Setting the Standard: Standard Profil’s scheme of arrangement sanctioned notwithstanding Frankfurt court’s decision in Project Fürst

Standard Profil, a German-headquartered manufacturer of automotive sealant, had proposed a one-class scheme of arrangement to facilitate, amongst other things, a change of control (from the group’s Turkish private equity shareholder to its bondholders), a rightsizing of its existing bond debt (with a maturity extension) and the provision of EUR145m of new money. The proposed scheme received significant creditor support at the creditors’ meeting, with a 100% of those present and voting (representing 95% of the class) voting in favour of the scheme. Sanction was similarly unopposed by the group’s creditors.

In his short sanction decision, Meade J considered, amongst other things, the impact that the recent Frankfurt court decision would have on the scheme proposed by Standard Profil, whose centre of main interests (COMI) is in Germany. Meade J referred to Norris J’s decision in the DTEK Energy scheme¹ in saying that the court does not have to have complete certainty of the effectiveness of a scheme in order to be able to sanction it – there just needs to be a likelihood or reasonable prospect of such effectiveness.

Meade J referred to the Project Fürst decision as a “complication” but “not an important one” in the context of schemes, having considered submissions by Standard Profil’s lawyers as to the differences between restructuring plans and schemes in this context. Meade J was persuaded that there were “two entirely robust routes to recognition” in the case of schemes involving English law and jurisdiction debt, being the Hague Choice of Court Convention and the Hague Judgments Convention. The position on such schemes was therefore substantially different from the position on the restructuring plan considered in the Frankfurt court’s decision.

The two Hague Convention routes were available to Standard Profil as, prior to its launch of the scheme, it had amended the governing law and jurisdiction provisions of its bonds (previously New York) and intercreditor agreement (previously German) to English law governed, with exclusive jurisdiction for the courts of English and Wales. This means that the Hague Choice of Court Convention and the Hague Judgments Convention apply, which require the German courts to recognise an English decision without further examination of reciprocity (lack of reciprocity being one of the stated reasons for the Frankfurt court’s decision not to recognise the Fürst restructuring plan). The Hague Convention routes would not be applicable if the relevant contractual counterparties had not submitted to the jurisdiction of the English courts (as was the case in Fürst – the relevant documents were German law-governed). It is also likely that these routes to recognition in certain other jurisdictions would not be available for a restructuring plan (as opposed to a scheme) because a restructuring plan is more likely to be characterised as an “insolvency proceeding” which falls outside the ambit of the Hague Conventions. It should be noted that one of the Frankfurt court’s justifications for refusing to recognise the Fürst restructuring plan was that the fact that the plan could not be recognised as an insolvency proceeding under German insolvency law (as the restructuring plan is not a fully collective process); this point is therefore likely to be considered further in future cases.

It remains to be seen, therefore, how the Frankfurt decision in Fürst will impact recognition, and therefore sanction, of restructuring plans proposed by German debtors. But the Standard Profil decision is helpful in reconfirming some of the existing routes for establishing the reasonable prospect of effectiveness of schemes proposed by German companies, and the English court’s reticence to find reasons not to sanction a scheme which has the clear support of the company’s creditors.

Authored by Naomi Parmar.