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Changing COMI for a Creditors Scheme: Applying WIND Hellas in Australia?
David Walter, Associate, Baker & McKenzie, Sydney, AustraliaIntroduction
In Australia, an acquisition of a financially distressed target through a debt-for-equity swap is nothing new. The use of a creditors’ scheme of arrangement ('scheme') as the legal technology for implementing that swap, however, is a little more novel. This novelty is particularly present in the context of a target with a complex debt structure, as in the case of a target with syndicated bank debt or widely-held bonds on issue. Add in a cross-border element to the target’s business presence and creditors, and you have something that, while common in regular, solvent M&A transactions, could be uncharted territory.
The recent restructures in Australia of the Alinta Energy group of companies ('Alinta') and in the United Kingdom of the WIND Hellas group of companies ('WIND Hellas') illustrate how these issues have recently been addressed in those two jurisdictions.
This article discusses the steps taken by WIND Hellas to re-locate its 'centre of main interests' ('COMI') to the United Kingdom for the purposes of effecting the restructure transaction, and then considers the possibility of a similar approach being used to restructure in Australia (using Australian insolvency procedures, particularly schemes) companies who have businesses in the wider Asian region.
The structural issues
The factual circumstances and structural issues surrounding the Alinta and WIND Hellas schemes shared a number of common features relevant to a legal analysis of the two situations:
– A substantial element of each group’s business and assets was government licences, and contracts with customers and suppliers, which could be imperilled by any free-fall insolvency, making a restructure more attractive than a liquidation sale of the groups’ assets.
– Each group had secured creditors who held security over, in effect, the entire assets and undertaking of each group.
– Those secured creditors were numerous and relatively dispersed. That is, the secured debt consisted of either syndicated facilities or bonds, which were widely held by a variety of investors in the groups’ debt, who were situated in numerous jurisdictions.
– Given that wide dispersal of debt holdings, it could not be expected that unanimity could be achieved amongst the secured creditors in terms of support for any particular restructure proposal. This meant that 'cram down' of any restructure onto either dissentient or non-participant secured creditors was a matter for consideration. – The debt to be restructured was, primarily, 'financial' debt (i.e. it was bank or bond debt) and not operational or trade debt (i.e. debts owed to suppliers or customers).
A distinguishing feature of the WIND Hellas scheme was that WIND Hellas was, prior to its restructure domiciled and incorporated in Luxembourg and Greece, in circumstances where the group’s debt facilities were governed by English law. In contrast, Alinta was domiciled and incorporated in Australia, with Australian law governing its debt facilities.
As mentioned above, these factors make any free-fall insolvency or liquidation sale unattractive. In addition, tools available for imposing compromises of unsecured debts (deeds of company arrangement in Australia, and deeds of arrangement in the United Kingdom) were not suitable; those tools could not effect a 'cram down' of the restructure onto dissentient secured creditors.
Ultimately, the factors referred to above led the stakeholders in each instance to the use of schemes to effect a restructure. A discussion of those schemes follows.
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