Magyar Telecom B.V. - compromising foreign law liabilities with an English scheme of arrangement

In Re Magyar Telecom BV [2013] EWHC 3800 (Ch) the English High Court took a further step to "internationalise" schemes of arrangement as a restructuring tool when it sanctioned a scheme of arrangement in respect of the liabilities of a Dutch company under a New York law governed bond indenture.

The court held that:
 
•  an English scheme of arrangement under can be used to compromise New York law governed bonds;

• even though the governing law and exclusive jurisdiction clauses of the bonds were in favour of New York, sufficient connection did exist with England following the company’s movement of its centre of main interests (COMI) to England as any insolvency process for the company (as the only realistic alternative to the restructuring proposed under the scheme) would be undertaken under English law in England;

•  the Judgments Regulation (Council Regulation EC No 44/2001) does apply to schemes of insolvent companies;

• a modest consent fee given to certain creditors when they signed a lock-up agreement in respect of the restructuring didn’t create a separate class of creditors for voting purposes; and

• a scheme can be used to release third party liabilities (in this case, guarantors of the note liabilities).

Further reading on the use of schemes of arrangement to restructure the debts of non-English companies can be found at:

•  Jennifer Payne, "Cross-Border Schemes of Arrangement and Forum Shopping", University of Oxford Legal Research Paper Series (Paper No 68/2013);

•  Look Chan Ho, "Making and Enforcing International Schemes of Arrangement", Journal of International Banking Law and Regulation, No. 9, p. 434, 2011; and 

•  a series of publications by Clifford Chance LLP including "Schemes of Arrangement go Global", "International Restructuring - Have Schemes of Arrangement Come of Age", "English Scheme of Arrangements - Now Also Available for Dutch Companies?", "Italy Joins the Club - First Scheme of Arrangement for an Italian Business" and "Metrovacesa S.A. Scheme of Arrangement Sanctioned".