English Scheme and Dutch WHOA dual process used to achieve successful Vroon restructuring
The restructuring of the Dutch shipping group Vroon is particularly interesting for two reasons:
- It showed the power of harnessing more than one restructuring tool in more than one jurisdiction in order to implement an international restructuring; and
- It demonstrated how a scheme of arrangement with only two classes of creditors can be used to compromise multiple bilateral (or small club) facility agreements.
Background
From 2016, Vroon experienced significant pressure on its liquidity due to challenges in the shipping market and its ongoing debt obligations. The financing of the group was complex with 28 different financing arrangements and 14 different lenders (as at the time the claim form for the English scheme was submitted) all with different security packages. In November 2018, the group entered into an English law framework agreement under which cross-guarantees were provided and new security was granted for the benefit of a security agent on behalf of all framework agreement lenders and it provided for a uniform maturity date of 31 March 2021.
The final maturity date passed and complex lengthy negotiations ensued resulting in a proposed restructuring whereby:
- Vroon Group B.V. (the Parent) would be removed as parent of the group and the shares in the intermediate holding company sitting immediately below the Parent, Lamo Holding B.V. (Lamo), would be transferred to a STAK (a Dutch orphan structure);
- “NewCo” creditors would agree to release their claims under their relevant facility agreement(s) in order to receive a written down participation in a syndicated loan facility financing the “NewCo Vessels”, an allocation of depositary receipts in Lamo (Depositary Receipts) and a right to surplus cash on the restructuring effective date (Cash at RED) (if any);
- “Exiting” creditors would agree to their vessels being sold over a controlled period with their estimated deficiencies being compensated by allocation of Depositary Receipts and Cash at RED (if any); and
- “Excluded” creditors would receive separate negotiated deals due to the unique nature of such financing arrangements.
Multiple restructuring tools
In order to implement the restructuring, two tools were used in two separate jurisdictions.
Dutch WHOA
In the Netherlands, a WHOA was used in order to facilitate the transfer of the shares in Lamo from the Parent to the STAK and to also liquidate the Parent on a solvent basis.
Amongst other things this enabled the “debt for equity” swap with depositary receipts to be issued to certain creditors.
This solution was not possible without the WHOA as the shareholders opposed this structure claiming that they were “in the money”.
In addition the WHOA provided a stay against enforcement action from November 2022 providing the breathing space in order to complete the final stages of the negotiation and implementation.
English scheme of arrangement
In parallel, an English scheme of arrangement was used by Lamo in order to bind all scheme creditors to the negotiated restructuring. All but one scheme creditor voted in favour and whilst the other scheme creditor voted against at the scheme meeting, it did not appear at the sanction hearing to oppose the sanctioning of the scheme. As such Mr Justice Leech sanctioned the Scheme on 26 May 2023.
Whilst using two different processes can be useful to solve for two different issues, the interconditionality of the two processes can lead to courts being reluctant to make a decision before the court in a different jurisdiction and in this case Mr Justice Leech in his judgment noted that had the Dutch court ruled prior to the scheme sanction hearing then he would not have needed to hear from the shareholders.
Scheme of arrangement to compromise multiple bilateral/club facilities
Whilst there was an English law framework agreement in place to which the scheme creditors were party, the underlying financing arrangements were ultimately separate bilateral facilities with different security packages and different borrowers. However, the scheme company entered into a deed of contribution prior to the convening hearing in favour of the individual borrowers under the facility agreements to prevent “ricochet claims”.
Norton Rose Fulbright acted for the monitoring committee of lenders.
