Vol 9 (2012) - Issue 2

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Re Primacom Holding GmbH: To Scheme or Not to Scheme – That Was The Question … Clarification on the Jurisdiction of the English Courts to Sanction Schemes of Arrangement for Overseas Companies

Providing further evidence that schemes of arrangement ('schemes') are an increasingly useful tool in the restructuring of overseas companies, on 20 January 2012, the High Court sanctioned a scheme proposed by PrimaCom Holding GmbH ('PrimaCom'), a German incorporated company, with its centre of main interests (or 'COMI') in Germany and whose affected creditors were domiciled outside the UK.
The decision is in line with the recent judgment of Briggs J in Re Rodenstock [2011] EWHC 1104 (Ch) which confirmed that the English courts have jurisdiction to sanction schemes for foreign-incorporated companies. Further, this case also addressed one of the issues left unresolved in Rodenstock, namely whether the English courts have jurisdiction to sanction a scheme where a majority of the scheme creditors are domiciled outside the UK. Had the answer to this crucial question been negative, the viability of schemes for overseas companies going forward would have been severely limited.
This article analyses the reasoning behind the decision and its potential impact.

Background
PrimaCom is the holding company of a group which provides basic and digital cable television, high speed internet and telephony products in Germany. Following a restructuring which completed early last year, the group encountered further financial difficulties in late 2011 which culminated in PrimaCom launching a scheme in December 2011.
A scheme is a formal statutory procedure commenced under the Companies Act 2006 pursuant to which a company may propose a compromise or arrangement with some or all of its creditors. The proposed compromise or arrangement must be approved by a majority in number representing 75% in value of each class of creditors at scheme meetings convened by the company, and will only become effective once sanctioned subsequently by the court at a fairness hearing.
Schemes have been used frequently since the onset of the economic downturn, in particular as they offer the ability to cramdown dissident or ‘holdout’ creditors. Click here to read our recent client bulletin setting out further background information on schemes and their use in financial restructurings (Insight: Schemes of Arrangement – Current Hot Topics and Market Trends). This has proven to be invaluable in situations where underlying finance documentation or local law has included unanimous consent requirements or where there would otherwise be significant value leakage to dissident creditors.
PrimaCom held its scheme creditors’ meetings on 17 January 2012 where the proposed scheme received the overwhelming support of each class of scheme creditors. Two key issues which Hildyard J addressed in his judgment at the fairness hearing were whether (i) in practice the scheme would be effective in the jurisdiction where PrimaCom had its centre of main interests (i.e. Germany) in order to bind the dissident creditor, and (ii) the court had jurisdiction to sanction the scheme notwithstanding the fact that all of the affected creditors were domiciled outside the UK.