Scheme of arrangement approved despite challenge

The claimant (company) applied for an order to convene and conduct meetings for approving a scheme of arrangement. The scheme formed part of a wider group restructuring, including an application in the Dutch courts for approval of a private restructuring plan.

The company adduced evidence that without the scheme, creditors would enforce various security rights forcing the company into liquidation.

The company’s shareholders challenged the scheme, arguing that the true alternative to the scheme (ie, the appropriate comparator) would be an orderly wind down and sale of assets on a solvent basis, which was more likely to generate a better return for both creditors and shareholders. This challenge gave rise to issues of fact which could not be resolved without live evidence. The initial hearing was adjourned and reconvened to allow live evidence and closing submissions. 

During cross-examination the shareholders’ expert witness admitted that an orderly wind down and sale of assets on a solvent basis would depend on forbearance by creditors, but those creditors had not been asked whether such forbearance would be forthcoming if the scheme failed. His evidence therefore amounted to speculation and the judge afforded it little weight.

It was also identified during live evidence that the shareholders’ Dutch counsel had accepted before the Dutch court that the company’s bankruptcy would be virtually inevitable if the court rejected that restructuring plan. No explanation was provided for the inconsistency between that position and the position adopted in these proceedings.

The judge preferred the company’s evidence and concluded that the appropriate comparator to the scheme would be liquidation. The court sanctioned the scheme of arrangement.

Re Lamo Holding BV [2023] EWHC 1558 (Ch)

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