The consortium carried on the business of specialised contract logistics in the automotive and technology industry with assets and revenue in a number of differing jurisdictions, where inter alia the Schemes of arrangement in accordance with English law were recognized. The consortium considered themselves over-leveraged and going forward they decided on a pooling agreement with massive voting rights and sought the United Kingdom ("UK") Court* in order to sanction, in terms of section 896 of the Companies Act 2006, the scheme of arrangement and consider differentiating class similarities or dissimilariaties, binding on all creditors, so as to make it possible for the consortium to consult together at the calling of a meeting. As the honourable Court noted the parent Company was substantially bonded to the hilt, there existed secured loans, non-secured notes, ad hoc lender groups [sureties], guaranteed money and debenture fixed loans that were managed by a trustee in addition provision was made available for the voting of relevant parties in favour of the Schemes, together with liquidity, sole lenders, certain percentages of considerations, super priority facility agreements concluded around a guaranteed revolving credit facility with lock-up facilities in order to show a firm committment to advance new funds and in the situation of a hitch occurring, that none of the members would 'fold'.

Court class sanction required on 'too big to fail' restructuring consortium

Law and Courts I

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The honourable Court clarified the test applied in determining whether members formed a single class was whether their rights were 'not so dissimilar as to make it impossible for them to consult together with a view to their common interest'.** The test was based on similarity of legal rights against the scheme company not on similarity or dissimilarity of interests that derived not from legal rights and the fact that individuals might hold diverging views based on their private interests not derived from their legal rights against the company all of which were not classified as grounds for separate meetings. The sanction was not based on the merits. The Court discussed the creation of separate classes with a view to common interests. There were four proposed voting classes and concomitant rankings to which the Court discussed material dissimilarities, including risk factors that fractured the classes with material influence on voting decisions. Changes in governing law and jurisdiction clauses were recognised. In the result, the Court permitted the Scheme meetings to reconvene.
Briefly summarised

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Vide - In the matter of Synchreon Group B.V. in the matter of Synchreon Automotive (UK) Ltd and in the matter of the Companies Act 2006; ** Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583. Company Law Today comments - In South Africa s155 of the Companies Act 2008 the arrangement would be categorised as a compromise. The restructuring of debt in addition, prevents the scenario of the bank having to 'take a bath'.