Irish reinsurance SPV Ballantyne Re plc recently underwent a successful complex international restructuring. Some $1.65bn of senior New York law-governed debt was restructured through an Irish scheme of arrangement pursuant to Part 9 of the Companies Act 2014.

Scheme of Arrangement

A scheme of arrangement is a time- efficient and nimble tool that companies can use, subject to court approval, to implement a solvent corporate reorganisation, merger or de- merger, or an insolvent restructuring. At least 75% in value of creditors in attendance at the required meetings must approve the scheme, after which a confirmatory High Court application is made.

In this case, the scheme proposed a restructuring of Ballantyne's reinsurance obligations and outstanding New York-governed debt, with a view to distributing the remaining value among its senior noteholders. One aspect of the scheme involved the release of guarantees provided by third-party guarantors.

Objections

While 98.1% of the noteholders by value and present at the creditors’ meeting approved the scheme, one noteholder – ESM Fund I LP, who held the relatively minor sum of $5m notes – opposed it. ESM contended that the scheme was deficient in terms of the information it provided. It also claimed that:

• The financial position of a significant third-party guarantor was not as adverse as presented in the scheme, so the release of the guarantees as envisaged in the scheme was not a necessity.
• The Irish High Court did not have jurisdiction to sanction a scheme that provides for the release of guarantees provided by a third party.
• The scheme should have been initiated in New York rather than Ireland.

Judgment

In a comprehensive judgment, Mr Justice Barniville noted the Irish and international tests and principles applicable in the approval of schemes of arrangement. The court was mindful of avoiding a situation whereby a minority of noteholders could “hold to ransom” the majority of noteholders. The judge also noted the established test as to whether “an honest and intelligent person, acting in his or her own interests, would reasonably approve” of the scheme.

In Association with

In approving the scheme, it was held by the High Court that:

• The financial position of the guarantors was adequately communicated to the noteholders and amounted to a distressed financial position.
• With regard to the High Court's jurisdiction to approve a scheme releasing third-party guarantees, Mr Justice Barniville reviewed Australian and English case law, and noted that such releases were “fairly common” where there is a sufficient connection between the scheme and the released claims. In addition, the release of the guarantees was required in order to bring finality to the affairs of Ballantyne such that it may be ultimately wound up.
• The Irish court had jurisdiction, as Ballantyne is registered in Ireland, its directors are Irish and all board meetings were held in Ireland.

Location of Choice

The Ballantyne scheme illustrates the desirability of Ireland as a jurisdiction of choice for global restructurings. The judgment also highlights the speed at which the Irish courts can operate. Mr Justice Barniville provided a thorough judgment the day after the contested hearing to sanction the scheme, and within six weeks of Ballantyne's original application to the court.

Irish-located expertise, the close correlation between Irish legislation and that of other jurisdictions regarding such schemes, and a remarkably quick timeframe from application to judgment, all underpin the attractiveness of Ireland as a location of choice for international restructuring.

Barry Cahir, Partner, is Head of the Insolvency & Corporate Restructuring team with Beauchamps.
T: +353 (0) 1 418 0679
E: b.cahir@beauchamps.ie
www.beauchamps.ie