A Parting Of The Ways? The Recent Decision In Gategroup Puts Schemes And Restructuring Plans On Different Roads To Recognition

• Published date: 01 June 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Stevens & Bolton
• Author: Mr David Steinberg and Helen Martin

After a somewhat leisurely start, case law regarding the new restructuring plan in Part 26A of the Companies Act 2006 now seems to be picking up pace. Hot on the heels of the DeepOcean decision, where cross-class cram down was tested for the first time (see our recent article here), comes an equally significant decision in the gategroup convening hearing.

In his judgment handed down on 17 February 2021, Mr Justice Zacaroli found that a Part 26A plan was an "insolvency proceeding" and therefore did not fall within the scope of the Lugano Convention 2007, in contrast to a scheme of arrangement. This emphasises the significance of the "financial difficulties" threshold in Part 26A, and potentially sets schemes of arrangement and restructuring plans on different paths with regards to jurisdiction and recognition.

As recognition for both schemes and restructuring plans in EU member states is subject to some uncertainty post-Brexit, this decision is of particular interest - and may well impact choice of restructuring procedure going forward.

Background: EU framework on jurisdiction and recognition

By way of background, in deciding whether it has jurisdiction to sanction a Part 26 scheme of arrangement or a Part 26A restructuring plan, the English court must consider factors including whether the company has "sufficient connection" to the UK, and the likelihood of the scheme or plan being recognised in other relevant jurisdictions and therefore binding local creditors.

In relation to proceedings commenced prior to 31 December 2020, the English court has also had to consider whether its jurisdiction would be restricted by the application of EU law. The relevant European framework includes:

• The Recast Regulation on Insolvency (Regulation (EU) 2015/848) (the "Insolvency Regulation")
• The Recast Brussels Regulation on jurisdiction and the recognition and enforcement of judgments (Regulation (EU) 1215/2012) (the "Brussels Regulation")
• The Lugano Convention of 21 December 2007 (the "Lugano Convention") which substantially extends the principles of the Brussels Regulation to certain other EFTA states - Norway Iceland and Switzerland.

English courts have in recent years proceeded on the basis that Part 26 schemes of arrangement constitute a civil or commercial matter and therefore fall within the scope of the Brussels Regulation (and, by extension, the Lugano Convention), which provides for EU-wide automatic recognition of civil and commercial judgments.

The flipside...