Many companies are struggling to survive amidst the COVID-19 pandemic but, so far as judges are concerned, it is a case of all hands to the pump to save what can be saved. In one case, the High Court paved the way for the proposed rescue of an airport logistics group which employs 65,000 people worldwide.
The grounding of the airline industry arising from the pandemic plunged the group into a liquidity crunch of such severity that it was in imminent danger of running out of cash. In order to stave off insolvency, it planned to borrow 380 million euros in new money. That sum would enable the group to continue in business for six to nine months, during which it was hoped that broader financial restructuring would assure its future as a going concern.
Such new borrowing would prejudice the position of the group’s existing creditors in that any new lenders would be bound to require that their claims be given super senior ranking over the group’s other debts. In order for the group’s plan to proceed, therefore, the existing creditors would have to agree to the subordination of their claims to those of any new lenders.
The biggest tranche of the group’s existing debt was over 1 billion euros which had been raised under three loan facilities. Lenders under those facilities faced a stark choice between taking their chances in an insolvency – which it was estimated would result in them recovering less than 35 per cent of their claims – or agreeing to the subordination of their debts.
In those circumstances, the group, through its English subsidiary, applied to the Court under Section 896 of the Companies Act 2006 for an order convening a meeting of existing creditors at which a proposed scheme of arrangement would be put to a vote. The scheme, if approved, would open the way for the group to implement its new borrowing plans.
Granting the order sought, the Court noted that existing creditors had been given just over a week’s notice of the hearing. That was shorter than usual, but the matter was extremely urgent due to the group’s parlous financial position. The lenders concerned were sophisticated institutions which could be expected to act quickly.
The Court could detect no procedural or jurisdictional reason why the meeting should not take place and noted that it made sense for all concerned to consult together in their common interest. Securing the group’s future would require give and take on all sides. Any scheme agreed at the meeting would require the Court’s ultimate sanction before it could proceed. Given the social distancing required during lockdown, the Court agreed that the meeting should take place remotely, by webinar.