Vol 13 (2016) - Issue 4

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In the matter of Indah Kiat International Finance Company B.V. [2016] EWHC 246 (Ch)

Introduction
It is now common for distressed foreign companies to come to the UK for restructuring purposes and seek the assistance of the English Courts. This is particularly so through the use of the schemes of arrangement jurisdiction under Pt 26 of the Companies Act 2006. Case comments in this journal have dealt with a variety of issues faced by foreign companies that seek the assistance of the English Courts and illustrate the fact that the English Courts have been very generous to foreign companies that have sought their assistance: see for example the decision in APCOA Parking (UK) Ltd & Ors [2014] EWHC 997 (Ch).
A warning has however recently been sent out by Snowden J in Indah Kiat International Finance Company B.V. [2016] EWHC 246 (Ch) making it clear that the process of obtaining the English Court’s approval for a scheme of arrangement should not be viewed as one of a rubber stamp. This case comment focuses on the key aspects of Snowden J’s decision and the importance of the Practice Statement: Schemes of Arrangements with Creditors [2002] 1 W.L.R. 1345; [2002] B.C.C. 355. The judgment relates to the application by Indah Kiat International Finance Company B.V. ('Indah Kiat' and the 'Scheme Company') for an order convening a single meeting of its scheme creditors (the 'Scheme Creditors') to consider and, if thought fit, approve a scheme of arrangement (the 'Scheme').

Factual background
The Scheme Company is a special purpose vehicle incorporated in the Netherlands. The Scheme Company issued two series of notes which form the debts proposed to be compromised by the Scheme (the 'Notes'). The Notes are guaranteed by PT Indah Kiat Pulp & Paper Tbk (the 'Parent') which is the sole shareholder of the Scheme Company and which was the recipient of an immediate loan from the Scheme Company of all of the monies subscribed for the Notes. The Parent is a substantial enterprise incorporated in Indonesia and is a member of the Asia Pulp and Paper group which operates a global pulp and paper business.
The Indentures, the Notes and the obligations of the Parent in relation to them are all governed by New York law and the parties submitted to the non-exclusive jurisdiction of the New York courts in relation to such obligations. The only alleged connection of the Scheme Company with England is said to have been that its COMI was shifted to England from the Netherlands about three months prior to the scheme convening hearing for the purpose of the Scheme.
After the Notes fell due, judgments were entered into in the US in favour of the trustee of the Notes (the 'US Judgments'). In response to attempts to enforce the defaulted Notes in Indonesia the Scheme Company and Parent engaged in protracted litigation which resulted in a judgment that purported to invalidate the Notes and the obligations of both the Scheme Company and the Parent (the 'Indonesian Judgment').
Since entry into the Indonesian Judgment in 2011 the Parent was not troubled further in relation to attempts to enforce the Notes in Indonesia. The position changed however when APP Investment Opportunity LLC ('APPIO') took an assignment from the Note trustee of a portion of the rights under the US Judgments corresponding to Notes of which APPIO was the beneficial owner. Since taking its assignment APPIO sought to take steps towards enforcement in the US which appears to have prompted the Parent and the Scheme Company into action.
The Scheme is intended to release and discharge the Scheme Company and the Parent from all of their liabilities pursuant to the Notes and the US Judgments in return for the issue by the Parent to Scheme Creditors, of new notes (or equivalent loan participations), together with a cash payment by the Parent.
The Scheme Company’s Part 8 application for an order convening a single meeting of the Scheme Creditors was strenuously contested by APPIO on the grounds that the Court does not have jurisdiction to entertain or sanction the Scheme. At the first hearing of the convening hearing APPIO sought an adjournment before Snowden J on the grounds that inadequate notice had been given to the Scheme Creditors and that there were other issues concerning the adequacy of the evidence and disclosure by the Scheme Company.