Executive Summary:  A number of recent high profile cases have allowed non-English companies to make use of the English scheme jurisdiction to restructure their debts.  These decisions have proved controversial in some quarters, with concerns being raised that allowing these schemes of arrangement to proceed facilitates forum shopping. The purpose of my paper, Cross-Border Schemes of Arrangement and Forum Shopping, is to consider this use of English schemes of arrangement by non-English companies, and particularly by companies registered in other EU Member States. This paper also assesses the concerns raised regarding forum shopping in this context and rejects these concerns.

Main Article:

The English scheme of arrangement has existed for over a century as a flexible tool for reorganising a company’s capital structure. Schemes of arrangement can be used in a wide variety of ways. In theory a scheme of arrangement can be a compromise or arrangement between a company and its creditors or members about anything which they can properly agree amongst themselves. It is common to see both member-focused schemes and creditor-focused schemes. In practice the most common schemes are those which seek to transfer control of a company, as an alternative to a takeover offer, and those which restructure the debts of a financially distressed company with a view to rescuing the company or its business.

In recent years schemes of arrangement have proved popular as a restructuring tool not only for English companies but also for non-English companies. A number of recent high profile cases have allowed non-English companies to make use of the English scheme jurisdiction to restructure their debts, including Re Rodenstock GmbH [2011] EWHC 1104 (Ch), Primacom Holdings GmbH [2012] EWHC 164 (Ch), Re NEF Telecom Co BV [2012] EWHC 2944 (Comm), Re Cortefiel SA [2012] EWHC 2998 (Ch) and Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch). Typically, these cases involve financially distressed companies registered in another EU Member State making use of an English scheme of arrangement without moving either their seat or Centre of Main Interest (COMI). In general, the main connection to England is the senior lenders’ choice of English law and English jurisdiction as governing their lending relationship with the company.

These decisions have proved controversial in some quarters, with concerns being raised that allowing these schemes of arrangement to proceed facilitates forum shopping. The idea of forum shopping often carries negative connotations, and is associated with debtors seeking legal regimes that will favour the debtor at the expense of the creditors. The purpose of my paper, Cross-Border Schemes of Arrangement and Forum Shopping, is to consider the use of English schemes of arrangement by non-English companies, and particularly by companies registered in other EU Member States. This paper also assesses the concerns raised regarding forum shopping in this context. The paper rejects these concerns.

In particular, this paper asserts that forum shopping is not always problematic. In some instances the debtor may be driven by a desire to utilise a form of proceeding in a particular jurisdiction with a view to maximising returns to creditors. For example, if a financially distressed company has no domestic option which would allow it to restructure and to carry dissenting creditors with it, to deny access to a scheme of arrangement may result in insolvency for the company. Such an outcome is likely to be worse for creditors than a successful debt restructuring. To demand that the company forego this option, and go into liquidation, would be of little or no benefit to the creditors or other stakeholders of the company. Modern businesses typically have most value as going concerns. Since liquidation unnecessarily destroys a large amount of that value, rehabilitative restructurings are almost always preferable for companies and their creditors. Schemes of arrangement may therefore offer a valuable pre-insolvency solution that can transcend international borders.

The full version of the paper is available for download here.