On 10 March 2022, the UK High Court held the adjourned sanction hearing regarding Smile Telecoms Holdings Limited’s (“Smile”) second proposed restructuring plan. Despite Smile Telecoms’ first restructuring plan being sanctioned by the UK High Court back in March 2021, the African telecommunications company still faced liquidity shortages. This prompted the company to propose a second restructuring plan under Part 26A of the UK Companies Act 2006 (the “Companies Act”). The second restructuring plan would see the Smile Telecoms’ group senior secured lender, 966 CO S.a. r.l. (“966”), provide additional secured funding of $35.6m and obtain all of the group’s economic and voting rights, to facilitate a controlled sales process. Previously, 966 had provided additional liquidity of $63m under the terms of the first restructuring plan.
At the January convening hearing, Miles J held that only 966 had a “genuine economic interest” in Smile. Accordingly, an order was made under section 901(c)(4) of the Companies Act for there to be a single meeting of the super senior class, composed of 996. The order dispensed with the need for meetings of the seven remaining creditor classes to vote on the terms of the restructuring plan, based on valuation evidence demonstrating that the creditors were “out-of-the-money” in the relevant alternative of an administration.
Before the initially planned sanction hearing, an opposing lender, African Export-Import Bank, wrote to Smile opposing the restructuring plan, attaching an alternative desktop valuation seeking to undermine Smile’s valuation report. Additional senior lenders, Ecobank and the Industrial Development Corporation of South Africa (IDC), also oppose the restructuring plan. However, no opposing party had filed disputing valuation evidence at the convening hearing, as would be expected. Further, as noted by Smile’s counsel, the court should not re-open arguments, without good reason as to why the valuation issues were not raised previously.
On matters of recognition, IDC, in its opposition to the restructuring plan, stated “it does not understand how an English law process such as the [plan] can compromise its rights”. Smile is a Mauritian incorporated company with an establishment in England. Smile had produced expert evidence stating that a sanctioned plan will likely be recognised in Mauritius and South Africa (under whose laws one of the shareholder agreements is governed). Recognition in Mauritius is to be effected by way of a special resolution that will be executed by a power of attorney, which is granted under the restructuring plan.
Snowden LJ has reserved judgment.
The second restructuring plan of Smile Telecoms brings additional “firsts” to the restructuring plan case law. In particular, this is the first case in which “out-of-the-money” creditors (and members) were expressly excluded from voting, with a single class of creditor convened. Further, the sanctioning of the plan would mark the first time a restructuring plan changes the constitution and capital structure of a foreign company.
Read the Skeleton Argument from the hearing.
London Trainee Solicitor, Sakshi Rai, contributed to the drafting of the post.