Vol 13 (2016) - Issue 4

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Re Codere Finance (UK) Ltd [2015] EWHC 3778 (Ch)

Introduction
The decision of Mr Justice Newey on 17 December 2015 marks an important further development in the ability of the High Court of England & Wales to sanction cross-border schemes of arrangements under Part 26 of the Companies Act 2006, even in circumstances that can be described as 'forum shopping'.

Background
Codere SA is the ultimate parent of a group of companies which carry on business by way of gaming activities in Latin America, Italy and Spain. Financing for the group had principally been provided under a senior facilities agreement and more importantly for present purposes, a series of notes issued by a Luxembourg incorporated subsidiary, Codere Finance (Luxembourg) SA ('Codere Luxembourg'). The notes were guaranteed by the parent company Codere SA and other group companies, and were governed by New York law but subject to an intercreditor agreement governed by English law.
The Codere group had outstanding debts of approximately EUR 1,460 million, of which the notes accounted for EUR 1,214 million. The group was not in a position to meet all its debts. Negotiations occurred to achieve a restructuring and the available options were considered including through mechanisms available in the jurisdictions where the group operated. However, it was concluded that these options would involve some form of insolvency proceedings, and this could put at risk the gaming licenses on which the group depended to operate its business.
As a result, the view was taken that the best course was to use the scheme jurisdiction available in England & Wales under the Companies Act 2006. To that end, an English incorporated company, Codere Finance (UK) Ltd ('Codere UK'), was acquired by Codere SA. Codere SA caused Codere UK to accede to the notes as co-issuer and the English company thereby assumed a primary, joint and several obligation with respect to all of Codere Luxembourg’s obligations under the notes.

The scheme
The scheme was intended to implement a complex restructuring, both as to the obligations under the notes and the structure of the group. In summary, the notes would be cancelled in exchange for shares and other notes, EUR 400 million of new money would be injected, and there would be a hive down of Codere SA’s assets to a new company incorporated in Spain, with the interposition of two Luxembourg entities between the parent and the new Spanish subsidiary.
The scheme was expected to result in the noteholders receiving recoveries of at least 47% of the liabilities. In contrast, absent the scheme it was expected that the recovery rate could drop to 0%. Given that the notes were governed by New York law, even if the High Court approved the scheme, implementation was conditional on Codere UK subsequently obtaining recognition of the scheme in the US by an order under Chapter 15 of the US Bankruptcy Code.
At a hearing in the High Court on 26 October 2015, Mr Justice Nugee decided that a meeting of creditors be convened (Re Codere Finance (UK) Ltd [2015] EWHC 3206 (Ch)). At a creditors’ meeting held on 14 December 2015 the scheme received strong endorsement from noteholders, with creditors representing 98.78% of the total indebtedness voting in favour of the scheme. Of the remaining 1.22% of creditors, it was not that they voted against the scheme, rather that the company had not succeeded in identifying them.