Vol 13 (2016) - Issue 4

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Re Stemcor Trade Finance Limited [2015] EWHC 2662 (Ch); [2015] EWHC 2803 (Ch)

Introduction
In contrast to many restructuring plans approved by the English Companies Court recently, the scheme of arrangement in respect of Stemcor Trade Finance Limited (the ‘Company’) did not raise difficult issues of international jurisdiction. However, there was an interesting point of practice in relation to classes of creditor.

Background
The Company was part of a steel trading group with a number of lines of business in various jurisdictions across the world. The Company was an English company which acted as the group’s treasury company, and was therefore the borrower under a Senior European Term Loan facility.
Stemcor group had already restructured its debts in the recent past. In 2014 there was a scheme involving the Company and a related company, but the Stemcor group was unable to generate sufficient cash to reduce its existing debt burden. The group had also experienced difficult trading conditions as a result of which it had entered into fresh re-structuring discussions with a co-ordinating committee of its senior lenders under the Senior European Term Loan facility.
The envisaged re-structuring involved a de-merger of the Stemcor group’s core business from its non-core assets and Indian operations, and a re-structuring to reduce the indebtedness of the core group of companies. The directors of the parent company of the group and of the Company considered that, if the scheme could not be implemented, a number of group companies would enter insolvency proceedings. External analysts had suggested that, in those circumstances, the return to senior lenders would be likely to be less than would be achieved pursuant to the scheme.

Schemes of arrangement
A scheme of arrangement may be entered into 'where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or its members, or any class of them' (Companies Act 2006 s.895). The first court hearing is a convening hearing, where the court will, if it considers appropriate, order that meetings be convened to vote on the scheme (s.896). The court will ensure at this stage that, where appropriate, creditors with different interests have been separated into different classes for the purpose of voting: Re Hawk Insurance Co Ltd [2002] BCC 300. The creditors then vote at the meeting, and if a majority in number representing three quarters in value of the creditors (or each class of creditors) vote in favour, then the matter will proceed to a sanction hearing, where the court will consider whether to sanction the scheme (s.899).
Determining which classes creditors should be placed into can be fraught with difficulty. On the one hand, creditors should not be placed in the same class if their interests are so dissimilar that they cannot consult together with a view to a common interest. On the other hand, those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so; lest by ordering separate meetings the court gives a veto to a minority group: see Re Hawk Insurance Company Limited, at [33] per Chadwick LJ.
The court will take a broad approach to considering class issues: see Re Cattles plc [2010] EWHC 3611 (Ch), at [7]. Accordingly, creditors can have rights which are different, but which are not so different that they cannot consult together. For example, in Re Telewest Communications plc (No 1) [2005] 1 BCLC 752 [37], David Richards J noted that difference between creditors could be 'material, certainly more than de minimis, without leading to separate classes'.