Vol 7 (2010) - Issue 4

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Re La Seda de Barcelona SA: Release of Third Party Claims in the Context of UK Schemes of Arrangement

The recent judgment of Proudman J. in Re La Seda de Barcelona SA1 ('La Seda') provides further guidance on the extent to which the claims of third parties who are not themselves party to a scheme of arrangement in the UK may be released from their obligations pursuant to the terms of that scheme.

Introduction
The English law scheme of arrangement procedure has in recent times assumed an increasing role in the context of cross-border restructurings. It is typically the case that a fully-consensual agreement on a plan to restructure the debt of a complex group of companies would require a very high level of creditor approval under key finance documents. In practice, in light of the increasingly complex capital structures of companies, such a high level of agreement may well be unachievable and minority creditors who are opposed to the underlying restructuring plan may seek to be bought out at par by the debtor group on the basis of their 'hold-out' value. In this regard, a key characteristic of a scheme of arrangement is that it allows a debtor company to reach a 'compromise' or 'arrangement' with its creditors and implement a restructuring at a lower consent threshold2 than would otherwise be applicable. Such a 'cramdown' of minority creditor interests is often invaluable to ensure the implementation of a comprehensive restructuring solution.

It is against this background that the judgment of Proudman J. in La Seda should be considered. In particular, this article focuses on the guidance that the case provides on whether, and to what extent, it is possible to release the claims of entities that are not party to the scheme of arrangement.

Background and proposed scheme
La Seda de Barcelona SA (the 'Company'), a company incorporated in Spain, applied to the High Court in England for an order sanctioning a scheme of arrangement pursuant to section 899 of the Companies Act 2006. The Company was the parent of a group which included subsidiaries in Spain, the UK and elsewhere. The La Seda group was involved in the manufacture of a substance used in food and beverage packing.

The group had been experiencing financial difficulties due in large part to the macro-economic downturn and the directors of the Company had formed the view that a restructuring of the group’s financings was essential to avoid entry into formal insolvency proceedings in Spain and elsewhere. In this regard, Proudman J. noted that 'the restructuring and the scheme are designed as a means to rectify the currently unsustainable position in the interests of all who have an interest in the group'.

The proposed scheme related primarily to the rights of lenders under an English law-governed senior facilities agreement (the 'Facilities Agreement') which was subject to a jurisdiction clause in favour of the Courts of England. The Company’s obligations under the Facilities Agreement were secured by charges over shares in several of its subsidiaries. A number of group companies, including Artenius UK Limited ('Artenius'), were also guarantors of the Company’s obligations under the Facilities Agreement. Artenius (which was in administration) also had outstanding debts due to it from the Company and other members of the group.