Vol 19 (2022) - Issue 3

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Smile Telecoms: English Court Approves First Restructuring Plan to Disenfranchise Out-of-the-Money Stakeholders and First to Compromise Shareholders in a Foreign Company

Synopsis
The English court approved the restructuring plan of Smile Telecoms, which is the first to exclude out-of-themoney stakeholders from voting on the plan, and the first to compromise shareholders' rights in a foreign company.
In road-testing the power to exclude out-of-themoney plan participants from voting, the court laid down new principles that will be critical to future such applications – including how stakeholders' lack of genuine economic interest is to be determined and the relevant standard of proof. It is clear that the court needs to be entirely satisfied that it is appropriate to make such an order, given the 'draconian' consequences of doing so (including not giving such stakeholders the opportunity to vote on the plan and removing them from the formal protections of the conditions for crossclass cram-down).
In approving a plan compromising shareholders' rights in a foreign company, the court was careful to test the local expert's evidence as to recognition and to ensure the English court's exercise of authority would not be regarded as an exorbitant exercise of jurisdiction.
The court commented that foreign law experts should submit their evidence in accordance with CPR Part 35; it ultimately confirmed satisfaction with the form of the expert evidence ahead of handing down judgment and sanctioning the plan.
A senior lender, Afreximbank, expressed its opposition in correspondence and produced competing valuation evidence to demonstrate it was not out-ofthe-money; however, it did not formally oppose the plan in court. The court criticised this conduct: 'Put simply, if a creditor or member wishes to oppose a scheme or plan based upon a contention that the company's valuation evidence as to the outcome for creditors or members in the relevant alternative is wrong, they must stop shouting from the spectators' seats and step up to the plate.'
Kirkland & Ellis advised Smile Telecoms.