The English law scheme of arrangement under Part 26 Companies Act 2006 (and now the new English law restructuring plan under Part 26A Companies Act 20061) is regularly used as a restructuring tool for both English and foreign companies2. An English court considering whether to exercise its discretion to sanction a scheme in respect of a foreign company must be satisfied, among other things, that it is likely to be effective and achieve its purpose. The English court will refuse to sanction a scheme for a foreign company where to do so would not serve any real purpose.
Ordinarily this involves the English courts considering expert evidence from local lawyers as to whether the scheme would be recognised in the relevant foreign jurisdictions where creditors or assets may be located. However, there appears to be no requirement that recognition in the relevant foreign jurisdiction(s) be inevitable.
The bases of recognition
The English courts have discussed and/or accepted a number of different bases of recognition. For instance, in a US/UK cross border context, expert evidence has been adduced that an English scheme would be recognised and given effect to in the US pursuant to Chapter 15 of the US Bankruptcy Code.
In a UK/European context, a number of bases of recognition have been relied upon and/or discussed by the English court and/or discussed in commentary:
In the future, if the UK accedes to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (Lugano Convention 2007), then it is possible that this will also constitute a basis for the recognition of an English law scheme4.
In light of the loss of the Judgments Regulation, the English courts will have to look to alternative bases of recognition of English schemes in respect of foreign companies. Whilst we think that many English schemes in respect of foreign companies will be capable of recognition in the relevant European jurisdictions, careful planning (particularly in relation to obtaining local law advice on recognition in relevant jurisdictions) will be required and we expect to see heightened scrutiny by the English courts of the expert evidence regarding recognition of the scheme in any relevant European jurisdictions. We expect that English schemes of arrangement (and restructuring plans) will remain a popular choice for UK/European cross border restructurings, particularly where English law debts are to be compromised as the rules in Gibbs5is likely to apply.
1We refer to schemes of arrangement. It is expected that the English authorities regarding the recognition of restructuring plans will develop along the same lines of the authorities regarding schemes of arrangement. However, it is not yet clear whether the Courts in other jurisdictions will view restructuring plans in same way as they view schemes of arrangement.
5Antony Gibbs & Sons v La Société Industrielle et Commerciale Des Métaux (1890) 25 QBD 399)). The Gibbs rule states that the question of whether an obligation has been discharged is governed by its proper law.