NEF Telecom Co BV, Re

There are two applications under s.899 of the Companies Act 2006 before me for the sanction of schemes of arrangement by NEF Telecom Company BV, a Dutch company (the “Holdco scheme”) and Bulgarian Telecommunications Company AD, a Bulgarian company (the “Opco scheme”).

I am told that Opco is the second largest telecommunications company in Bulgaria, with some 2,253 employees as at the end of last year. It is listed on the Bulgarian stock exchange, but 94% of its shares are owned by another company called NEF Telecom Bulgaria OOD (“OOD”). Holdco is an intermediate holding company and one of the main borrowers in the group of companies of which it forms a part. The schemes form part of a proposed restructuring of the group – of which both Holdco and Opco form part. The schemes arise due to a decline in the group’s financial performance and a need to restructure its substantial debt. The details of the restructuring may not be crucial to the issues that I have this morning to decide, but the group has made losses of some €265 million and €274 million in 2010 and 2011 respectively and some €67 million in the first quarter of 2012. The group’s net liabilities were €1.381 billion and €1.648 billion and €1.715 billion as at 31st December 2010, 31st December 2011 and 31st March 2012 respectively. The facilities that are concerned – and to which I shall return in more detail in due course – are in default, but breaches up until now have been waived whilst this restructuring remains in progress. If the restructuring were to fail, the debts would be accelerated.

There have been numerous unsuccessful attempts to sell and restructure the group, the details of which have been set out in the judgment of Hildyard J of 9th August 2012 and which I shall not repeat here. Under the restructuring proposed, two third parties – Bulgarian Bank CCB (“CCB”) and Russian Bank VTB (“VTB”) will invest up to €670 million-odd and the group’s indebtedness will be reduced by over €1 billion. If the restructuring is not implemented, the scheme companies are likely to enter an insolvency process. The directors think that this would result in a considerable loss of value to all, including the scheme creditors. The schemes have the overwhelming support of the scheme creditors, the details of which I shall return to in a moment.

So far as the chronology is concerned, suffice it to say that the present restructuring resulted from a restructuring proposal presented by CCB and VTB on 13th June 2012, a lock-up agreement was circulated to scheme creditors on 5th July 2012, a deal was agreed with CCB and VTB on 3rd August 2012. Hildyard J approved the proposed scheme meetings on 9th August 2012.

Mr. David Allison, counsel for Holdco and Opco, has appeared before me in support of the scheme and has put before me an extremely detailed and comprehensive skeleton argument dealing with the scheme and the issues raised by it. There have also been placed before the court seven files containing the scheme documentation and the evidence relied upon in support of it.

In opposition to the scheme, Mr. Tibor Toth has appeared on behalf of KDB Bank (Hungary) (“KDB”). Mr. Toth appeared to oppose the application before Hildyard J on 8th August 2012. He has also appeared before me and has put forward his submissions in a courteous and proportionate manner. He has also filed a most helpful document entitled “Acknowledgement of service on behalf [KDB]” which is more in the nature of a skeleton argument and to which

There are two loan facilities: the senior facilities agreement and the mezzanine facility agreement. The senior facilities agreement comprises five facilities as follows:

The mezzanine facility agreement in which Holdco is the borrower has a sum of €498 million outstanding. Holdco and other group companies, apart from Opco, have cross-guaranteed the facilities and they are subject to a package of securities including a share pledge granted by OOD over its shares in Opco.

All the facilities are governed by English law and disputes are subject to the exclusive jurisdiction of the English court. The jurisdiction clause in all these facility agreements may be important. I shall therefore set it out as follows:

“The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement including a dispute regarding the existence, validity or termination of this agreement.”

Priorities are governed by an intercreditor agreement which is also governed by English law and disputes are subject to the exclusive jurisdiction of the English court which, on the assumed construction of the intercreditor agreement, provides for:

There is no need for me to spend more time setting out the detail of the facilities and their priorities for the purposes of the matters which need to be decided today.

The key elements of the restructuring are as follows:

The schemes split the scheme creditors into three categories as follows:

In respect of the priority senior scheme creditors, under the Holdco scheme and the Opco scheme, their claims will be compromised and, in respect of Holdco and the parent companies of Opco, released, including the release of the guarantees, in exchange for:

In respect of the second lien scheme creditors and the mezzanine scheme creditors, under the Holdco scheme their claims would be released, including release of the guarantees, in exchange, pro rata, for:

There are a number of preconditions to the schemes becoming effective which must be satisfied by a longstop date including, but not exhaustively, the requirement for approval by the shareholders of Opco as the company is listed on the Bulgarian stock exchange, and safeguards so as to ensure that the monies to be paid by VTB and CCB are held in escrow before the compromise of any scheme claims under the terms of the schemes.

On behalf of the companies, Mr. Allison has suggested a number of benefits. These benefits appear to be supported by the majority of the scheme creditors

The directors of the scheme companies believe that the most viable option for the continued operation of the group is the restructuring and the schemes.

On 8th August 2012, Hildyard J ordered four scheme meetings, which were duly held. At the first meeting, 95.56% by number and 91.39% by value of the scheme creditors voted in favour of the Opco scheme.

At the three meetings directed to be held in relation to the Holdco scheme, at the first meeting 95% by number and 93.49% by value of the facility C scheme creditors voted in favour of the Holdo scheme. At the second meeting, 100% by number and 100% by value of the second lien scheme creditors voted in favour of the Holdco scheme. At the third meeting, 100% by number and 100% by value of the mezzanine scheme creditors voted in favour of the Holdco scheme. KDB voted against the scheme and, as is apparent from the numbers I have indicated, KDB holds senior debt.

The scheme is a compromise of arrangements between the company and its creditors within s.895(1)(a) of the Companies Act 2006. Section 895(2) provides as follows:

“In this Part… ‘company’… (a) in s.900 (powers of court to facilitate reconstruction or amalgamation) means a company within the meaning of this Act; and (b) elsewhere in this Part means any company liable to be wound up under the Insolvency Act 1986…”

The scheme companies are not English companies and in considering jurisdiction I shall need to consider whether that affects the jurisdiction to sanction the scheme.

As regards other legal matters, the court must be satisfied that the meetings of creditors were appropriate, as explained in the well known case of Re Hawk Insurance [2001] EWCA Civ 241. In order to sanction the scheme, the court must consider the four tests mentioned in a well-known passage in Buckley on the Companies Act and in the case of Telewest Communications plc (No.2) [2005] 1 BCLC 772 and recently by Morgan J in Re TDG. I shall confine myself to reciting the passage from the judgment of David Richards J in Telewest at paras.20-22 as follows:

“The classic formulation of the principles which guide the court in considering whether to sanction a scheme was set out by Plowman J in Re National Bank Limited [1966] 1 WLR 819 by reference to a passage in Buckley on the Companies Acts (13th edition, 1957), p.409, which has been approved and applied by the courts on many subsequent occasions:

‘In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent and, thirdly, that 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.

‘The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme.’

“This formulation in particular recognises and balances two important factors. First, in deciding to sanction a scheme under s.425, which has the effect of binding members or creditors who have voted against the scheme or abstained as well as those who voted in its favour, the court must be satisfied that it is a fair scheme. It must be a scheme that ‘an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve’. That test also makes clear that the scheme proposed need not be the only fair scheme or even, in the court’s view, the best scheme. Necessarily there may be reasonable differences of view on these issues.

“The second factor recognised by the above-cited passage is that in commercial matters members or creditors are much better judges of their own interests than the courts. Subject to the qualifications set out in the second paragraph, the court ‘will be slow to differ from the meeting’.”

The legislation relevant to jurisdiction arises under the Judgments Regulation (Council regulation (EC) No 44/2001 of 22nd December 2000). Article 1 of the Judgments Regulation says “This Regulation shall apply to all civil and commercial matters” but, importantly, Arts.2, 4, 6, 23 and 24 have been the subject of argument before me and I set them out here as follows:

“Article 2

“1.

Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State…”

“Article 4

“1.

If the defendant is not domiciled in a Member State, the jurisdiction of the courts of each Member State shall, subject to Arts.22 and 23, be determined by the law of that Member State…”

“Article 6

“A person domiciled in a Member State may also be sued:

“1.

Where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings…”

“Article 23

“1.

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…” “Article 24

“Apart from jurisdiction derived from other provisions of this Regulation, a court of a Member State before which a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of Article 22.”

I shall return to the authorities already decided in relation to the application and effect of the Judgment Regulation to the schemes of arrangement.

As I have already mentioned, Mr. Toth, for KDB, has appeared before me to oppose the sanctioning of the schemes. The grounds of his opposition are contained in his acknowledgement of service document, to which I have already referred, but they may be summarised as follows:

In the course of oral argument, Mr. Toth has also explained to me other grounds of opposition which apply under the fairness and discretion head. In particular, he explains that KDB is a creditor for some US $2 million. It is one out of 55 creditors in total and KDB does not agree with the directors of the company as to the advantages and benefits of the scheme and KDB thinks that it will get less money from the success of the scheme than it would from an insolvency process. The argument in support of that contention is based upon the fact that the second lien facility and the mezzanine facility will, according to Mr. Toth, have to be written off and that a very significant amount of legal and professional advice fees would be saved. Mr. Toth submits that the Bulgarian company is heavily profitable and has €80 million of cash and some €50 million of that cash is going to be expended in professional fees as a result of the scheme, if it is sanctioned.

Accordingly, Mr. Toth submits that I should reject the scheme for the reasons he has given.

Before dealing with the tests that I must be satisfied about in relation to the sanctioning of the scheme, it seems appropriate to deal first with the question of jurisdiction. There have been two recent cases on jurisdiction, which

The first is the case of Rodenstock GmbH [2011] EWHC 1104 (Ch), decided by Briggs J on 6th May 2011. In that case, Rodenstock, the scheme company, was a German company, but the scheme creditors were predominantly English. Briggs J dealt in detail with the provisions of the Judgments Regulation and I need to cite just a few paragraphs from his judgment so that his decision can be properly understood:

“51.

In my judgment, proceedings seeking the court's sanction of a scheme in relation to a solvent company do fall within the scope of the Judgments Regulation. They are plainly 'civil and commercial matters' within Art.1 and it was no part of the purpose of the bankruptcy exclusion in Art.1.2(b), construed having regard for example to the Schlosser Report, to exclude any civil or commercial matter which was not to fall within the scope of the Insolvency Regulation or, more generally, which was not connected with bankruptcy or insolvency…

“52.

Nonetheless there is nothing in Chapter II of the Judgments Regulation (relating to jurisdiction) which, on its face, purports to restrict or exclude the English court's traditional jurisdiction in relation to the sanctioning of such schemes. In particular, I do not consider that such proceedings fall within the exclusive jurisdiction conferred by Art.22.2.

“53.

That leaves unresolved the question whether, because Art.22.2 does deprive the English court of jurisdiction to wind up any solvent company which has its seat in a Member State other than the UK, that restriction impacts adversely on the meaning of ‘liable to be wound up’ as the touchstone for the court's scheme jurisdiction. It might be said that Lewison J's test based upon the transience of circumstances such as a company's COMI or the location of its establishments is less easily applied to the identification of a company's seat.

“54.

There is nonetheless a broader reason why I consider that neither the Judgments Regulation nor the Insolvency Regulation has narrowed the court's jurisdiction in relation to schemes, by impacting restrictively on the circumstances when a company is liable to be wound up. My conclusion derives from a direct answer to the question posed, but not answered, by Warren J in Re Sovereign Marine. Given that neither of the two Regulations appear on their face to have been directed at restricting the English court's international jurisdiction in relation to solvent schemes, and given that all company law consolidation since either of them was introduced as part of English law has re-enacted the ‘liable to be wound up’ touchstone for jurisdiction in an unaltered form, it seems to me improbable on a purposive interpretation of those Regulations as part of English law that any such narrowing of the English court's jurisdiction was intended.

“55.

In Re Sovereign Marine at para.37 Warren J said (obiter) that, in relation to the phrase ‘liable to be wound up’:

‘I would have thought that the provision was inserted simply to provide a definition of ‘company’ for the purposes of schemes which went beyond the ordinary meaning of ‘company’ as defined in the legislation and did so in

a shorthand, referential, way.’

“56.

I agree. It was a convenient phrase designed to broaden rather than restrict the scope of the court's jurisdiction in relation to schemes. It was designed simply to identify the types of company and association to which the jurisdiction applies. At least so far as concerns solvent companies, nothing in either the Judgments Regulation or the Insolvency Regulation was intended to impact restrictively upon the scope of that jurisdiction. Subject only to one final reservation, it seems to me therefore that the English court's scheme jurisdiction has continued unimpaired, and extends to a scheme relating to the Germany company Rodenstock GmbH.

“57.

My final reservation arises from a perception that Chapter II of the Judgments Regulation may have been intended to provide a comprehensive code regulating the international jurisdiction of each of the Member States in relation to all civil and commercial matters within the scope of the Regulation. That code may have been the quid pro quo for the obligation on each Member State to recognise and enforce, subject only to limited exceptions, every other Member State's judgments, without (subject again to limited exceptions) its own examination of the originating court's jurisdiction: see Art.35.3…

“61.

The solution to this conundrum may be that, where there appears a lacuna in Chapter II in relation to proceedings within the scope of the Judgments Regulation, then each Member State may continue to apply its own private international law, by analogy with Art.4. Alternatively it may be necessary to shoehorn proceedings which do not in form involve suing anybody into the structure of Chapter II, by identifying the place or places of domicile of persons with a right to appear and oppose the relief sought, so as, for example, to apply Art.6.1 in a case where one or more members or creditors of a company affected by a proposed scheme is domiciled in the UK, as if such persons were all quasi defendants.

“62.

It is unnecessary to resolve that conundrum in the present case, because more than 50% (by value) of the scheme creditors are indeed domiciled in England, so that the English court would have jurisdiction whichever solution to the conundrum were to be adopted. I shall leave to another day a case in which a scheme is sought to be sanctioned in England where all the affected members or creditors are domiciled in Member States other than the UK.

“63.

In conclusion therefore, I consider that jurisdiction to sanction the present Scheme is established. Rodenstock GmbH is a company ‘liable to be wound up’ under the Insolvency Act, in accordance with the meaning which that phrase, purposively construed, has in s.895(2)(b) of the Companies Act 2006, and nothing in either the Judgments Regulation or the Insolvency Regulation has narrowed the scope of the meaning of that phrase, or, therefore, the definition of ‘company’ which it provides.”

In Primacom Holding GmbH & Ors. v. A Group of the Senior Lenders and Crédit Agricole [2012] EWHC 164 (Ch) – the case to which Briggs J had referred in para.62 of the judgment that I have just cited – the scheme company was a foreign German company and the scheme creditors were in all cases not UK companies. Hildyard J nonetheless held that he had jurisdiction to sanction the scheme. In the course of his judgment, he said this:

“8.

The only reason that I feel that I must revisit the matter, as I shall do shortly, is that on re-reading the extremely helpful and illuminating judgment of Briggs J in the matter of Rodenstock GmbH, another Germany company… he identified one residual concern that he had, though he disposed of it on the facts of the case. The residual concern did not relate to whether the English court would have jurisdiction in respect of a foreign company under its domestic rules and in particular under the definition in the Companies Act 2006. Rather, it arose because of the possible uncertainty arising under Council Regulation (EC) No.44/2001 of 20th December 2000 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial matters, which I shall call the ‘Judgment Regulation’. The primary rule in the Judgment Regulation is that the appropriate forum for the adjudication of a dispute is, in the ordinary course, the forum of the domicile of the defendant and the question which troubled Briggs J was whether he therefore had to be satisfied that there were defendants who were domiciled in the United Kingdom…

“10.

Upon raising this issue shortly before the hearing with counsel for the scheme company, Mr. Allison put forward before me four alternative ways of resolving the conundrum. The first and, as I understood it his preferred way, was to take the view that Art.2 of the Judgment Regulation simply has no application in the context of a scheme at all, put shortly, because in such a scheme no one is being sued…

“12.

In my view this is yet again a case on which the exact choice between those routes need not finally be made and I can, as it were, leave some element of the conundrum still in place, though for rather different reasons than appeared before Briggs J.

“13.

I do not have, as I have explained, the factual comfort that the majority of the creditors or members were domiciled in England. But it does seem to me that each of the ways in which Mr. Allison urged me to look at the matter is an available analysis… I must say for my own part that I tend to the view that a scheme of arrangement such as this is simply not within the purview of Art.2 and that it is a stretch to consider any of the parties, though they are of course, integral to the process and have the right as creditors to attend, to be defendants within the intended meaning of that Article. I would therefore tend to the first solution offered by Mr. Allison. But if I am wrong in that provisional view I would also accept the alternative analysis offered by him. That is to say that Art.2 is subject to Arts.23 and 24 and on the facts of this case, as it seems to me, both are satisfied.

“14.

Dealing first with Art.23, it is an important feature for these purposes of this case that every one of the loan agreements and also the umbrella agreement is expressly governed by English law and expressly nominates the English forum as the exclusive forum for the adjudication of their disputes. That is a peculiarity of this case, though it will not necessarily be an unfamiliar circumstance. I note in passing that the exclusive selection of law and forum enables me to proceed without concern as to any issues which arise where a jurisdiction clause is non-exclusive. That might complicate the matter: but the concern simply does not arise on the facts.

“15.

Secondly, and again on the facts with regard to Art.24, I do accept that before me on the previous occasion there were, at least as I understood it, before me by counsel, a majority of creditors, especially in the first tier, who by their participation in that proceeding, which was of substance in that it related to the jurisdictional issue as to the proper constitution of classes, had consented or submitted to the jurisdiction of this court. Therefore, the factual circumstances posited by Art.24 seem also applicable.

“16.

The fourth possibility was that canvassed by Briggs J in the Rodenstock case, that by analogy with Art.4 the English court should accept jurisdiction. My own preference is to adopt one or other of the other three solutions, but of course, that may well indicate no more than that I have not properly grasped the full extent of the analogy which Art.4 offers.

“17.

On that basis it does not appear to me that the Judgments Regulation poses any obstacle to my accepting that the English court has jurisdiction in the matter. That being so the other considerations, which I have dealt with previously, still apply and I consider this to be an appropriate scheme to approve notwithstanding the foreign domicile of the scheme company…”

Mr. Allison has submitted that the effect of both of these decisions is that, in each case, it is held that the Judgments Regulation applies to a case concerning the sanction of a scheme of arrangement. In the case of Primacom, however, Hildyard J held that Art.2 of the Judgments Regulation did not apply to a scheme of arrangement since none of the scheme creditors was publicly regarded as a defendant. As a result, he was forced to hold that Arts.23 and 24 were applicable to the scheme of arrangement in his case, thereby allowing English jurisdiction – in the first case, because the loan agreements and the umbrella agreement were governed by English law and subject to the same jurisdiction clause that I have already read out and, in the second case, because scheme creditors had submitted to the jurisdiction of the court.

Of course, before me, the position is slightly different from the two cases that I have mentioned. First of all, the two scheme companies are both foreign companies. Secondly, the scheme creditors are in some cases UK companies and, in other cases, they are not UK companies. Broadly, Mr. Allison has informed me, on instructions, that UK companies make up about a third of the priority senior creditors. The second lien creditors are UK companies as to more than 50%. The mezzanine creditors are UK companies as to more than 40%.

KDB, as a creditor which appears before me, is obviously not a UK company, but in this case, as I have already mentioned, all the loan agreements – if not the security agreements – are governed by English law.

Mr. Allison submits that there are five reasons why there is jurisdiction in the court sanctioning this scheme arrangement:

In matters of this kind, which are argued briefly, on an urgent basis in the vacation without professional legal representation for an opposing creditor, it seems to me that it is inappropriate to lay down any principles that go beyond that which is absolutely necessary to decide the case.

Both Briggs J and Hildyard J were in a somewhat similar position and delivered ex tempore judgments after what appears to have been relatively brief argument. They both came to the conclusion that the governing provision was the jurisdictional provision in s.895 of the Companies Act 2006 requiring that the scheme companies are liable to be wound up under the Insolvency Act 1986 and that, for those purposes, a sufficient connection was established with the English jurisdiction. If that were the only test, it would apply also here. Quite plainly, there is a sufficient connection and therefore these scheme companies could be wound up under the 1986 Act. The only impediment, therefore, is the Judgments Regulation.

Hildyard J came to the conclusion that Art.2 does not apply to a scheme of arrangement on the basis that there is no defendant to the claim to sanction such a scheme. I fully understand the argument that has been put, briefly, by Mr. Toth to the contrary effect. It seems to me that it could be argued – and it may be argued on a later occasion – that the scheme creditors who are served with the sanctioning proceedings and are all able to attend to oppose them if they wish could be regarded as defendants to those proceedings – they are certainly bound by the result of a sanction hearing – but I do not disagree with Hildyard J that, on one analysis, it is certainly possible that it could be legitimately said that on a proper and purposive interpretation of Arts.2 and 6 of the Judgments Regulation, there is no defendant to this kind of proceeding. If that were the case, there would be no need to find an exclusion in the other provisions of the Judgments Regulation and one could return to the English law position and the jurisdiction established by the definition in s.895.

As it seems to me, I do not have to reach a final conclusion on this question because, either way one looks at the matter, I am satisfied that there is jurisdiction in the English court to sanction these schemes of arrangement. I say this for the following reasons.

If Hildyard J is right and Art.2 does not apply, there is no need to find a further exclusion. On the authority of the two cases that I have mentioned, a sufficient connection with the jurisdiction under s.895 will suffice.

On the other hand, if Art.2 does apply and it is necessary, therefore, to find some other provision of the Judgments Regulation which is applicable, it seems to me that at least two – and possibly all four – of the provisions suggested by Mr. Allison would apply in this case. The first provision upon which he relies is Art.23 – which I have already set out – referring to a choice of jurisdiction clause. In this case, it seems to me that it is quite clear that the choice of jurisdiction clause would apply so as to engage Art.23. That is because when one enters into a loan agreement of this kind and agrees that the courts of England shall have exclusive jurisdiction to settle any dispute arising out of or in connection with that agreement – including a dispute regarding the existence, validity or termination of this agreement – one is effectively invoking the application of English law. It makes no sense to say that one agrees to the exclusive jurisdiction of the English courts, on the one hand, but does not agree to the application of English law on the other. As it seems to me, English law includes the provisions of Part 26 of the Companies Act 2006 as regards arrangements and reconstruction. Anybody signing up to the application of English law and the exclusive jurisdiction of the English courts to that agreement must understand that those provisions may be invoked.

For that reason, it seems to me that, if the Judgments Regulation applies – which I do not decide – it is quite clear that Art.23 would be applicable so as to give the English court jurisdiction.

As regards Mr. Allison’s second argument – namely Art.6 – it seems to me that if the Judgments Regulation applies because some of the creditors are to be regarded as defendants to the applications for sanction then, where one of those defendants is domiciled in the United Kingdom, that gives the court jurisdiction under Art.6. That is the case here and therefore there is no doubt, if the Judgments Regulation applies, that jurisdiction could be established.

As regards Art.4, which Briggs J thought to be a good argument, that too would be applicable here, if the argument is correct. As regards Art.24 (submission to the jurisdiction) it seems to me that this might be troublesome here, where Mr. Toth has appeared at the hearing for the convening of meetings and at this hearing expressly on the basis that he contested jurisdiction, but I need not decide that point.

My conclusion is quite clear. Whichever way one looks at the legal position under the Companies Act and under the Judgment Regulation, jurisdiction can be established.

I am pleased to reach that conclusion because I have been told that there is no equivalent legislation allowing schemes of arrangement of this kind in either the Netherlands or in Bulgaria. It is possible to achieve a similar result within insolvency proceedings, as I understand the position, but not outside of insolvency proceedings. I am also told that in the Netherlands it is proposed in due course to introduce legislation of a comparable kind, but that has not yet happened. Schemes of arrangement are a very important tool for the reorganisation of companies, both in difficulty and not in difficulty, and it would be most undesirable if the jurisdiction of the English court were restricted by the Judgments Regulation. As it seems to me that is not the result, and I am pleased to have been able to reach that conclusion.

I turn then to Mr. Toth’s other points. The second point that he has raised is that the jurisdiction clause was not effective to confer jurisdiction on the English courts in respect of the schemes. I have already dealt with that and

The third point that Mr. Toth raised as to the lack of recognition in the Netherlands and Bulgaria is slightly more complex. Mr. Toth has argued that he was unable, in the time available between the hearing before Hildyard J and today, to obtain expert evidence from Dutch and Bulgarian lawyers to the effect that the schemes would not be recognised in those jurisdictions. He did not go so far as to seek an adjournment of this hearing so that he could obtain such evidence for the benefit of the court. As it seems to me, I have to rely upon the evidence that I have actually seen from experts in Dutch and Bulgarian law. Although there have not been any cases in which the question has been decided, those experts consider that the Netherlands and Bulgarian courts would recognise a decision sanctioning the schemes of arrangement. I sympathise with Mr. Toth, who has not instructed lawyers and who has perhaps found it more difficult to obtain the expert evidence that he seeks, but I am bound to act on the basis of the material which is placed before me. As it seems to me, that is pretty clear. In those circumstances, I do not regard the third ground of opposition as being a reason to refuse to sanction the schemes.

The fourth ground is really similar to the other points that I have raised, namely that clause 41.2.7 requires the consent of all the lenders, and the scheme cuts across that provision. As it seems to me, that is the very nature of the scheme. The whole purpose of the legislation in Part 26 of the Companies Act 2006 is to be able to require all lenders to be bound by a scheme of arrangement which would not otherwise be possible.

Over the years, these schemes have proved extremely effective as a commercial tool and have been extremely useful in saving companies that would otherwise have failed. In these circumstances, it seems to me quite inappropriate to raise as an objection to the sanctioning of the schemes the fact that under the contractual documentation the changes proposed could not be achieved. That much is in real terms obvious. The benefit of the legislation is huge and if consent could not be compelled, there would be no purpose in the legislation at all.

The fifth objection is the question of discretion, to which I shall come in a moment when I have dealt with the tests that I must apply under the authorities that I have referred to.

The first test is the question of compliance with the provisions of the legislation. On the evidence that I have seen and on the information before me, I am satisfied that the provisions of the Companies Act 2006 have been fully complied with in this case.

The second test is to be sure that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they ought to represent. Applying the test laid down in Re Hawk Insurance, I am satisfied that the rights released by, and the new rights given to, the members of each of the four classes were not so dissimilar as to make it impossible for the scheme creditors in these four classes to consult together with a view to their common interest. I am fortified by the fact that this finding accords with that made by Hildyard J on 9th August 2012, when he ordered the convening of the four meetings in question.

The third test is that I have to be satisfied that the arrangements are such that an intelligent and honest man, who is a member of the class concerned and, acting in respect of his interest, might reasonably approve of the schemes. It seems to me that this test is amply satisfied in this case. Mr. Toth has argued that because the second lien creditors and the mezzanine creditors would effectively get nothing on an insolvency, one should regard the schemes as not being particularly beneficial to the senior creditors, of which KDB is one. As against that, I must take into account that an extremely high percentage of the senior creditors have voted in favour of this scheme. They are the ones who are best placed to judge their own commercial interests. I cannot and should not second guess their decision, save on very substantial grounds.

Nothing that Mr. Toth has told me provides those substantial grounds. For the reasons that the directors have given and which I have set out earlier in this judgment, it seems to me that there are very good grounds for the schemes to be sanctioned. They seem to me to provide something of a lifeline for the scheme companies and, without them, it seems extremely likely that the companies would enter into insolvency procedures, probably for the benefit of nobody.

Finally, before exercising my discretion, I must be satisfied that there is no blot on the schemes. None has been suggested and I can see that there is none.

I come then to the exercise of my discretion and I take into account all of the submissions made by Mr. Toth and those made by Mr. Allison. It seems to me that the schemes are desirable and appropriate. I am able, therefore, in my discretion, without in any way acting as a rubber stamp to the desire of those promoting the schemes, to approve the schemes. I will hear Mr. Allison on the terms of the order.