Reorg has seen a hangover of ongoing litigation from 2022 in the English, German and Dutch courts during January and February. Well known restructuring related disputes, such as Galapagos and SMCP, have continued to progress both in the U.K. courts and wider.
Newer litigation such as the Credit Suisse versus Greensill remain topical in the U.K. courts. We have also seen the Norske Skog litigation, led by certain hedge funds in the Oslo courts, as well as an Emirati businessman pursuing Fortenova in the Dutch courts.
The Part 26A restructuring plans, or RPs, of both U.K. supported living provider Lifeways and German real estate company Adler faced different levels of challenge in court. Lifeways was able to reach sanction of its plan, however, Adler’s plan challenge may create more of a problem for the company with a dispute expected in late March at sanction. The decision in Good Box provides guidance on who may propose a plan.
French care home provider Orpea, currently protected in conciliation
proceedings in France, is facing the prospect of a challenge to parts of its proposed restructuring from a group of unhappy unsecured creditors in the French courts.
Full coverage of each of the above names can be found below, along with some new guidance below. Follow the EMEA Litigation
and R&I Insight
tag to stay up to date.
Key New 2023 UK Insight Guidance
- In Sova Capital, Justice Robert Miles decided that joint special administrators have the power to sell assets to an unsecured creditor if that creditor waives its claim against the company as part consideration i.e. a credit bid. Furthermore, so long as the special administrators sought the best possible price, the transaction will be properly characterized as a sale rather than a distribution to creditors and should not infringe the pari passu principle.
- Where pari passu ranking creditors are given different treatment in a proposed restructuring plan, dissenting noteholders might well be minded to come to court to challenge sanction (see Adler below).
- The U.K. Financial Conduct Authority is taking a proactive role in appearing in court to oppose “doorstep lender” Morses Club’s proposed scheme of arrangement, according to submissions made before the U.K. High Court in early March.
- The sanction of Lifeways’ restructuring plans confirms that non-attendance/non-voting at plan meetings does not prevent use of the cross-class cramdown, and that the class of general unsecured creditors compromised by a plan can be very wide.
- The Rule in Gibbs, post Brexit, will still cause additional complexity for European courts attempting to compromise English law governed debt - a creditor told a court they are entitled to rely on the “Rule in Gibbs” given their claims are governed by English law and could therefore ignore Italian proceedings commenced by Cimolia.
- The consent of the company remains a requirement to sanction a Part 26A restructuring as it does under a Part 26 scheme of arrangement. However, a judge may direct administrators acting on behalf of a company to give such consent. (See GoodBox below)
January, February Litigation and Restructuring Challenge Wrap
A snapshot of the key litigation ongoing in 2023 is in the table below. More detail on each dispute as well as our relevant coverage of these names and other non-disputed hearings is below the table.
||Nature of Dispute
|Galapagos Bidco (Mangrove), Signal Capital Partners and GLAS
||Galapagos Bidco, the primary issuer of Galapagos' debt prior to its 2019 restructuring, sought declaratory relief to the effect that the restructuring was carried out in accordance with the terms of an English law intercreditor agreement. Bidco argued that the high-yield creditors (Signal) were out of the money
||Dispute is ongoing. Disputes across multiple jurisdictions including in the English courts and local German federal courts.
|Republic of Mozambique, Credit Suisse (and others).
||The case relates to $2.1 billion of guarantees provided by the Republic of Mozambique in respect of a $622 million loan arranged by Credit Suisse to state-owned entity, ProIndicus. ProIndicus has been in default under the facility since March 2017.
||Dispute is ongoing.
|Cineplex and Cineworld.
||Cineworld filed a notice of appeal on Jan. 12, 2022, against the Superior Court of Ontario’s December 2021 judgment, which awarded Cineplex damages of 1.237 billion Canadian dollars ($958.5 million) for a breach of contract.
||Ongoing, last hearing adjourned following chapter 11 bankruptcy.
|Credit Suisse, Softbank, Katerra and Greensill.
||Credit Suisse has been allowed to file a $400 million claim against SoftBank arguing that SoftBank defrauded creditors by entering into a transaction at an undervalue.The application is part of a long-threatened lawsuit against SoftBank and its affiliates. Further proceedings relate to receivables sold to Greensill by entities of the Katerra Group of construction companies in the Cayman Islands.
||Dispute is ongoing.
|SMCP, GLAS, European Topsoho Sarl.
||In October 2021, GLAS took possession of 28 million secured shares representing approximately 29% of SMCP’s share capital after ETS failed to repay €250 million of convertible bonds at maturity. GLAS also seeks damages relating to a further 12 million shares in SMCP, not pledged as security, that it says have been dishonestly dissipated. In October 2022, the High Court confirmed the validity of GLAS’ appointment as trustee over ETS’s defaulted bonds, paving the way for a sale of the 28 million SMCP shares. The trustee had been unable to sell the shares while the dispute was ongoing.
||Dispute is ongoing. ETS has been declared bankrupt by the Luxembourg Court of Appeal.
||A group of unsecured creditors are challenging the lock up agreement that certain creditors have entered into with the group. The group is attempting to restructure.
||The challenging group has launched proceedings against the debtor in France
|Adler Restructuring Plan
||A dissenting ad hoc group of bondholders holding over 34% of Adler Group’s €800 million 2029 notes are challenging the issuer’s substitution for an English company and intends to launch litigation in Germany “imminently.”
||Challenge expected before the English courts at the company’s sanction hearing on March 30.
|Morses Scheme of Arrangement
||The U.K Financial Conduct Authority will oppose the sanction of “doorstep lender” Morses Club’s proposed scheme of arrangement, according to submissions made before the High Court this in early March.
||The scheme meeting is scheduled for May 10. The sanction hearing is scheduled for May 26.
||Sova’s joint special administrators, or JSAs, asked the English court to approve a sale of the securities to Dominanta, an entity majority owned by Sova’s previous owner Russian and Cypriot banker Roman Avdeev.
||The deal was subject to a “root and branch challenge” in court by Boris Zilbermints, a creditor.Justice Miles provided new guidance to the JSA, HERE.
||English-law creditors to Italian steel product producer Cimoli query aspects of the group’s Italian restructuring plan. The key issue is recognition in the U.K. and the Rule in Gibbs.
||The matter remains outstanding. Further hearings are due in April.
||The group’s former CEO and chairman are defending themselves against a £$173M claim in Oslo from two hedge funds.
||The matter is ongoing before a court in Oslo.
||An Emirati businessman who is a shareholder of the group has asked the Dutch court to review the conduct of the group’s management. Further, counterclaims have been made against the man with respect to Sberbank and Russian sanctions.
||The matter is ongoing before the Amsterdam Court.
|Lifeways Restructuring Plan
||Lifeways group’s restructuring plans were challenged by a minority group of shareholder who disputed the proposed classes of creditors.
||The challenges were not successful and the group was able to have its plan sanctioned.
The dispute between Galapagos Bidco (Mangrove) and Signal Capital Partners remains outstanding. Galapagos Bidco, the primary issuer of Galapagos' debt prior to its 2019 restructuring
, in 2022 sought declaratory relief to the effect that the restructuring was carried out in accordance with the terms of an English law intercreditor agreement. Bidco argued that the high-yield creditors, including Signal Capital Partners, were out of the money.
This was disputed by Signal, which held €73.3 million of the €250 million high-yield notes due 2022. Barings and Goldman Sachs appeared before the English High Court later in April seeking a winding-up order against Galapagos SA, two years after the company first applied to enter into administration.
The company sought an administration order in August 2019, however, the application was stayed for more than two years after junior creditors, including Signal Capital, twice opened competing insolvency proceedings in Germany resulting in the appointment of a German administrator. Counsel were only informed of the German proceedings during the original High Court hearing.
The German court’s decision was subsequently challenged on the ground that the company’s center of main interest was changed to England in July 2019. On March 24, in response to a referral from the German Federal Supreme Court, the European Court of Justice ruled
that article 3(1) of the Insolvency Regulation 2015 is to be interpreted as meaning that the court of a member state faced with an application to open insolvency proceedings retains exclusive jurisdiction to open proceedings where the center of the debtor’s main interests is transferred to another member state after the application has been lodged, but before that court has given a ruling on it.
The matter was then remanded to the German court to decide whether to terminate the insolvency proceedings in that jurisdiction. On June 30, the English High Court made a winding-up order in respect of Galapagos SA. The decision follows several years of disputes in the English, German and EU courts, culminating in a hearing on May 24 before the English courts.
of the English High Court provides clear guidance to practitioners about how the Recast European Insolvency Regulation, or REIR, will apply to companies wound up before and after the transition period following Brexit. Further, the decision notes that certain concepts, such as center of main interests, or COMI, will continue to apply under the U.K. regulations that replace the REIR in Britain.
The dispute over the English law intercreditor agreement is listed for a trial early this year. In the meantime, in February
, the German Federal Court, or BGH, found that the District Court of Dusseldorf had jurisdiction to open main insolvency proceedings for Galapagos SA in 2019 despite an apparently conflicting decision
by the English High Court to wind the company up last year.
Coverage of Mangrove is HERE.
The Republic of Mozambique, Credit Suisse and other parties previously appeared
in 2022 before Justice Robin Knowles in the High Court for a case management conference for their dispute over defaulted guarantees and bribery. Credit Suisse continues to seek disclosure of the “main criminal file,” the documentary record for the ongoing parallel criminal trial in Mozambique.
The Credit Suisse parties say the file contains contemporaneous communications passing between the country’s officials implicated in alleged fraud. The CS parties claim the documents implicate (among others) the country’s current and former presidents, its Ministry of Defense, and its security and intelligence service. The matter is ongoing.
Coverage of Mozambique is HERE
Looking a bit further afield to Canada, U.K. cinema chain Cineworld,
now in chapter 11 bankruptcy filed a notice of appeal on Jan. 12 against the Superior Court of Ontario’s December 2021 judgment
, which awarded Cineplex damages of 1.237 billion Canadian dollars ($958.5 million) for a breach of contract. The breach relates to Cineworld’s decision
in June 2020 to terminate an agreement to acquire Cineplex. Cineworld is asking the Court of Appeal for Ontario to set aside the December 2021 judgment and grant its counterclaim to recover its transaction costs from Cineplex. The Court of Appeal may refuse a motion to appeal before any trial.
Cineworld asserted that it was entitled to terminate the agreement because Cineplex breached its covenants in the agreement - in particular, the covenant to operate in the ordinary course of business between the date of the agreement and closing. The trial judge, Justice Barbara Conway, found that Cineplex did not breach the parties’ arrangement agreement and that Cineworld did not have grounds to terminate the agreement. The matter remains ongoing while Cineworld itself attempts to implement a restructuring
Coverage of Cineworld is HERE.
The English High Court last year granted limited leave under section 423 of the Insolvency Act, 1986 for Credit Suisse to file a $400 million claim against SoftBank arguing that SoftBank defrauded creditors by entering into a transaction at an undervalue.
The application is part of a long-threatened lawsuit against Japanese conglomerate SoftBank and its affiliates. Credit Suisse has made an application for discovery proceedings in the U.S. in anticipation of this claim.In 2019 Credit Suisse Virtuoso Sicav-Sif, a subfund of Credit Suisse’s supply chain finance fund, invested in $400 million of notes originated by the now defunct financial services company Greensill Capital, and issued by a securitisation vehicle. Security for the notes consisted in participations granted by Greensill that related to receivables sold to Greensill by entities of the Katerra Group of construction companies in the Cayman Islands.
Credit Suisse told the court that it believes the transactions were entered into at an undervalue, for an improper purpose, namely that SoftBank as the largest investor in Katerra carried out the transactions for its ultimate benefit so that it could achieve a dominant equity position in the group “without the impediment of its liabilities to Greensill.”
Reorg also learned that investors in Credit Suisse supply-chain funds are considering launching litigation against the bank to recover $2.2 billion in outstanding claims relating to the collapse of Greensill Capital last year. The investors, who are typically high net worth individuals and family offices, have become concerned by a slowdown in cash disbursements and Credit Suisse’s assertion that its own litigation to enforce against Greensill debtors and the company’s insurers will take up to five years, with investors unlikely to recover all their money.
Reorg understands that law firm Pallas LLP is representing a large group of the investors and is preparing a claim to recover shortfalls. The matter is ongoing.
Coverage of Greensill is HERE, Katerra is HERE, and Credit Suisse is HERE.
In October 2022, the English High Court confirmed the validity of GLAS’ appointment as trustee over European TopSoho, or ETS’, defaulted €250 million convertible bonds, paving the way for a sale of SMCP shares held as a security.
GLAS told the court it has been unable to sell 28 million secured shares in SMCP, a French fashion retailer, while the issuer disputed the validity of GLAS’ appointment as trustee in place of BNP Paribas in December 2020. ETS, which is part of the floundering Shandong Ruyi textile empire, issued convertible notes in 2018 to purchase a majority shareholding in SMCP. SMCP owns French fashion brands including Sandro, Maje, Claudie Pierlot and De Fursac.
In October 2021, GLAS took possession
of 28 million secured shares representing approximately 29% of SMCP’s share capital after ETS failed to repay the bonds at maturity. GLAS also seeks damages
relating to a further 12 million shares in SMCP, not pledged as security, that it says have been dishonestly dissipated.
In March 2023, ETS, the issuer of €250 million convertible bonds that were due in 2021, was declared bankrupt
by the Luxembourg Court of Appeal, 14 months after the trustee to the bonds first made the request, sources tell Reorg.
The dispute is ongoing.
Coverage of SMCP is HERE.
French care home operator Orpea had entered into
process in France in 2022. The group has recently announced that its conciliation
procedure has been extended by one month to March 25.
A group of Orpea's unsecured creditors
led by Fortress Investment Group and Kyma Capital are asking the Nanterre Commercial Court (Tribunal de Commerce de Nanterre) to declare Orpea’s lockup agreement
, which forms part of the group’s restructuring, void as part of the litigation launched last week.
The unsecured group also says the deal may represent a “transaction at an undervalue” as the French long-term investors led by the Caisse des Dépôts et Consignations, or CDC, would be acquiring Orpea at a discount from its intrinsic value.
Coverage of Orpea is HERE
Back in the English courts, a dissenting ad hoc group
of bondholders holding over 34% of German real estate company Adler Group’s €800 million 2029 notes are challenging the issuer’s substitution for an English company and intends to launch litigation in Germany “imminently.”
The noteholders, who also intend to accelerate the 2029 notes, argue that the proposed restructuring is unfair because of the differential treatment of creditors who otherwise rank pari passu
. Amending the issuer of a company’s debt is a well-worn form of “good forum shopping,” which foreign debtors use to access the jurisdiction of the English courts. However, the 2029 group objects to the substitution, which was effected under a clause in the indenture
, on two grounds under German law:
- First, the substitution clause is not transparent and failed to clarify the specific circumstances in which it would be exercised; and
- Second, the substitution infringes a principle in German law that provides that any substitution must give equivalent rights to noteholders - i.e. noteholders must not be economically worse off.
The 2029 group says the whole purpose of the substitution is to facilitate the “cramming down” of the class of 2029 SUNs. Both sides intend to adduce expert evidence on the issue. The company is represented by David Allison KC, Ryan Perkins and Annabelle Wang instructed by White & Case. The 2029 bondholder group is represented by Tom Smith KC, instructed by Akin Gump.
A challenge is expected at the sanction hearing scheduled for late March
Coverage of Adler is HERE
The U.K. Financial Conduct Authority will oppose the sanction
of “doorstep lender” Morses Club’s proposed scheme of arrangement, according to submissions made before the High Court in early March.
Morses has appeared for a convening hearing proposing a single class of creditors comprising around 600,000 current and former customers who have or may have claims against the company for unaffordable lending practices. Under the proposed scheme, the company will set up a £20 million compensation fund to pay creditors, of which, £5 million will come from the company’s free cash flow and the remaining £15 million will be financed via an equity raise, which will dilute existing equity holders by 95%.
The scheme meeting is scheduled for May 10. The sanction hearing is scheduled for May 26.
Coverage of Morses is HERE
Sova’s joint special administrators, or JSAs, asked the English court
to approve a sale of the securities to Dominanta, an entity majority owned by Sova’s previous owner Russian and Cypriot banker Roman Avdeev. Avdeev proposed to acquire 165 Russian securities at 85% of the market price via a credit bid, in which Dominanta would agree to waive about £233 million of its own unsecured claims against Sova.
The deal was subject to a “root and branch challenge” in court by Boris Zilbermints, a creditor with an estimated claim of £19.9 million, equivalent to 2% of the creditor pool by value. Zilbermints argued unsuccessfully that the JSAs are acting in excess of their powers and contrary to the most basic principles of insolvency law.
Sova was the first financial institution to make use of a special administration regime last year. The primary focus of Sova’s business was to provide international investors with access to the Russian market. It is not a deposit taker, it is an investment bank for the purposes of the Investment Bank Special Administration regime. Sova’s products included equities and derivatives, foreign-exchange trading, commodities and fixed income.
Justice Robert Miles explained that the legal mechanism of the transaction appears to raise “novel issues which have not previously been decided by the courts.”
Specifically, it appears that joint special administrators have the power to sell assets to an unsecured creditor that waives its claim against the company as part consideration i.e. a credit bid. Furthermore, so long as the special administrators sought the best possible price, the transaction will be properly characterized as a sale rather than a distribution to creditors and should not infringe the pari passu principle.
The issues considered can be found in the judgment
, summarized in our coverage below.
Coverage of Sova is HERE
Following oral sanction
in February, Justice Johnson has handed down his judgment giving his reasons for sanctioning U.K. supported living provider Lifeways Group’s restructuring plans. The group’s comprehensive restructuring involved a debt writeoff, super senior new money, a transfer of ownership as well as compromising landlord claims.
The judgment provides welcome guidance for practitioners dealing with inquorate creditor meetings and the plan was novel in that it was the first to be used by a healthcare operator, regulated by the Care Quality Commission, or CQC.
The proposal was challenged at its convening hearing
by Justin Tydeman, the group’s CEO until August 2022. He argued that holders of non-voting B ordinary shares in Listrac Midco Ltd. are “affected by” the plan and are therefore entitled to vote in an additional class.
Representing the plan company, Graham Lane, Partner at Willkie Farr told Reorg:
“The Lifeways restructuring plans not only cement the use of Part 26A plans to successfully rationalize a company’s leasehold portfolio, they are also ground-breaking in being used for the first time on a U.K. healthcare regulated business. We worked closely with the Care Quality Commission throughout the process. This should pave the way for other healthcare operators to consider using a Part 26A plan to stabilize their businesses while ensuring continuity of care.”
The success of the process means that the group was able to implement a debt haircut of around £100 million senior secured debt and transfer ownership from the Ontario Municipal Employees Retirement System, or OMERS, to the group’s lenders. Additionally, £15 million new super senior money was provided to the group.
The judgment provides welcome guidance for practitioners dealing with inquorate creditor meetings and the plan was novel in that it was the first to be used by a healthcare operator, regulated by the Care Quality Commission, or CQC.
Coverage of Lifeways is HERE
English-law creditors to Italian steel product producer Cimoli have asked the company to clarify if it will use an English scheme of arrangement or restructuring plan in parallel to its Italian concordato
. Some of the creditors are also seeking a copy of the draft proposal before it is approved by the Trieste Court.
Cimolai is currently working on a capital raise and debt restructuring plan after it sought
court protection from its creditors at the end of October 2022 for problems arising from its currency derivative contracts. Around 10 separate creditors under English-law governed derivative contracts have filed claims in the English High Court against the company, including Ballinger & Co., Macquarie Bank, Natixis, Morgan Stanley, Deutsche Bank, Ebury, GPS Capital Markets, JB Drax Honore, NatWest and Mediobanca.
Cimolai’s in-house counsel, Patrizia Paier, applied to the English court to recognize Cimolai’s Italian concordato
proceedings as “foreign main proceedings”.
Macquarie said Paier has kept open the possibility of a parallel English proceeding but has indicated that her view “at this stage” is that such a process “would add to the cost and complexity of the restructuring process without a clear attendant benefit for creditors generally.”
Macquarie told the court it is entitled to rely on the “Rule in Gibbs” given its claims are governed by English law and could therefore ignore the Italian proceedings. The rule, arising from Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399,
holds that debt governed by English law cannot be discharged by a foreign insolvency proceeding.
Proceedings have been adjourned until April.
Coverage of Cimolai is HERE
Norske Skogindustrier ASA’s former CEO Sven Ombudstvedt, Chairman Jon-Aksel Torgersen and the insurers providing their director’s insurance told Oslo’s District Court in February that they believe the Norwegian paper company was not insolvent in early 2016 when Carra II, a contested refinancing transaction, took place.
The two Norwegian businessmen are defending themselves from claims brought by hedge funds Bardin Hill and Bracebridge Capital, who argue that the distressed company was insolvent in the spring of 2016, when the debated refinancing took place, and that the company should have filed for bankruptcy earlier than it did to pursue a controlled liquidation. The funds are seeking damages of up to 1.739 billion Norwegian kroner ($173.3 million) from Torgersen, Ombudstvedt and their insurance providers, arguing that the amount represents the difference between the funds’ actual return and what they could have recovered in a controlled sale of Norske’s seven paper mills in 2016.
The trial is ongoing.
Coverage of Norske Skog is HERE
Emirati businessman Saif Alketbi, who claims to have acquired a 43% equity stake in Croatian food retailer Fortenova by acquiring a sanctioned subsidiary of Sberbank, has asked the Enterprise Chamber of the Amsterdam Court of Appeal to launch an investigation into the conduct of the management of the Dutch holdco, Fortenova Group STAK, which holds the shares in Fortenova’s Topco on trust, in light of an alleged
“power grab” by the second largest shareholder in the group, Open Pass.
In addition, Alketbi requests the appointment of a director to the holdco with a casting vote and independent power of representation, or if this is not possible the appointment of an independent director with a casting vote as interim measures.
Russian entity SBK Art LLC, at the direction of Alketbi, appeared in an Amsterdam court in January to argue that the entity
, which holds a 43% equity stake in Croatian food retailer Fortenova, should be able to vote its shares at Fortenova shareholder meetings. The special purpose vehicle is currently unable to take part in meetings after being hit by EU sanctions in December 2022. The hearings are ongoing.
Coverage of Fortenova is HERE
An English High Court in the case of GoodBox has found that the consent of the company remains a requirement to sanction a Part 26A restructuring as it does under a Part 26 scheme of arrangement. However, a judge may direct administrators acting on behalf of a company to give such consent.
In January, the High Court in Leeds sanctioned
a restructuring plan on behalf of GoodBox, which provides digital payment services for the charitable sector. GoodBox is the first plan where the application was made by a creditor rather than the plan company and the first to be heard outside London.
The company's administrators objected to the plan, however, the court gave directions that the administrators should give consent to the plan.
The court had to consider the 1981 case of Re Savoy Hotel Ltd. 3 WLR 441
, in which the court held that it had no jurisdiction to sanction a scheme of arrangement that does not have the approval of the scheme company in the form of a simple majority of its board or shareholders.
Coverage of GoodBox is HERE