Vol 11 (2014) - Issue 3

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Vietnam Shipbuilding: The English Law Scheme of Arrangement Sails On

Introduction
The English law scheme of arrangement (or 'scheme') is a statutory procedure provided by Part 26 of the Companies Act 2006 (the 'Companies Act'). Pursuant to the Companies Act, a company may effect a binding compromise with its creditors or any class of creditors if the necessary threshold of support is reached at a scheme meeting held for the purpose of voting on the scheme and the court subsequently sanctions the scheme.
The broad compass of the relevant sections of the Companies Act allows for schemes to be implemented in a wide range of circumstances; this flexibility has led to schemes becoming the English law tool of choice for complex balance sheet restructurings. In recent years many foreign companies have benefited from restructurings implemented pursuant to a scheme, as a line of authority has developed the principle that a 'sufficient connection' with England (and hence jurisdiction for the English courts to sanction a scheme) can be established on the basis that the claims of the scheme creditors are governed by English law.
The flexibility and jurisdictional breadth of schemes may lead to comparisons with the bankruptcy protection procedure provided for by chapter 11 of the US Bankruptcy Code ('Chapter 11') but in truth, while schemes have certain apparent advantages over Chapter 11 for companies which have the option of pursuing either course – for example, a scheme is not a bankruptcy process and can be considerably cheaper than a restructuring under Chapter 11 – the two procedures have significant differences that will in most cases make a choice between using a scheme or a traditional Chapter 11 as direct equivalents unlikely. A scheme is most likely to be effective when a company is seeking to restructure its liabilities to finance creditors, whereas a traditional Chapter 11 is able to support a general restructuring of a business. A more direct comparison would be between a scheme and a pre-packaged Chapter 11, which is also designed primarily to restructure liabilities to finance creditors.
One perceived disadvantage of a scheme as opposed to Chapter 11 has been the lack of an automatic moratorium on claims to protect the company as it seeks to negotiate a restructuring with its creditors. Whereas under Chapter 11, as in a UK administration, the company proposing a restructuring is protected by an automatic stay on all litigation and on the enforcement of judgments and security without the leave of the court from the moment that it files a petition at court, the Companies Act does not provide any such protection for companies proposing a scheme. The judgment of the High Court in Bluecrest Mercantile NV v Vietnam Shipbuilding Industry Group, however, provides a route to establish a stay in relation to the claims of scheme creditors; this adds to the effectiveness of schemes as one of the pre-eminent international restructuring mechanisms in the practitioner’s toolkit.

Vietnam Shipbuilding – the facts
Vietnam Shipbuilding Industry Group ('Vinashin'), a Vietnamese state-owned company, had been experiencing considerable financial difficulties for some time as a result of the global downturn in the shipping industry as well as troubles in the domestic economy. It was the borrower under a USD 600 million unsecured credit facility arranged by Credit Suisse AG’s Singapore branch (the 'Credit Suisse Facility') that provided for repayment in ten equal instalments between December 2010 and June 2015. The Credit Suisse Facility was governed by English law and was subject to the nonexclusive jurisdiction of the English courts.