Noble Group Ltd, Re

This is an application by Noble Group Limited (the “Company”) for an order sanctioning a scheme of arrangement (the “Scheme”) between the Company and its Scheme Creditors (as defined in the Scheme) pursuant to Part 26 of the Companies Act 2006 (the “CA 2006”).

The background to the Scheme is set out in a judgment which I gave on 2 November 2018: [2018] EWHC 2911 (Ch) (the “Convening Judgment”). I shall not repeat it at any length here. In the Convening Judgment I gave my reasons for convening one class meeting of Deutsche Bank (“DB”) alone, and a second class meeting of the remainder of the Scheme Creditors. I shall use the same terminology in this judgment as in the Convening Judgment.

Very briefly, the Company is the ultimate holding company of the Noble Group (the “Group”), a major global commodities trader. It is incorporated and has its registered office in Bermuda and is listed in Singapore. The Company has been in financial difficulties for some time, and during the extended period of over a year during which a restructuring has been under negotiation, it has continued to sustain vast losses. The Company now estimates that the Group had a net deficiency of some US$1.1 billion at the end of the third quarter of this year.

The Scheme is part of a broader restructuring of the Group (the “Restructuring”), pursuant to which, in return for the release of the Scheme Creditors’ claims, substantially all of the Company’s assets will be transferred to newly incorporated subsidiaries of a newly incorporated holding company, Noble Group Holdings Limited (“New Noble” and together the “New Noble Group”), and new debt instruments will be issued to Scheme Creditors by companies in the New Noble Group. New Noble itself will be listed in Singapore in place of the Company, and in addition to receiving debt instruments in the New Noble Group, Scheme Creditors will also receive 70% of the equity in New Noble via an SPV. The existing shareholders of the Company will be issued with 20% of the equity in New Noble, and the existing management will acquire the remaining 10%.

As well as the release of Scheme Claims, a fundamental purpose of the Scheme is to provide the New Noble Group with access to substantial new hedging and trade finance facilities. These facilities will be provided by DB and indirectly provided by those Scheme Creditors who elect to “risk participate” (and thereby become “Participating Creditors”). In exchange for such risk participation in the New Money Debt, Participating Creditors will be issued the structurally senior Priority Debt by the New Noble Group.

It is the contention of the Board that if the Scheme is approved, the New Noble Group will be in a position to compete in annual bids for major commodities contracts in December, that it will be in a position to meet its new liabilities on an ongoing basis, and that value in the existing Group will have been maximised for stakeholders in the Company. Specifically, the Board believes that a successful implementation of the Scheme is likely to generate a better range of outcomes for all Scheme Creditors than the alternative of an insolvent liquidation of the Company, which it is said would only result in a dividend to unsecured creditors of between about 19 and 30 cents in the US dollar.

The Scheme Creditors comprise substantially all of the Company’s creditors, save for,

ING Bank N.V (“ING”) which will enter into bilateral agreements with the Company;

the holders of the Company’s Perpetual Capital Securities which are subordinated and which the evidence indicates would not receive a return in a liquidation. These creditors are to be offered the opportunity under the broader Restructuring to exchange their existing Perpetual Capital Securities for a total of $25 million of a new subordinated debt instrument to be issued by New Noble; and

the holders of certain other “Excluded Claims” which are defined in the Scheme and which include the claims of DB and various professionals and administrative service providers.

Under the Scheme, the Scheme Creditors’ claims against the Company will be released, in return for which, provided they have submitted valid claims before a Bar Date two months after the Scheme becomes effective and their claims have been admitted or adjudicated to be valid, Scheme Creditors will be issued with the Scheme consideration. The claims determination and adjudication procedure culminates in the independent adjudication of disputed claims by a retired Court of Appeal judge or a nominated QC, and has been developed so as to be analogous to the proof of debt process in an insolvent liquidation in the UK.

The amount of Scheme Consideration with which individual Scheme Creditors will be issued will vary depending on the total amount of Accepted Scheme Claims and whether or not that Scheme Creditor elects to risk participate and thereby to become a Participating Creditor (which is an option open to all).

The Explanatory Statement contained a section setting out high, medium and low case scenarios to assist Scheme Creditors in deciding (i) whether or not to support the Scheme and (ii) whether or not to elect to become a Participating Creditor. In summary, if the Scheme is implemented:

the returns to Participating Creditors are expected to be between 58.4 and 47.4 cents on the dollar, in return for which they would be required to risk participate the equivalent of between 18.2 and 14.7 cents on the dollar (as a proportion of their Scheme Claim); and

the returns to Non-Participating Creditors are expected to be between 24.7 and 33.8 cents on the dollar.

The transfer of substantially all of the Company’s assets to subsidiaries of New Noble was authorised by an overwhelming majority of shareholders at a special general meeting on 27 August 2018 (the “Shareholder Resolution”). In waiving the requirement that the Senior Creditor SPV should make a mandatory bid for the other shares in New Noble, the Securities Industry Council that regulates takeovers in Singapore imposed a condition that the Restructuring is completed within three months from the date of the Shareholder Resolution.

The Scheme Meetings of Scheme Creditors were held on 8 November 2018. The Scheme was approved by DB at its meeting, and by 199 out of the 202 Scheme Creditors who voted at the second meeting. The total turnout at the second meeting was high - equal to approximately 89.48% by number of those entitled to vote. Together, the Scheme Creditors in favour represented approximately 98.51% in number and 99.98% in value of those voting at the second meeting.

In order to facilitate the international effectiveness of the compromises brought about as part of the Restructuring, the Company is also promulgating an inter-conditional scheme of arrangement in Bermuda, where it is incorporated and where it has its registered office. The sanction hearing for the Bermudan scheme is fixed for 14 November 2018.

The Company has, however, never had a substantial presence in Bermuda. Until earlier this year its centre of main interests (“COMI”) was in Hong Kong. At the time it announced that it had reached a Restructuring Support Agreement with the members of the Ad Hoc Group of its main creditors on 14 March 2018, the Company announced that it intended to move its COMI from Hong Kong to England. It claims to have completed that COMI shift in April 2018 and relies upon that change of COMI and a number of other factors, including the governing law of some of the debt instruments to be released, to justify this Court exercising its scheme jurisdiction over the Company.

On the basis that its COMI is now in England, the Company also intends to seek recognition of the Scheme in the US pursuant to principles of comity and/or Chapter 15 of the US Bankruptcy Code. A hearing of the petition is listed before the US Bankruptcy Court for the Southern District of New York on 15 November 2018.

In Re Telewest Communications (No. 2) Ltd [2005] 1 BCLC 772 (“Telewest”) at [20]-[22], David Richards J explained the relevant principles which guide the court in the exercise of its power to sanction a scheme of arrangement:

There are, accordingly, four stages to be gone through under the Buckley test:

At the first stage, the Court must consider whether the provisions of the statute have been complied with. This will include questions of class composition, whether the statutory majorities were obtained, and whether an adequate explanatory statement was distributed to creditors.

At the second stage, the Court must consider whether the class was fairly represented by the meeting, and whether the majority were coercing the minority in order to promote interests adverse to the class whom they purported to represent.

At the third stage, the Court must consider whether the scheme is a fair scheme which a creditor could reasonably approve. Importantly it must be appreciated that the Court is not concerned to decide whether the scheme is the only fair scheme or even the “best” scheme.

At the fourth stage the Court must consider whether there is any “blot” or defect in the scheme that would, for example, make it unlawful or in any other way inoperable.

In an international case, the Court must also be satisfied that it is appropriate, in its discretion, to exercise its scheme jurisdiction on the basis that there is a sufficient connection between the scheme and England, and whether there is a reasonable prospect of the scheme being effective, having regard, in particular, to its prospects for recognition in other relevant jurisdictions. These two questions can be seen to be inter-related: see Magyar Telecom BV [2014] BCC 448 (“Magyar”) at [21]-[22].

I decided the relevant classes of Scheme Creditors at the convening hearing and explained my reasons in the Convening Judgment. Although I raised concerns over the position of the Other Scheme Creditors as regards the election to risk participate, and as to the nature and amount of some of the fees which had been paid and which were to be paid to some of the Scheme Creditors under the Scheme, there has been no subsequent challenge to that decision or the factual assumptions upon which it was based.

One issue that I did not consider in the Convening Judgment, but which was brought into focus by an amendment to the Restructuring documentation, was the issue of releases to be granted by Scheme Creditors to a number of third parties in addition to the release of the Scheme Claims under the Scheme.

The Chairman’s Letter in the Explanatory Statement stated that the Scheme would effect,

To that end, the Deed of Waiver and Release to be executed on behalf of Scheme Creditors provided, at clause 2,

The definition of “Released Parties” included a long list of persons. These included each member of the Ad Hoc Group and, by a late amendment, their “Related Parties”, which was a very wide definition.

It is well established that the Court has jurisdiction under Part 26 CA 2006 to sanction a scheme which includes a mechanism (usually the execution of a deed of release by an attorney appointed under the scheme) under which scheme creditors are required to release claims against third parties where such a release is necessary in order to give effect to the arrangement between the company and the scheme creditors. That test is most clearly satisfied where the scheme compromises debts which are guaranteed and where, absent such a release, pursuit of the guarantor by a scheme creditor would undermine the compromise between the creditor and the company: see Re Lehman Brothers International (Europe) (No 2) [2010] Bus LR 489 at [65] (Patten LJ). On the facts of the instant case, it seems to me that the releases of any claims “arising out of, relating to or in respect of the Scheme Claims and any of the facts and matters giving rise to the Scheme Claims” must fall into the same category.

The jurisdiction is not, however, limited to guarantees and claims closely connected to scheme claims. In Far East Capital SA [2017] EWHC 2878 (Ch) at [14], I expressed the view that a release of claims against persons involved in the preparation, negotiation or implementation of a scheme and their legal advisers would also be within the scope of Part 26. Such clauses can be justified by a need not to allow scheme creditors to undermine the terms of the scheme itself, and have become a regular feature of schemes. I see no difficulty arising from the inclusion of such a clause in the terms of Clause 2.1(b)(ii) and (iii) in the instant case.

Issues might, however, arise where a scheme creditor might have a more tangential claim against a third party. An example might be a claim by a scheme creditor in negligence against an independent financial adviser who had not cautioned against him buying the investment in the first place, aimed at recouping the difference between the original amount paid for the investment and the consideration provided under the scheme. As a matter of jurisdiction, the release of such a claim might fall within Part 26 if it was necessary to avoid the main compromise of the creditor’s claim against the company being undermined by a “ricochet” claim for contribution or indemnity in respect of the balance by the third-party adviser against the company. However, issues of class composition could arise on the facts if, for example, some but not all scheme creditors had such a claim against a third-party adviser, or where such a claim could be pursued by some scheme creditors against other scheme creditors who might have been involved in the matters complained of.

In the instant case, however there is no evidence that any such claims exist, might exist, or have even been threatened. Although there has been litigation in Singapore to which I referred in the Convening Judgment, Mr. Trower QC told me, on instructions, that this essentially concerned allegations by Shareholders against the Company’s management. There was, he told me, no suggestion of a claim against any Scheme Creditors: nor was there any reason to suppose that the facts alleged might give some Scheme Creditors a claim against the Company’s management that was not common to all.

Accordingly, I do not think that the inclusion of the releases in the Scheme and associated Restructuring documentation gives rise to any class issue in the instant case.

As an aside, I did observe that the identities of the members of Ad Hoc Group who stand to benefit from the waiver and release could be made clear by spelling out their names in the Scheme and the Deed of Waiver and Release. Neither draft document did so, and such persons could only be identified by extrinsic reference to the Explanatory Statement. Both Mr. Trower QC and Mr. Allison QC were content to adopt that suggestion by making a small amendment to the final versions of the documents.

On the basis of this analysis I therefore conclude that the classes were correctly constituted.

In accordance with my order of 16 October 2018 convening the Scheme meetings, the Scheme Documentation was sent to Scheme Creditors on 17 October 2018 accompanied by a covering letter explaining the effect of the Convening Order, the various ways the Scheme Documentation could be accessed, and the various ways for Scheme Creditors to vote at the Scheme Meetings. The letter also provided instructions on how to participate in the New Money Debt and explained the implications of electing not to do so.

On 26 October 2018, the Information Agent, Madison Pacific and Kirkland & Ellis wrote again to the groups of Scheme Creditors they had previously contacted, to remind Scheme Creditors of the ways in which the Scheme Documentation could be accessed. They also reminded them of the impending Record Date (on 2 November 2018), the Voting Instruction Deadline (on 5 November 2018) and the Risk Participation Election Deadline (on 14 November 2018). These communications invited Scheme Creditors to contact the Information Agent with any questions.

On 5 November 2018 (i.e. the day of the Voting Instruction Deadline) a notice was circulated to Scheme Creditors reminding them that they were still able to attend the relevant Scheme Meeting and vote on the Scheme even if they failed to submit valid Notice of Claim or Account Holder Letter by the Voting Instruction Deadline.

The evidence contains an account of various minor practical difficulties encountered in contacting some Scheme Creditors. I am satisfied that there was substantial compliance with the Convening Order, and that the deficiencies in notification were inadvertent and would not have made any difference to the outcome. They do not require the scheme meetings to be reconvened and to the extent I need to, I waive any failure to comply with the Convening order.

Although I indicated in my Convening Judgment that I thought that the time for Scheme Creditors to assimilate the Explanatory Statement and make the necessary decisions on voting and risk participation was very short, there has been no challenge by any Scheme Creditor to the adequacy of the time allowed. Accordingly, I hold that Scheme Creditors had sufficient notice of the meetings and of the timetable for relevant decisions to be made.

There has also been no challenge to the adequacy of the Explanatory Statement, in particular in relation to the issues that I identified in the Convening Judgment as to the identity of the members of the Ad Hoc Group and the nature and amounts of the various fees paid and to be paid in connection with the Scheme and Restructuring.

On 2 November 2018, the Company circulated an Addendum Notice to Scheme Creditors informing them of certain amendments to the Scheme Documentation and reminding Scheme Creditors again of the Record Date, the Voting Instruction Deadline and the Risk Participation Deadline and inviting them to contact the Information Agent with any questions. The Addendum Notice also explained how the Explanatory Statement ought to be read in the light of those changes.

According to a table produced for me by the Company, the vast majority of the changes were corrections of typographical errors, clarificatory changes or changes to remedy inconsistencies. Mr. Trower QC submitted that those changes were obviously immaterial and permitted under the terms of the draft Scheme that allowed for minor and inconsequential amendments to be made to the drafts at the sanction hearing.

Mr. Trower QC also very properly took me to the change to the terms of the Deed of Waiver and Release to include Related Parties to the Ad Hoc Group, which he acknowledged might be thought to be a more material change. Though potentially material, that amendment had, in my judgment, been sufficiently foreshadowed for anyone who was interested in the paragraph of the Explanatory Statement to which I have referred, and Mr. Trower QC submitted that there was no factual basis for believing that any actual claims might be made to which it would apply.

I am readily able to make a judgment as to the nature and effect of many of the minor typographical and consequential amendments. However, given the complexity of the Restructuring documentation, the assessment of the materiality of some of the other amendments is an issue upon which, as a matter of reality, I am reliant upon the Company and its advisers to comply with their duties of full and frank disclosure. Those duties require them not only to identify any specific issues (and to provide what they contend are the answers), but also to identify for the assistance of the Court how any rival arguments might be put. I made a similar point in passing in a different context in paragraph 152 of the Convening Judgment.

Mr. Trower QC readily accepted that position, and confirmed to me that neither he nor his team could think of any reason why any of the amendments (save that in relation to the waivers and releases to which I have referred) might even arguably be regarded as material.

On these bases I accept that the Explanatory Statement (as amended) was sufficient to enable Scheme Creditors to make an informed decision on the merits of the Scheme.

I have already set out that the necessary statutory majorities were comfortably obtained at the Scheme meetings. In brief, DB voted in favour, and at the second meeting excluding DB, 99.98% of Scheme Creditors by value who voted, being 98.51% by number, approved the Scheme. The detail of the voting figures is significant for reasons to which I shall return later.

202 Scheme Creditors voted at the second Scheme meeting. The total value of such Scheme Claims as determined by the Chairman for voting purposes was US$2,987,430,846.18. The Chairman admitted all Existing Notes Creditors and Existing RCF Creditors to vote for the value that they submitted prior to the meeting. There were two Scheme Creditors with Other Scheme Claims who asserted claims in aggregate of US$103,491,996.53 and who were admitted by the Chairman for voting purposes in the combined value of US$102,671,646.18.

All 35 members of the Ad Hoc Group voted in favour of the Scheme, holding Scheme Claims of US$2,110,650,700. 165 other Finance Creditors holding Scheme Claims of US$774,108,500 voted at the second meeting. Of these, 162 voted in favour of the Scheme and 3 Noteholders holding claims of US$625,000 voted against the Scheme. Both of the Other Scheme Creditors voted in favour of the Scheme.

Mr. Allison QC produced a table which gave a further breakdown of the voting figures based on information provided by Lucid Information Services Limited, which was the scrutineer appointed under the Convening Order. The information in that table was further updated by Mr. Trower QC on instructions at the hearing.

As regards the split between Participating and non-Participating Creditors, I was told that as at the date of the sanction hearing, 74 Scheme Creditors holding claims amounting to US$2.79 billion had elected to risk participate and become Participating Creditors. Of these, 39 Scheme Creditors with claims of US$682.9 million are not members of the Ad Hoc Group. The remaining 128 Scheme Creditors holding US$194.7 million of claims had not made an election: of these, 125 had voted in favour of the Scheme.

In relation to Backstop Fees, of the 199 Scheme Creditors voting in favour of the Scheme, 63 were Backstop Lenders holding claims amounting to US$2.778 billion, and 136 holding claims amounting to US$208.8 million were not Backstop Lenders. As might be expected, the 3 Scheme Creditors who voted against the Scheme were not Backstop Lenders.

The second stage of the Buckley test requires a determination as to whether,

As to the first part of that test, as I have indicated, the general meeting was well-attended by Finance Creditors and by two Other Scheme Creditors and there has been no challenge to the Chairman’s decisions on voting amounts. The total number of Other Scheme Creditors was always thought to be low, and hence I have no reason to believe that those attending were not fairly representative of the class.

So far as minority protection is concerned, the most recent consideration of the issue was that of Hildyard J in Re Lehman Brothers International (Europe) [2018] EWHC 1980 (Ch) (“Lehman Brothers”). Hildyard J summarised the issues at [88]:

Hildyard J continued an extended analysis of the authorities in paragraphs [89]-[112], in the course of which he suggested that before a vote could be disregarded or discounted there had to be a “strong and direct causative link” between the creditor’s special interest and his decision to support the scheme. He then discussed at [91]-[102] whether the relevant test should be for the Court to ask whether a particular creditor or group of creditors in the majority would not have voted for the scheme “but for” their special interest; or whether it would be sufficient if the special interest was likely to have had a “real or substantial impact” on the creditor’s decision as to how to vote.

Hildyard J concluded, at [103]-[105],

In the instant case, the features of the Restructuring that might be capable of raising a question over the bona fides and motivation of the majority are the various fees that have been paid or that will become payable if the Scheme is sanctioned.

I have already observed above that notwithstanding the doubts that I expressed in the Convening Judgment, there has been no challenge from any Scheme Creditor to the nature of those fees as set out in the Explanatory Statement and the evidence. On that basis, and given that the majority of those fees (including in particular the Work Fees and the RCF Waiver Fees) have already been paid, I accept that they cannot have provided any reason for their recipients to have voted in a manner which was adverse to their interests as a member of the class.

The payment of the Backstop Fees is conditional on the sanction of the Scheme. In accordance with the observations of Hildyard J in the Lehman Brothers case, the Backstop Fees should only be capable of giving rise to an impermissible collateral interest if they create an interest that is adverse to the interests of the class of Scheme Creditors as a whole, and if they can be seen to be a sufficiently motivating factor in the decision of those who received them to vote in favour of the Scheme. I do not think that the Backstop Fees satisfy either requirement. On the unchallenged evidence they are payable at market rates in respect of further financial accommodation being provided to the New Noble Group and, more significantly, applying Hildyard J’s approach in Lehman Brothers, it is apparent that the great majority by number of Scheme Creditors who will not receive Backstop Fees still voted in favour of the Scheme.

I therefore conclude that the Scheme Creditors who comprised the majority at the meeting were acting bona fide and were not voting so as to promote interests adverse to the class that they purported to represent.

Under the third stage of the Buckley test, the Court must consider whether “the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.” I have already observed that the role of the Court in this regard is not to substitute its own assessment of what is fair and reasonable for the view of the Scheme Creditors.

The main driver for the Scheme is the risk of insolvency of the Group, and as summarised in the Explanatory Statement, the Company believes that the Scheme offers the prospect of a better range of outcomes than the likely alternative. On the basis that the Restructuring and the alternatives were adequately explained to Scheme Creditors in the Explanatory Statement, as David Richards J explained in Telewest, the resounding vote in favour strongly suggests that the Scheme should be regarded as fair and reasonable.

The Company has raised a number of specific issues that might be regarded as bearing on the fairness of the Scheme. These are (i) the risk participation provisions and the division of the Scheme consideration between Participating and non-Participating Creditors, (ii) the payment of fees to some groups of Scheme Creditors, (iii) the third-party releases, and (iv) the claims adjudication process.

The evidence is that the New Noble Group needs access to trade financing facilities and hedging facilities to compete effectively in the market in which it operates. In order to secure those facilities, the Scheme provides all Scheme Creditors with the opportunity to risk participate in the New Money Debt and receive the structurally senior Priority Debt. It is not uncommon for schemes to include a right to receive more valuable consideration in return for a creditor agreeing to risk participate in new facilities.

In practice, a Scheme Creditor’s decision as to whether or not to risk participate in the New Money Debt will depend on their individual circumstances, including their risk appetite and financial position. However, the Company has gone to considerable lengths in order to ensure that all Scheme Creditors who wish to risk participate have the opportunity to do so. The Cash SPV was specifically designed in order to provide as many Scheme Creditors who wish to risk participate with the option to do so, including those who may not want or have the ability to enter into the necessary agreement with an intermediary bank.

In my Convening Judgment I specifically identified the Other Scheme Creditors as a group that might wish to contend that the risk participation provisions of the Scheme were unfair to them. However, of that cohort, two voted in favour of the Scheme and have not elected to risk participate; and none has appeared to argue that they have been unfairly treated.

Since the Risk Participation Election Deadline falls on 14 November 2018, the final numbers of Participating and non-Participating Creditors is not yet known. However, as indicated above, there are a significant majority of the Scheme Creditors who voted in favour of the Scheme but have not yet elected to risk participate. While some may still do so, there are likely to be at least some who do not ultimately become Participating Creditors.

On this basis I do not think that there is any basis upon which I can conclude that the provision of greater consideration under the Scheme to those who elect to risk participate, or the terms upon which risk participation was offered, was unfair or unreasonable.

As I remarked in the Convening Judgment, the total fees of various types which have been paid over the last year and which are to be paid to some (but not all) Scheme Creditors are very significant. It would have been open to any Scheme Creditor to contend, at the sanction hearing, that no reasonable creditor could honestly think that the Scheme was in his interests unless he had also benefitted or stood to benefit from such fees. However, no Scheme Creditor has appeared to make that argument.

Instead, the evidence of the Company is that the fees were a regrettable but commercially necessary price to pay in order to get to a stage in which the Restructuring could be proposed to save the business of the Group. In particular, in addition to the evidence concerning the Work Fees to which I referred in the Convening Judgment, I have had further evidence from Mr. Brough on behalf of the Company explaining the circumstances in which the significantly increased RCF Waiver Fees were agreed to be paid in December 2017 as a condition of the extension of the RCF waivers. The gist of that evidence is that the fees were required by certain RCF Lenders as a condition of their joining the Ad Hoc Group which would be a single point of contact and negotiation for the Company with its Noteholders and RCF Lenders.

Although not in the detail which is now included in the evidence, the fees paid and proposed to be paid were disclosed in the Practice Statement Letter and the Explanatory Statement. Mr. Trower QC also observed that any Scheme Creditor reading the Convening Judgment could have been in no doubt about the concerns which I had at that stage over the nature and amount of the fees.

On the basis that the issue of the fees had thereby been properly disclosed, I accept that by voting in favour of the Scheme and not appearing at the sanction hearing, the Scheme Creditors have in effect rendered their own commercial judgment as to what is in their best interests, and they have confirmed the commercial assessment of the directors of the Company that the fees were necessary to get to a restructuring solution for the Group. The fact that significant numbers of Scheme Creditors who do not stand to receive the same level of fees as the members of the Ad Hoc Group nonetheless voted in favour of the Scheme adds significant weight to that point.

I therefore do not think that I have any basis upon which to conclude that the payment of the fees in this case makes the Scheme one that a Scheme Creditor could not reasonably approve in his own interests.

I have discussed the implications of the waivers and releases granted under the Scheme in relation to the class question above. No Scheme Creditor has raised any objections to the inclusion of such releases in the Scheme, and for much the same reasons as I expressed in relation to the class issue, I do not think that there is any basis upon which the inclusion of the waivers and releases could be regarded as unreasonable or unfair to Scheme Creditors.

In the Convening Judgment I briefly outlined the elaborate process under the Scheme for determination and adjudication by an independent adjudicator of disputed Scheme Claims. I also indicated that such a process was likely to have particular significance for Other Scheme Creditors rather than the Finance Creditors.

An adjudication process has been a central feature of a number of schemes, particularly in the insurance field: see e.g. Hawk Insurance Co Limited [2001] 2 BCLC 480, Re Pan Atlantic Insurance Co Ltd [2003] EWHC 1969, Sovereign Marine and General Insurance [2006] BCC 774, Lehman Brothers and Stronghold Insurance Company Limited [2018] EWHC 2909 (Ch).

In Pan Atlantic Insurance Co Ltd, Lloyd J expressed the view (at [33]) that it may be “entirely legitimate” for a scheme to restrict the access of creditors to the courts through the use of an independent adjudicator and, further, that doing so is not inconsistent with Art.6(1) of the European Convention on Human Rights. However, as recognised by Hildyard J in Lehman Brothers at [158],

In the instant case,

the adjudication process has been modelled on the statutory procedure for proof of debts in a liquidation;

the Scheme provides that the Adjudicator’s decision will be final and binding on the Scheme Administrators, the Company and the relevant Scheme Creditor but only “insofar as the law allows”. Accordingly, the Scheme does not purport to exclude mandatory rights of appeal which may exist under the general law;

the Adjudicators are manifestly highly experienced and impartial; and

the adjudication process has been developed by the Company in conjunction with its advisers and both the proposed Scheme Administrators and the Adjudicators themselves with a view to creating a fair and appropriate way of adjudicating on disputed Scheme Claims within a reasonable timeframe. In this regard, a key feature of the adjudication process is the broad latitude given to the Adjudicators to extend timeframes and adopt procedures appropriate to the issues that need to be resolved, including through the introduction of expert evidence and oral hearings.

In these circumstances, I have no doubt that the adjudication process in this case is both consistent with established legal principles, and fair.

At stage 4 the Court considers whether there are any “blots” on the scheme. The term “blot” is generally thought to refer to some technical or legal defect in the scheme, for example, that it does not work according to its own terms, or that it would infringe some mandatory provision of law: see e.g. The Co-operative Bank Plc [2017] EWHC 2269 (Ch) at [22].

In this case, one issue that might be considered under this heading relates to the position of the holders of the Perpetual Capital Securities.

As I indicated in the Convening Judgment, the holders of the Perpetual Capital Securities were not included in the definition of Scheme Creditors whose claims are to be compromised by the Scheme. The reasons were that it is generally for the Company to determine with whom it wishes to propose a compromise or arrangement under Part 26, and it was thought by the Company and its advisers that the subordinated claims of the holders of the Perpetual Capital Securities were sufficiently “out of the money”, in the sense that they would manifestly receive no distribution in a liquidation of the Company, that they did not need to be consulted on the Scheme: see Re Tea Corporation [1904] 1 Ch 12; Re Bluebrook Limited [2010] 1 BCLC 338; and My Travel Group plc [2005] 2 BCLC 123.

The consequence is that, at least so far as the Scheme is concerned, the holders of the Perpetual Capital Securities will be left behind as unsatisfied creditors of the Company when the business and assets of the Group are transferred to the New Noble Group.

I apprehend that where, as in the instant case, the scheme includes a transfer of the assets and business of the scheme company in such a way as will leave a non-scheme creditor behind with a claim against a worthless shell, that creditor would be entitled to appear at the sanction hearing to object that the company’s assessment of where the value breaks was incorrect. The creditor’s argument would be that sanction of the scheme would legitimise an otherwise unlawful disposal of the company’s assets in disregard of his interests as a creditor.

In the instant case, such a complaint was apparently voiced by a lawyer for one of the holders of the Perpetual Capital Securities at the meeting to vote upon the exchange offer (which in the event turned out to be inquorate). The gist of the complaint appeared to be that the exchange offer made as part of the wider Restructuring to the holders of the Perpetual Capital Securities of US$25 million of similar securities in New Noble undervalued their interests in the Company.

Although no holder of Perpetual Capital Securities has appeared to challenge the Scheme on this basis, Mr. Trower QC drew attention to the point, and I think it right that I should briefly deal with it.

Depending on the facts and figures, there might in some case in the future be a substantial dispute as to the correct approach to valuation which should be adopted when deciding where the value breaks in the scheme company: see the extended discussion by Jennifer Payne in Schemes of Arrangement at pages 247-269. In the instant case, however, there has been no challenge to the Company’s assessment that given its very large balance sheet deficiency, the holders of the Perpetual Capital Securities are substantially “out of the money”.

The only feature of the Scheme and wider Restructuring that might give rise to any doubt in this regard is the fact that the Shareholders of the Company, who would plainly rank below the holders of the Perpetual Capital Securities in a liquidation, are to receive 20% of the equity in New Noble; and the existing management, who would not, as such, rank in a liquidation at all, are to receive 10% of the equity in New Noble.

The answer to that point was, however, given by Mr. Trower QC. He submitted, and I accept, that on the evidence, it is clear that the value in the Company and in the business of the Group in essence belongs to the unsecured creditors, i.e. the Scheme Creditors, together with those who have reached bilateral arrangements with the Company or whose debts will be paid in the ordinary course, and who have therefore been excluded from the Scheme. Mr. Trower QC submitted that it is up to the Scheme Creditors to determine how to divide that value up between them in the Restructuring. They have done so and have decided that they will, for commercial reasons, share some of the value with the Company’s existing Shareholders and management.

The commercial reasons are explained briefly in the evidence. The proponents of the Scheme have taken the view that since the consent of the Shareholders given by the Shareholder Resolution was necessary in order to permit the disposal by the Company of its business and assets to the New Noble Group, that consent would come at a price. They also took the view that the members of the Company’s existing management understand the Group’s business and have key relationships with suppliers and customers, and that it will be necessary for reasons of continuity to retain such experience and relationships when the business is transferred to the New Noble Group.

It seems to me that those are credible reasons for the treatment of the Shareholders and existing management, and in the absence of any challenge at the hearing from a holder of Perpetual Capital Securities, I have no basis to conclude that they have any financial interest in the Company, or that the Scheme illegitimately harms their interests.

For completeness, I should record that Mr. Trower QC also drew attention to various communications that have taken place with some of the Other Scheme Creditors, the commercial settlements that have been concluded with a number of them, and the comments of one other person who contacted the Court directly by email to make observations about the Scheme. There is nothing in any of those materials that leads me to conclude that there is any defect with the Scheme.

The final matters that fall to be considered arise from the international nature of the Scheme. They are (i) whether the Company has a sufficient connection to England; (ii) whether the Scheme will achieve a substantial effect; and (iii) whether the English Court’s jurisdiction to sanction the Scheme is limited by the Recast EU Judgments Regulation. These issues were raised at the Convening Hearing, but for reasons that I explained in the Convening Judgment, I considered that it was more appropriate for their determination to await this application for sanction.

The Company is plainly liable to be wound up as an unregistered company under Part V of the Insolvency Act 1986, and so is a company within the meaning of section 895 CA 2006. However, as I explained in the Convening Judgment, where a scheme company is incorporated abroad, the court will not exercise its jurisdiction to sanction the scheme unless it has a “sufficient connection” to England and Wales: see e.g. Re Drax Holdings Ltd [2004] 1 WLR 1049 (Ch) at [29].

The “sufficient connection” test is plainly separate and distinct from the issue of where the scheme company has its COMI for the purposes of, say, the recast EU Insolvency Regulation. That might have been a relevant consideration if, as was once postulated as a possibility, the Company had applied for an administration order in England to facilitate the transfer of its business and assets to the New Noble Group: see e.g. Re Christophorus 3 Limited [2014] EWHC 1162 (Ch).

The “sufficient connection” test is also separate and distinct from any test based on COMI that the US Bankruptcy Court might apply to determine whether to recognise the Scheme under Chapter 15 of the US Bankruptcy Code or as a matter of comity.

Nonetheless, it is obvious that some of the same factors that might have been relevant to establishing that the Company has moved its COMI from Hong Kong to England are also likely to be relevant to demonstrate a “sufficient connection” with this jurisdiction. That is particularly so given that, as explained in Magyar, the issue of “sufficient connection” is bound up with the question of whether the Scheme is likely to be effective in the sense of being recognised in other relevant jurisdictions, and recognition abroad may depend on the view that the recognising court takes of the location of the Company’s COMI.

When considering those factors in the instant case, I accept the propositions that a company is generally free to choose where it carries on its activities and administers its interests; such location is not immutable; and that a company may change its COMI for a self-serving purpose: see e.g. Shierson v Vlieland-Boddy [2005] BCC 949 at [55]. That case also makes clear that where it is suggested that the company has changed its COMI, the Court will have regard in particular to the questions of whether the change has been made in a way which is ascertainable by third parties such as creditors, whether the change is based on substance and is not an illusion, and whether it has the necessary element of permanence. I considered some of those points in my recent judgment in Re Videology Limited [2018] EWHC 2186 (Ch).

In the context of a scheme, whilst the English Court will be astute to detect a COMI-shift performed for illegitimate and abusive reasons, it is possible that a company might legitimately seek the assistance of the Court with the support of, and in order to achieve the best result for, its creditors. In Re Codere Limited [2015] EWHC 3778 (Ch), Newey J indicated, at [18],

That statement neatly describes what has happened in the instant case. The Company has, with the support of a large proportion of its creditors, sought to move its COMI to England with the intention of proposing a restructuring taking advantage of the range of procedures available here.

Consistently with the emphasis that the CJEU has placed on the requirement that the factors which go to establish COMI must be ascertainable by third parties, and that a change in COMI should be communicated to third parties, it is also significant that the Company has sought to establish its connections with England in an entirely open manner. In particular, the Company made public announcements and communicated with the SGX to explain the reasons for moving its COMI between February and April this year, and on completion of its move, sent a notice to all its creditors informing them of the change in location of its head office and principal place of business to London. Of course a company cannot create a sufficient connection with England simply by saying that it intends to do so, but the fact that the Company has at all times acted openly and with the consent and support of its creditors is a relevant factor.

In the instant case, the Company places particular reliance upon the following factors to demonstrate a sufficient connection with England:

Since 7 April 2018 the head office of the Company has been located at 33 Cavendish Square in London and all head office functions are carried out in London. No managerial activities are conducted in Bermuda and the Company no longer conducts substantial activities in Hong Kong.

The Company acts as a holding company for the Group and fulfils its role as principal debtor under the financing arrangement required to enable its subsidiaries to carry on their commodity trading activities. Seeking a restructuring of those debts and of the Group has been the principal focus of the Company’s activity since late 2017. In that regard, all of the material meetings between the Company and the Ad Hoc Group, particularly those conducted in the period immediately prior to, and in the period since, the execution of the RSA on 14 March 2018, have been conducted in the United Kingdom. Since January 2018, London has also been the main location where face-to-face negotiations between the Company and its other creditors and their advisers have taken place.

Three of the Company’s independent non-executive directors are now based in the United Kingdom.

The majority of Board meetings take place in the Company’s London head office, and meetings of the Audit Committee, the Risk Committee, and the Corporate Governance Committee are also held in London.

The London office is where the Company’s books and records are kept, save for the Company’s register of members which is required to remain in Bermuda. It is also where the Company’s officers approve key vendor payments, maintain the Company’s consolidated cash management system and exercise the Company’s treasury functions.

As of 7 April 2018, the Company has an establishment registered in the United Kingdom pursuant to the Overseas Companies Regulations 2009.

The Company notified HMRC on 12 July 2018 that it has relocated its head office to the UK for corporation tax purposes pursuant to section 55 of the Finance Act 2004.

Telephone lines are in place for the exclusive use of the Company in London with a UK number and those telephone numbers are published on the Company’s website. The Company’s website also makes plain that its head office is located at the address at 33 Cavendish Square.

Independently of its move of operations to London, the Company emphasises that the majority of the debts which are compromised under the Scheme arise under the 2018 Notes, the 2022 Notes and the RCF, each of which is governed by English Law. A material proportion (at least 18%) of the Scheme Creditors are also subject to the personal jurisdiction of the English Court by virtue of being domiciled in England. The relevance of those factors to the “sufficient connection” test was discussed by Briggs J in Re Rodenstock [2011] Bus. L.R. 1245 (“Rodenstock”) at [67]-[68].

I am satisfied on the evidence that these factors are not illusory or merely temporary. Taken together with the overwhelming support from Scheme Creditors for the Scheme, and subject to consideration of the effectiveness of the Scheme to which I next turn, in my judgment they establish a sufficient connection with England to justify exercise of the scheme jurisdiction.

As indicated above, in Magyar at [21]-[22], David Richards J said that questions of “sufficient connection” and whether the scheme would have “substantial effect” were closely related. In the latter regard, he said, at [14]:

In Van Gansewinkel Groep BV [2016] BCC 172 at [71], after referring to Magyar, Sompo Japan Insurance Inc [2007] EWHC 146 (Ch) and Rodenstock, I commented,

In that regard it is first important to note that the vast majority of Finance Creditors became parties to the RSA, participated in the Scheme process and voted in favour of the Scheme. Having done so, they are unlikely to be able to challenge the Scheme elsewhere. The number and value of potential dissenting creditors who would conceivably be able to take action abroad is therefore relatively small.

Indeed, apart from Iceberg with its relatively small potential claim of around US$320,000, no Scheme Creditors have indicated that they consider themselves not to be bound by the Scheme. Moreover, further evidence was adduced by the Company to the effect that, subject to obtaining permission from the Court in Hong Kong, it intends to pay a suitable sum into court in Hong Kong to secure Iceberg’s (disputed) claim.

Secondly, an important feature of the Scheme and the wider Restructuring is that it will result in substantially all of the Company’s assets being transferred to New Noble, and the likely winding up and eventual dissolution of the Company. At least as a matter of form, the disappearance of the Company means that the possible existence of creditors in jurisdictions where the compromises are not recognised, or not recognised insofar as they seek to release foreign law-governed debts, may not give rise to the same sort of immediate issues as exist in cases where a scheme is intended to secure the future of the scheme company. That said, there must, however, still be at least a conceptual possibility that dissenting creditors of the existing Group might contend that the compromise of their claims and the transfer of the business and assets to the New Noble Group should not be recognised, and they might seek to attack such business and assets in the hands of the New Noble Group in other jurisdictions.

To that end, thirdly, as a further measure to facilitate that the compromises effected by the Scheme are recognised internationally, an inter-conditional and identical scheme is being promulgated in Bermuda, the Company’s place of incorporation.

Fourthly, any claims by a dissentient Finance Creditor would in any event have to be made under the terms of the relevant Notes or the RCF. In that regard it is significant that the 2018 Notes, the 2022 Notes and the RCF are governed by English law and have (admittedly non-exclusive) English jurisdiction clauses. This must increase the prospect of the English Scheme being recognised abroad as having discharged the Scheme Claims.

Fifthly, although the 2020 Notes are governed by the laws of New York with a (non-exclusive) New York jurisdiction clause, the Company has sought recognition of the Scheme as a foreign main proceeding under Chapter 15 of the United States Bankruptcy Code and/or principles of comity. In that regard, as I noted in the Convening Judgment, the Company has obtained expert evidence from The Hon. James Peck, a former judge of the US Bankruptcy Court for the Southern District of New York, expressing the clear view that a US Bankruptcy court would enter an order granting effect to the Scheme in the United States. I find that evidence entirely persuasive.

Accordingly, I am satisfied that the Scheme, if sanctioned, is likely to be recognised and thereby to have a substantial effect in other significant jurisdictions. Taken together with my view on sufficient connection, I am accordingly satisfied that it is appropriate in the international context to exercise my discretion to sanction the Scheme.

The final international issue concerns the question of whether it is necessary to establish jurisdiction under the Recast Jurisdiction and Judgments Regulation (EU) 1215/2012 (the “Recast Judgments Regulation”) .

I outlined the issue in paragraphs [70]-[73] and [81] of the Convening Judgment and noted that rather than decide the difficult legal issue of whether the Recast Judgments Regulation applies to schemes under Part 26 at all, the Courts have generally been prepared to adopt a pragmatic approach of asking whether, on the assumption that the Regulation applies and that the scheme proceeding is to be assimilated to a civil case being brought against the scheme creditors by the scheme company, the jurisdictional requirements of the Regulation would in any event be satisfied.

In that regard, Article 8(1) of the Recast Judgments Regulation provides that,

In a series of decisions, a number of Judges of this Court have decided that given the nature of a scheme, if one scheme creditor is domiciled here, that necessarily means that it will be expedient to hear and determine the “claims” against all other scheme creditors here, so that jurisdiction will automatically be established under Article 8: see e.g. Re Metinvest BV [2016] EWHC 79 (Ch) at [32] and Re DTEK Finance Plc [2016] EWHC 3563 (Ch) in which Norris J concluded, at [25],

I have in the past expressed a different view, indicating that it should not automatically be regarded as “expedient” within the meaning of Article 8 for the English Court to assert jurisdiction over all scheme creditors in other jurisdictions simply because one of their number is domiciled here: see e.g. Re Van Gansewinkel Groep SA [2015] Bus LR 1046 at [50] – [51] and Re Global Garden Products Italy SpA [2017] BCC 637 at [25] to [28]. In what is, ex hypothesi a somewhat artificial exercise (as to which see the doubts expressed by Hildyard J in Re Primacom Holding GmbH [2013] BCC 201 at page 223, paragraph [13]), I have taken the view that if, for example, one scheme creditor owed US$1 was domiciled here, and, say, 200 creditors owed US $100 million were domiciled in Germany, the framers of the Recast Judgments Regulation might not regard it as “expedient” for the purposes of avoiding irreconcilable judgments that the 200 German creditors should be subjected to a scheme in England.

In the instant case I do not, however, need to decide whether to stick to my guns or recant my views, because the evidence adduced by the Company is that 13 Noteholders are domiciled in England, and their claims are likely to amount to between 18.2% and 22.5% of the total Scheme Claims. On any view this is a significant proportion of the Scheme Creditors, and in the same way as Briggs J was reassured in Rodenstock at paragraph [62] by the fact that over 50% by value of the scheme creditors in that case were domiciled in England, I consider that Article 8(1) of the Recast Judgments Regulation would be engaged and satisfied.

For the reasons that I have set out, I consider that the statutory requirements of Part 26 have been satisfied, and that it is appropriate for me to exercise my discretion to sanction the Scheme.