As reported in our previous blog, the High Court of England and Wales made a convening order regarding the scheme of arrangement (the Scheme) of MAB Leasing Limited (the Company), a company incorporated in Malaysia as part of the group which operated Malaysian Airlines. The Company leased aircrafts under 52 lease agreements which were all governed by English law, and the scheme creditors were the lessors under those agreements.
The Company has since held the scheme meeting and the Scheme was unanimously approved by the 43 scheme creditors who attended and voted, with only one scheme creditor not attending or voting. The turnout and vote in favour represented approximately 95.9 per cent by value of the creditors. The sole remaining scheme creditor who did not attend the scheme meeting subsequently entered into a Lock-Up Agreement consenting to the Scheme.
The Company sought sanction for the Scheme. The Court applied the principles in Re Telewest Communications plc (No.2) and considered whether the application of the Aircraft Protocol to the Convention on International Interests in Mobile Equipment and its associated regulations (Cape Town Convention) may result in a “blot” on the Scheme.
Under the Cape Town Convention, if the Scheme is an “insolvency-related event”, no obligation of the debtor under the lease agreement may be modified without the consent of the creditor. As set out above, one creditor did not attend or vote in the scheme meeting although it did enter into the Lock-Up Agreement.
The Court noted it may be argued that the Scheme was an insolvency-related event and therefore the obligations of the Company could not be modified without the consent of each scheme creditor. However, in this case the Scheme received unanimous consent from the creditors before the sanction hearing. Accordingly, the Court concluded that the potential applicability of the Cape Town Convention did not need to be determined. Perhaps for that reason, the written judgment did not include Mr. Justice Snowden’s oral observation that there was a “very strong reason” that the Scheme would not be an “insolvency-related event” and a possible blot on the Scheme.
This is an important point for airlines and lessors hoping to restructure within the Cape Town Convention. It is also useful when considering the international effectiveness of schemes, which often need to be determined by offshore Courts. In this instance, the Court was satisfied on this due to the high level of creditor support. It was also assisted by an expert opinion on Malaysian law.
It remains to be seen how a scheme of arrangement proceeding may be characterised by different Courts under different international conventions. On 19 February 2021, the High Court of Malaysia handed down the first decision on the applicability of the Cape Town Convention in AirAsia X Berhad. The High Court of Malaysia held that a scheme of arrangement under the relevant legislation in Malaysia was an “insolvency-related event” within the meaning of the Cape Town Convention. Further, in a decision handed down on 17 February 2021, the English Court held that a scheme of arrangement under Part 26A of CA 2006 fell within the bankruptcy exception in the Lugano Convention in the restructuring of Gategroup Guarantee Limited.