Restructuring schemes approved by the Irish High Court for two companies in the Solar 21 renewable energy investment group

Executive summary

A recent decision of the High Court sanctioned restructuring schemes for two companies in the Solar 21 renewable energy investment group showing once again effective and efficient restructuring tools available in Ireland for companies in need. Below we discuss the main features of the Judgment and the criteria required to be met in order for the schemes to be legally binding and effective pursuant to Part 9 of the Companies Act 2014 (as amended) (the Act).

 

What is a Part 9 Scheme of Arrangement?

A scheme of arrangement under Part 9 of the Act is a court approved arrangement between a company and its shareholders and/or creditors that can be used to affect a solvent reorganisation of a company or group structure, such as for example, mergers of two or come companies or certain takeover, as well as to affect insolvent restructurings where a company in financial difficulties reaches a binding agreement or compromise with its creditors/and or its members (Part 9 Scheme of Arrangement).

The Part 9 Schemes of Arrangement provisions are largely identical to the English scheme of arrangement provisions contained in Part 26 of the Companies Act 2006. When a company proposes to enter into a Part 9 Scheme of Arrangement with its creditors and/ or its members and it obtains the approval of a special majority of the members and/or creditors affected by it, then, once the court approves it, the compromise or arrangement is binding on all the creditors and/or members.

In order for a scheme of arrangement to be binding, the following criteria must be met:

1. The proposed scheme must be approved by majority in number representing at least 75% in value of the creditors or class of creditors or members or both (as the case may be) present and voting at the scheme meeting;
2. Appropriate notice of the scheme meeting(s) must be given; and
3. The High Court must sanction the scheme of arrangement.

 

Background to Application

Pursuant to section 453 (2) of the Act, EFW 21 Renewable Energy Limited (EFW) and EFW 21 Renewable Energy (Ireland) (EFW21 IRL) (together the scheme companies) sought an order sanctioning a proposed scheme of arrangement between each of them and their investors (the Scheme). The scheme companies are wholly owned subsidiaries of Solar 21 Renewable Energy Limited (Solar 21). Solar 21 is the parent company of a group of companies which specialises in renewable energy infrastructure.

The scheme companies were established as an investment vehicle for an “energy from waste” project referred to as “Project 1”. The Solar 21 group had other projects before the scheme companies were established and some of these are relevant to the proposed Scheme.

Between 27 April 2018 and 16 June 2020, GBP209.5 million was paid from investors to fund Project 1. The funding had an initial term of 3.5 years.

Project 1 encountered delays and setbacks. Its planned technology provider entered administration in January 2020. Cost overruns, delays and other complications caused the group to make a decision in December 2022 that the Project 1 was no longer viable and that it should be cancelled. Prior to the cancellation the scheme companies had invested approximately GBP17.2 million in Project 1. It is considered unlikely that that amount will ever be recovered.

During the time when Project 1 was delayed and efforts were being made to resolve its issues, the scheme companies made loans and advances, sourced from the monies raised from investors, totalling GBP90.7 million. It was expected that the monies would be repaid to the scheme companies in sufficient time to meet repayment dates but this did not transpire.

There were complaints made at the convening hearing by a number of investors regarding the disbursement of funds as intra group loans and advances not being used towards Project 1 but at the confirmation hearing of the Scheme there were no objectors and the Judge did not have to consider this as part of the sanction hearing.

The fundamental objective of the Scheme is that the maturity dates will be deferred for a period of four years after the dates on which the scheme become effective, and that in the meantime the group will be able to realise other projects and assets in an orderly fashion such that returns can be made to the scheme investors which are more favourable than could be achieved if the scheme companies entered insolvency procedures. If the schemes are to be implemented in line with expectations, investors may receive a return of 93.9% of the principal amounts invested by them in loan notes and preference shares, which it is said would amount to 71.8% of the amounts which would have been due to them on maturity in respect of the loan notes and preference share. By contract the anticipated return on a liquidation of the scheme companies would be, in case of EFW, 12% of the amount originally invested or 9.1% of the amounts which would have been payable on maturity and, in the case of EFW21 IRL 15.5% of the original investment or 11.7% of the amount which would have been due for repayment on maturity.

There is an established five-part test that must be met for an Irish Court to sanction a scheme which is set out below:

1. The Court must be satisfied that sufficient steps have been taken to identify and notify all interested parties;
2. The Court must be satisfied that the statutory requirements and all directions of the Court have been complied with;
3. The Court must be satisfied that the classes are properly constituted;
4. The issue of coercion is one that the Court must consider; and
5. The Court must be satisfied that the scheme of arrangement is such that an intelligent and honest man, a member of the class concerned, acting in respect of his interest might reasonable approve.

In the present case, the Irish High Court was satisfied that the above criteria was met and sanctioned the Scheme.

Separately one of the parties that made objections at the convening hearing, but not at the scheme sanction hearing, had initiated an application seeking orders from the court appointing inspectors to Solar 21 under Section 747 of the Act. However, following the sanction of the Scheme the application was resolved on terms confidential between the parties.

 

Irish Part 9 Scheme of Arrangement – a tool in cross-border restructuring

A Part 9 Scheme of Arrangement is useful and flexible tool for both Irish and foreign entities with a sufficient connection to Ireland to implement quick and efficient financial, covenant and enforcement waivers under foreign law governed finance documents, as well as deferrals of principal and interest payments.

For example, Nordic Aviation Capital DAC (NAC) successfully obtained Irish Court approval for an Irish Scheme involving two classes of creditors (USD3.697 billion unsecured and USD2.226 billion secured) in July 2020. NAC was a common guarantor and single point of entry for the purposes of the Scheme across the appropriate financings of the NAC Group which included not only the scheme creditor claims against NAC but also against all companies within the NAC Group who were debtors under the facilities the subject of the Scheme and for certain finance leases. The Irish Scheme included debt owed by both NAC and other Group companies to third parties (contingent & contribution claims). In this regard, the Irish courts have endorsed the “sufficient connection” principle from the English decisions of Latreefers, Drax Holdings and Rodenstock.

The directors and shareholders are usually instrumental in putting together the scheme and running the process (there is no insolvency office holder appointment necessary). In this regard, the company can continue trading and the directors can stay in control of the company.

A Part 9 Scheme does not constitute a ‘main insolvency proceeding’ for the purposes of Annex A to the European Insolvency Regulation (Recast) 2015/848. This means that there is no requirement to prove insolvency to avail of the procedure, so distressed entities can act at an early stage.

Furthermore, the Irish courts have endorsed the pre-Brexit English courts approach by adopting their practice of assuming (without deciding) that Chapter II of the Brussels Recast Regulation applies and that the Scheme Creditors are “defendants” who are being “sued” by the Scheme Company for the purposes of Chapter II and thus a judgment sanctioning a Part 9 Scheme is automatically recognisable and enforceable throughout Europe under the Brussels Recast Regulation.

In addition, certain Part 9 Schemes have been successfully recognised in the US through the Chapter 15 process. Indeed, in NAC, referenced above, the Irish court-sanctioned scheme was recognised in the US (via Chapter 15); England and Wales, Germany, Denmark and Malta (via Brussels Recast Regulation); as well as Singapore, Japan, and Cayman.