposed the scheme; the lack of alternatives available to the group in other jurisdictions; and the fact that, on the evidence, my declining to sanction the scheme could cause the group and its creditors a loss of value of around €600 million, by any standards a large sum.

In short, therefore, I am satisfied both that the formal requirements for sanctioning the scheme have been met and that, in all the circumstances, it is appropriate for me to exercise my discretion to sanction the scheme. That, therefore, is what I shall do. As asked, I shall make an order along the lines of that at tab 3 of the first core bundle.