On 10 September 2019 the High Court in London sanctioned two schemes of arrangement as a part of the successful restructuring of the syncreon group. This transaction was unique because it involved a US based group utilising an English scheme of arrangement to surgically restructure its debts, avoiding an all-encompassing insolvency process. Recognition of the English procedure was obtained in the US and Canada.
The syncreon group is a global specialized contract logistics company supplying the automotive and technology industry. The group is headquartered in Michigan, USA with over 100 locations in 20 countries and 14,000 employees worldwide.
As a part of the restructuring of its US$1.1bn debt stack, the group was seeking to modify debts owed under a US$680m senior secured credit facility and a US$225m senior note indenture. A Dutch company, syncreon BV, was the borrower of the credit facility and the issuer of the notes. These facilities had been guaranteed by, among others, an English company, syncreon Automotive (UK) Ltd. At the outset of the transaction both facilities were governed by New York law.
The restructuring included a release of the credit facility and the note indenture in exchange for equity and, in addition, in the case of the credit facility, restated debt of US$225m. This exchange required unanimous consent which was not forthcoming consensually but which could be effected via a scheme of arrangement with the support of more than 75% of the creditors by value and 50% by number in each relevant class. The restructuring of an existing liquidity facility and an ABL facility, as well as the injection of US$50m of new money, was able to be implemented consensually outside of any statutory procedure. Total debt of the group was to be reduced to US$486m.
The group explored various implementation options (including a US Chapter 11), but concluded that use of the English jurisdiction and the scheme process was the only viable route for restructuring the scheme companies on a going concern basis.
In order to help establish a sufficient connection to the English jurisdiction, the Dutch debtor obtained consent from the debt holders to an amendment to the governing law of the credit facility and the note indenture to English law. Two schemes of arrangement were then proposed, one by the Dutch debtor and one by the English guarantor, with each scheme comprising two classes, one for the credit facility and one for the note indenture. The High Court in London needed to satisfy itself that that the schemes were likely to have effect in relevant jurisdictions in which the companies conducted their business. Recognition of the schemes in the US and Canada was a condition of the restructuring. The High Court was presented with evidence of foreign law experts in relation to the position in the US, Canada and the Netherlands to the effect that the schemes were likely to be effective and recognised in those jurisdictions. Although the group also has significant operations in Ireland and Germany, it was noted that those jurisdictions should follow the EU principles referred to in the Dutch advice, and accordingly the schemes should be recognised there as well.
The schemes were overwhelmingly approved by creditors. In the case of the credit facility, 100% of those creditors attending the meeting voted in favour, representing over 99% of the total principal outstanding. In the case of the notes, 98% of those creditors attending voted in favour, representing, again, over 99% of the total principal outstanding.
Following sanction by the High Court the schemes were recognised in the US under Chapter 15 of the US Bankruptcy Code on 11 September 2019 and in Canada under Part IV of the Companies’ Creditors Arrangement Act by the Ontario Superior Court of Justice on 19 September 2019.
Norton Rose Fulbright represented The Bank of New York Mellon as indenture trustee.