Cross-Border Insolvency: The Rise Of The Scheme Of Arrangement

Author:Ms Elizabeth McGovern and Helena Clarke
Profession:Reed Smith

Re Zlomrex International Finance SA [2013]EWHC 4605 (Ch)

Re Apcoa Parking (UK) Ltd and others - [2014] All ER (D) 49 (Apr) )


Recently, the issue of restructuring foreign-law obligations using English schemes of arrangements has come to the fore, with various cases coming before the English High Court. This trend is, in part, because of a considerable increase in New York law highyield bonds being issued into Europe. Although defaults on these bonds have been rare, as defaults on these bonds begin to rise, we can expect to see these restructurings becoming more commonplace.

Two such restructurings to come before the English courts this year are Re Zlomrex International Finance SA, which was decided in February, and Re Apcoa Parking (UK) Ltd and others, which was decided in April.

The evolution of this line of case law suggests that it is easier for companies with no clear links to the UK to choose England as the jurisdiction for their restructuring, thus allowing them to use a scheme of arrangement, rather than a formal insolvency process that is often the only option available in other European jurisdictions.


A scheme of arrangement is a court-supervised process under the Companies Act 2006, which aims to implement an agreement between a debtor and its creditors. It is not an insolvency process - which are largely governed by the Insolvency Act 1986, are usually precipitated by an event of default under finance documents, and, generally, involve the company losing control of its day-to-day management, with an insolvency practitioner taking over the company.

An English court has jurisdiction to sanction a scheme of arrangement in a company that has a "sufficient connection" to England. Two methods are often used to establish this sufficient connection:

  1. Centre of Main Interests ("COMI"); or

  2. Governing Law and Jurisdiction clauses in underlying finance documents

In the cases before the English courts recently, the interpretation of both of these methods have been widened, making the English courts more accessible to foreign companies wishing to make use of a scheme of arrangement. We will look at the two recent cases in more detail below.

Re Zlomrex International Finance SA

In this case, the English High Court sanctioned a scheme of arrangement for a French company with debts governed by New York loan documents. The case discusses the COMI criteria in the context of establishing jurisdiction, and looks at...

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