knowledge | 6 November 2019 |
An Asian paper and pulp manufacturer and distributor restructures US$1 billion of debt through an Irish Scheme of Arrangement
McCann FitzGerald acted for the Asia Pulp and Paper Group (“APP Group”) in the recent successful restructuring of over US$1 billion of debt.
In a first for the Irish restructuring market, the debt was restructured through a scheme of arrangement under section 676 of Part 11 of the Companies Act 2014 (“Part 11 Scheme of Arrangement”). On 23 October 2019, the US Bankruptcy Court granted recognition of the scheme under Chapter 15 of the US Bankruptcy Code.
The APP Group, headquartered in Indonesia, is one of the largest paper and pulp manufacturers and distributers in the world. In 2001, the APP Group declared a global standstill with respect to approximately US$13.7 billion of outstanding indebtedness. Since 2001, the APP Group implemented out-of-court consensual restructurings of a significant proportion of that indebtedness. However, for various reasons, it was not possible to consensually restructure the remaining rump of US$1 billion of debt which largely comprised of US governed notes issued and guaranteed by various members of the APP Group.
What is a Part 11 Scheme of Arrangement?
A Part 11 Scheme of Arrangement is available to corporates that are about to be, or are in the course of being, wound-up. The arrangement is entered into between the company (or any appointed liquidator on behalf of the company) and its creditors. The scheme requires the consent of the members of the company, which must be given by a special resolution (a majority of 75% of the members), and the consent of 75% in number and value of all creditors. While the approval threshold is high, there is no requirement for creditors to be divided into classes.
Once the arrangement has obtained the relevant support, it will be binding on the company, all of its creditors and any liquidator (if the scheme of arrangement is promoted by a liquidator). Any creditor who wishes to appeal against the arrangement has three weeks from the date of completion of the arrangement, to make an application to the Irish High Court. The Court may then amend, vary or confirm the arrangement, as it thinks fit. The Court plays no role in initiating the process.
The APP Group Part 11 Scheme of Arrangement
The proposal to restructure the remaining US$1 billion of debt consisted of the following key steps:
- the incorporation of an Irish special purpose vehicle (“Irish SPV”);
- the Irish SPV assuming joint and several primary liability for the US$1 billion of debt;
- the liquidation of the Irish SPV;
- the liquidator then promoting a Part 11 Scheme of Arrangement on behalf of the Irish SPV and its creditors; and
- recognition of the Part 11 Scheme of Arrangement in the United States.
The Part 11 Scheme of Arrangement compromised the noteholders’ claims (“Scheme Creditors”) in respect of the US$1 billion of debt and, importantly, provided for the release of their claims against the Irish SPV, the liquidator and all other members of the APP Group.
Prior to taking any steps, a consent solicitation exercise was undertaken. A comprehensive consent solicitation document (which included the proposed Part 11 Scheme of Arrangement) was disseminated to the Scheme Creditors. The Scheme Creditors were asked to consider and consent to the terms of the proposed Part 11 Scheme of Arrangement, the Irish SPV assuming the US$1 billion of debt and a liquidator of the Irish SPV subsequently promoting the proposed Part 11 Scheme of Arrangement.
Over 90% of the Scheme Creditors approved the terms of the proposed restructuring and furnished the necessary approvals and consents. A similar percentage approved the Part 11 Scheme of Arrangement. Recognition of the scheme was subsequently obtained in the United States under Chapter 15 of the US Bankruptcy Code.
This restructuring shows the effectiveness of Irish restructuring procedures to implement complex international debt restructurings.
For further information please contact either Michael Murphy, Partner, or David O’Dea, Senior Associate, in the Restructuring and Insolvency Group at McCann FitzGerald.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.