The PrimaCom case has extended the reach of English courts when it comes to schemes of arrangement
On 20 January 2012, the High Court sanctioned a scheme of arrangement proposed by PrimaCom, a German-incorporated company with its main interests in Germany and, importantly, whose affected creditors were domiciled entirely outside the UK (a situation never previously addressed by the English court).
Prior to PrimaCom, the leading authority on the jurisdiction of the English court to sanction schemes for overseas companies was the seminal Rodenstock case, where Briggs J found a “conundrum” in Article 2 of Council Regulation 44/2001 on the Jurisdiction and the Recognition of Enforcement of Judgments in Civil and Commercial Matters (the “judgments regulation”), which requires a defendant be ’sued’ in the member state it is domiciled.
In that case, Briggs J “left open for another day” whether this would fetter the English court’s jurisdiction to sanction a scheme where a majority of the company’s creditors were located outside the UK.
PrimaCom was just such a case, as all the company’s creditors were domiciled overseas. At the PrimaCom fairness hearing, Hildyard J paid particular focus to the Rodenstock conundrum but nevertheless held that the English court had jurisdiction to sanction the scheme on one or more of the following bases:
- As a scheme was not a conventional form of adversarial proceedings, there was no ’defendant’ in the matter and, therefore, Article 2 of the judgments regulation did not apply to the question of recognition;
- Scheme creditors had expressly submitted to the exclusive jurisdiction of the English courts under each of the key finance documents and so fell within Article 23 of the judgments regulation for the scheme to be recognised;
- Further, scheme creditors had impliedly submitted to the jurisdiction of the English courts through their appearance at the directions hearing to consider the convening of the scheme creditors’ meetings and so fell within Article 24 of the judgments regulation for the scheme to be recognised; and/or
- By analogy with Article 4 of the judgments regulation, each member state could continue to apply its own private international law in order to recognise the scheme.
- In sanctioning the scheme, Hildyard J found that the judgments regulation was not an obstacle to the English court having jurisdiction to sanction the scheme of PrimaCom, notwithstanding that all of its creditors were domiciled overseas.
PrimaCom joins a growing list of foreign companies that have taken advantage of schemes to effect their restructurings since the onset of the economic downturn.
If the English court had ruled that it did not have jurisdiction to sanction a scheme where a majority or all of the affected creditors were domiciled outside of the UK, the result would have been that schemes would be unavailable as a restructuring tool for most large, cross-border restructurings of overseas entities which would have had serious consequences for the UK restructuring community.
This decision, however, emphasises the wide ambit of the court to allow jurisdiction for schemes of overseas entities so that they will likely continue to be the predominant process of choice for complex restructurings in the future.