Primacom - Confirming The Extraterritoriality Of English Schemes Of Arrangement

Previously published on 7 March 2012,

Keywords: PrimaCom, scheme of arrangement, Companies Act 2006

Introduction

Hildyard J's recent sanctioning of the scheme of arrangement proposed by PrimaCom Holding GmbH ("PrimaCom"), a German incorporated company whose creditors were domiciled outside of the UK, has reaffirmed the extra-territorial jurisdiction of the English courts in respect of schemes of arrangement and confirmed their status as a useful instrument for foreign companies looking to restructure.1.

The process

A scheme of arrangement is a formal procedure under the Companies Act 2006 by which a company may enter into a compromise or arrangement with its creditors, or any class of them. The scheme must be approved by at least 50% in number constituting 75% in value of each class of creditor, and then requires sanctioning at a subsequent court hearing. The scheme will become effective upon delivery of the relevant sanction order by the English court to the Registrar of Companies in England & Wales and will bind all creditors of each relevant class.

The 'conundrum'

Recent cases have illustrated the English courts' willingness to exercise its jurisdiction to sanction schemes of arrangement proposed by foreign companies with a relatively limited connection to England2. The judgment of Briggs J in Re Rodenstock was one such case, but it identified a legal conundrum arising under Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition of Enforcement of Judgments in Civil and Commercial Matters ("the Brussels I Regulation")3. Article 2 of the Brussels I Regulation states that persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State. The question therefore arises whether, for a scheme to have effect, the creditors of a company proposing a scheme of arrangement should be domiciled in the UK. Briggs J felt the facts of Re Rodenstock did not require him to resolve the conundrum. However, in the proposed PrimaCom scheme, the vast majority of creditors were domiciled outside of the UK. Hildyard J, although himself also declining to provide a definitive resolution to the conundrum, identified four possible solutions:

Article 2 of the Brussels I Regulation has no application to schemes of arrangement since they are not adversarial proceedings and there are no 'defendants' being sued. If Article 2 were to apply to schemes, it is still subject to the Brussels I Regulation as a...