Vol 9 (2012) - Issue 4

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International Jurisdiction for Schemes of Arrangement

Introduction
The English corporate rescue culture has attracted many of Germany’s financially distressed firms. Between 2002 and 2007, German companies sought the benefits of the English company voluntary arrangement ('CVA'). This movement stopped due to Eurofood decision of the European Court of Justice ('ECJ') and a following decision of the High Court of Justice in the matter Brochier denying jurisdiction2 – but also due to the significant costs of COMI-shifting and strong opposition of German stakeholders.
In the recent two years, a growing number of German firms – inter alia Rodenstock, Tele Columbus and Primacom – made use of another English restructuring instrument: The Scheme of Arrangement ('Scheme'). This paper intends to shed some light on those aspects of the Scheme concerning legal recognition: jurisdiction, and applicable law. In a first step, the Rodenstock and Primacom decisions will be subject to review. It may not come as a surprise that findings and reasoning of English courts in Scheme cases have attracted considerable attention in German legal debate. Quite recently, the supreme civil court, the German Federal Court of Justice (Bundesgerichtshof), took the chance to take a stand. Effects and remaining issues of said decision on Schemes relating to English and non-English companies will be outlined, in particular as regards likely considerations from a practitioner’s perspective.

Tele Columbus, Rodenstock and Primacom
The Schemes in Tele Columbus (unreported), Rodenstock and Primacom concerned companies incorporated in Germany (German limited liability companies – 'GmbH'). The Tele Columbus Scheme exclusively affected senior, second lien and mezzanine lenders, all of whom consented to the exclusive jurisdiction of English courts and the application of English law. The same facts applied in the Rodenstock case: In the Rodenstock Scheme, the German debtor Rodenstock GmbH applied for a Scheme which only affected its debt which had been advanced under a senior debt facilities agreement – and the senior debt facilities agreement provided for the exclusive jurisdiction of the English courts and the application of English law. Finally, in the Primacom case, all affected loan agreements where subject to the exclusive jurisdiction of English courts and the application of English law. Thus, two major common facts become apparent: First, the Scheme company’s creditors had chosen to have the facilities agreements governed by English law and subject to the jurisdiction of English courts. Secondly, none of the Schemes in said decisions implied corporate matters such as capital increases or debt equity swaps. Shareholder rights were not affected. On the contrary, in Rodenstock the restructuring provided for share capital to be issued to Scheme creditors, step-in rights for Scheme creditors and hybrid debt/equity instruments expressly 'outside the Scheme'. The purpose of the Scheme was to bind the senior lenders to a variation of their rights in order to enable the Scheme company to implement a restructuring and avoid going into a German insolvency process.