Article WIND Hellas Complex Restructuring

7/21/2019 Article WIND Hellas Complex Restructuring

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1This article first appeared in the March 2011 issue of PLC Magazine.

© Practical Law Publishing Limited 2011. Subscriptions +44 (0)20 7202 1200

WIND Hellas

A complex restructuring in a global recession

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Artist: Neil Webb

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The WIND Hellas group structure

Shareholder

WIND Hellas

Telecommunications

S.A.

Hellas

Telecommunications

IV S.à r.l.

Hellas

Telecommunications

(Luxembourg) III S.C.A.

Hellas

Telecommunications

(Luxembourg) V S.C.A.

Revolving credit facility debt ( €250 million)

CB debt

Corporate bond

(CB) debt

CB

debt

Local debt

facility

Hedging debt

(approximately €39 million)

Senior secured notes ( €1,222.25 million)

Senior

unsecured

notes

( €355 million)

Hellas

Telecommunications

(Luxembourg) S.à r.l.





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Debt and security structure

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What is a COMI?

The concept of a company’s centre of main interests (COMI) became part of EU law

under the EC Regulation on Insolvency Proceedings (1346/2000/EC ) (Insolvency

Regulation) which came into force on 31 March 2002 in all EU member states

except Denmark. COMI has subsequently been incorporated into EU legislation

dealing with the cross-border insolvency of credit institutions and insurers and isalso used in the UNCITRAL (UN Commission on International Trade Law) Model

Law on cross-border insolvency (the model law), which was enacted in Great Britain

pursuant to the Cross-Border Insolvency Regulations 2006 (SI 2006/1030 ) and in

the US as Chapter 15 of the US Bankruptcy Code.

The Insolvency Regulation does not define COMI; however, there is a rebuttable pre-

sumption that a company’s COMI is located in the jurisdiction in which its registered

office is located (Article 3(1) ). In addition, the COMI should correspond to the place

where the debtor conducts the administration of his interests on a regular basis and

is therefore ascertainable by third parties (Preamble 13, Insolvency Regulation ).

The European Court of Justice has said that the COMI must be identified by refer-ence to criteria that are both objective and ascertainable by third parties (Re Euro-

food IFCS Ltd , Case C-341/04 ) (see News Brief “Eurofood: was it worth the wait?”,

www.practicallaw.com/1-202-4602 ).

More recently, in Re Stanford International Bank Ltd (in liquidation), the Court of

Appeal held that the court must consider only those objective factors ascertainable to

third parties that are typical when dealing with the company; namely, those factors in

the public domain that such a third party would learn in their course of dealing with

the company ([2010] EWCA Civ 137; www.practicallaw.com/6-502-1179 ).

The Insolvency Regulation stipulates that a company may only open main insol-

vency proceedings in the jurisdiction in which its COMI is located. Under the Insol-vency Regulation, main proceedings opened in one member state are automatically

recognised in all other member states without further effect or formality, and the

insolvency officer in those proceedings (whom the Insolvency Regulation calls a

“liquidator”, irrespective of his actual title) is able to exercise, for the most part,

the same powers as he has in his home member state in all other member states.

Under the model law, automatic relief (usually including a stay) arises where a

court grants an application for recognition of a foreign main proceeding. If an ap-

plication for recognition of a foreign non-main insolvency proceeding is granted,

then no automatic relief arises, although the applicant may petition the court to

grant discretionary relief.





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What is Chapter 15?

Chapter 15 of the US Bankruptcy Code applies to ancillary and other cross-border

bankruptcy cases. Chapter 15 enacts the UNCITRAL (UN Commission on Interna-

tional Trade Law) Model Law on cross-border insolvency and is intended to encour-

age co-operation between the US and other countries with respect to cross-border

insolvency cases. Chapter 15 applies where:

• A non-US court or foreign representative seeks assistance in the US.

• A US bankruptcy case is pending and assistance is sought in a country other

than the US.

• The same debtor is subject to both a foreign proceeding (see Glossary ) and a US

bankruptcy case.

• Non-US creditors or other interested persons have an interest in commencing or

participating in a US bankruptcy case.

On an application for recognition of a foreign main proceeding being successful,

Chapter 15 provides automatic relief. This relief includes the provision of the US

Bankruptcy Code governing adequate protection, and the automatic stay that ap-

plies to the debtor and its property within the territorial jurisdiction of the US.





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The purpose of the hearings

Two court hearings are required in order for a scheme to be approved.

At the first hearing, a company submits the proposed scheme to the High Court in

order to obtain leave to convene a meeting of the creditors or members who will

vote on the scheme. The court will order separate meetings for each class of credi-tors or members if it sees fit and will hear objections as to the composition of class-

es of creditors or members and to the fairness of the scheme. Whether or not there

are any objections, the court will form a prima facie view as to the appropriateness

of any division of creditors and/or members into classes (Equitable Life Assurance

Society, 26 November 2001, unreported ).

If the scheme is approved at the relevant meeting of creditors, the company will

return to court to seek sanction of the scheme. At the sanction hearing, the court

may again hear objections as to the composition of classes and the fairness of the

scheme, as well as objections relating to procedural matters, and may use its dis-

cretion not to sanction the scheme notwithstanding overwhelming support from the

creditors and/or members. Once the order sanctioning the scheme has been filed

with Companies House, it becomes effective as a matter of English law and the

scheme is binding on all creditors or members in the relevant classes whether or

not they had notice of the meetings and whether or not they voted in favour of the

scheme, thus binding dissenting creditors to the terms of the scheme.





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Structuring the scheme

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Jurisdiction for schemes

The question as to whether it has jurisdiction to sanction a scheme is of central

importance to an English court when it is presented with a scheme proposal in

respect of a foreign company. In such circumstances, the court will only exer-

cise its discretion to order that the creditors’ meeting to consider the scheme

be convened if it is satisfied that, among other things, the company proposing

the scheme is a company liable to be wound up under the Insolvency Act 1986

(1986 Act).

The 1986 Act does not prescribe the specific circumstances in which a court may

exercise its power of winding up. Therefore, case law has established the consid-

erations for a court when determining whether a company is liable to be wound

up, including for the purposes of a scheme of arrangement. In Re Drax Holdings

Limited , the court noted the following requirements to be satisfied before a foreign

company could be wound up in England:

• There must be a sufficient connection with England which may, but does notnecessarily have to, consist of assets within the jurisdiction.

• There must be a reasonable possibility, if a winding up order is made, of benefit

to those applying for the winding up order.

• One or more persons interested in the distribution of assets of the company

must be persons over whom the court can exercise jurisdiction ([2004] 1 WLR

1049 ).

An argument has been raised as to whether, notwithstanding the sufficient connec-

tion test set out in Drax , in the case of companies incorporated in jurisdictions

outside the UK which are subject to the EU Regulation on Insolvency Proceedings

(1346/2000/EC ) (Insolvency Regulation), a company must nevertheless have its

centre of main interests (COMI) or an establishment in the UK in order to be a

company liable to be wound up for the purposes of a scheme of arrangement (see

“COMI shift” in the main text ). The basis for this argument is that, post-enactment

of the Insolvency Regulation, a company cannot be wound up in the UK unless its

COMI is in the UK or it has an establishment in the UK.

However, in Re DAP Holding NV , the court exercised jurisdiction to sanction a

scheme with respect to a Dutch company, notwithstanding the fact that it did not

have its COMI or an establishment in the UK ([2006] BCC 48; see News brief “DAP

solvent scheme: still in business”, www.practicallaw.com/5-201-4781). The courtfollowed Drax in holding that, in the context of a scheme, certain of the otherwise

mandatory provisions of section 221(5) of the 1986 Act (relating to the circum-

stances in which an unregistered company may be wound up) were not mandatory

(because a winding up would not occur).

In light of this case law, there is at least a strong case for arguing that the Insol-

vency Regulation was not intended to apply with the effect that a company must

have a COMI or establishment in the UK in order for a UK law scheme of arrange-

ment to be sanctioned. DAP Holding represents a more purposive interpretation of

the Insolvency Regulation.

While on an uncontested scheme application a court may well follow DAP Holding ,

the outcome may be more uncertain in the case of a contested application.





Exchange solicitation

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Voting on the scheme

A scheme must be approved by a simple majority of persons in each class present

in person or by proxy at a scheme meeting and, in the case of each class of credi-

tors, that majority must represent at least 75% in value of the debts owed to that

class. The requisite majority of each separate class must approve the scheme for

the entire scheme to come into force.

The question as to who may be considered a creditor for voting purposes arises on a

scheme in respect of bonds issued under a global note structure. As the registered

holder of the global note is the legal owner of the bond, this single holder could be

considered to be the only true creditor. However, a numerosity issue arises from the

fact that a scheme must be approved by 75% in value and a majority in number of

those voting in person or by proxy, as the requisite majority in number would be prac-

tically difficult to achieve in a global note structure. Further, a registered holder or

trustee may refuse to vote on a proposed scheme and it could therefore be important

to enfranchise the ultimate beneficial owners in order to proceed with a scheme.

Any such bonds could be definitised (in other words, individual bond certificates could

be issued to each beneficial holder) in certain circumstances so that each beneficial

holder becomes a legal owner of bonds. However, this process would add administra-

tive complexity at a time when a company’s resources are already likely to be stretched.

A more practical alternative is to treat ultimate beneficial holders as contingent credi-

tors and permit them to vote on a scheme on this basis (while seeking confirmation

from the registered holder and/or trustee that they will not vote on the scheme).

The suitability of the contingent creditor approach to voting will also depend on an

interpretation of the underlying documents. If, for example, an indenture provides for

cases in which beneficial holders have an enforceable right to call for definitive notes,

it is arguably more appropriate to view beneficial holders as being contingent creditors.

The contingent creditor approach has received some support in the English courts.

In Re Castle Holdco 4 Limited , Mr Justice Norris considered that the scheme in

question ought obviously to be considered by those who have an economic inter-

est in the debt (that is, the ultimate beneficial owner or principal) ( judgment of

Norris J, unreported, 23 March 2009 (Ch) ). It is likely that beneficial holders of

bonds will continue to be viewed as contingent creditors for the purposes of voting

on schemes, given the practical difficulties involved in definitising notes for the

purposes of voting on a scheme.





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Glossary

Foreign proceeding (in respect of Chapter 15 of the US Bankruptcy Code (Chapter

15)). A collective judicial or administrative proceeding in a foreign country, includ-

ing an interim proceeding, under a law relating to insolvency or adjustment of debt

where the assets and affairs of the debtor are subject to control or supervision by aforeign court, for the purpose of reorganisation or liquidation.

Foreign representative (in respect of Chapter 15). A person or body, including a

person or body appointed on an interim basis, authorised in a foreign proceeding

to administer the reorganisation or the liquidation of the debtor’s assets or affairs

or to act as a representative of such foreign proceeding.

SIP 16. The Statement of Insolvency Practice 16 is a guidance note in respect of

pre-packaged administrations for licensed insolvency practitioners designed to

maintain standards among insolvency practitioners.

Waterfall.

The pre-determined flow of funds and priority of distributions or alloca-

tions between or among debt or equity holders specified in intercreditor agree-

ments or security trust arrangements.

Purpose of administration

The administrator of a company must perform his function with the objective of any

of the following:

• Rescuing the company as a going concern.

• Achieving a better result for the company’s creditors as a whole than would be

likely if the company were wound up (without first being in administration).

• Realising property in order to make a distribution to one or more secured or

preferential creditors (paragraph 3(1), Schedule B1, Insolvency Act 1986 ).




© Practical Law Publishing Limited 2011 Subscriptions +44 (0)20 7202 1200

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Related information

Links from www.practicallaw.com

This article is at www.practicallaw.com/7-504-7560

Topics

Administration www.practicallaw.com/9-103-1256

Reorganisations, schemes,

demergers and CVAs www.practicallaw.com/8-103-1153

Restructuring and insolvency www.practicallaw.com/9-103-2072

Transactions: insolvency www.practicallaw.com/4-103-1268

Practice notes

Administration: a quick guide www.practicallaw.com/7-385-3012

Overview of company insolvency procedures www.practicallaw.com/0-201-8404

Pre-packs in administration: a quick guide www.practicallaw.com/7-385-0829

Schemes of arrangement and companies

in financial difficulty www.practicallaw.com/6-107-3988Schemes of arrangement overview www.practicallaw.com/2-107-4433

Previous articles

English scheme of arrangement:

useful for a Spanish restructuring (2010) www.practicallaw.com/4-502-6385

Nortel: A global sales process for a

global restructuring (2010) www.practicallaw.com/1-502-2713

Pre-pack risks for administrators and

directors: a phoenix from the ashes? (2010) www.practicallaw.com/9-501-5266

UK restructuring and insolvency law:

current and future trends (2010) www.practicallaw.com/6-501-6578

The scheme: a most convenient and

modern arrangement (2008) www.practicallaw.com/5-380-7686

Corporate insolvency:

from past to present (2007) www.practicallaw.com/9-376-4270

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Article WIND Hellas Complex Restructuring