A recent court ruling could test whether judges in the U.K. can continue to let companies with little connection to British courts restructure their debt. In the past year alone, London courts have helped foreign firms change terms on more than billion in distressed debt, according to Bloomberg data. Since 2009, more than 30 companies have turned to the London courts to amend their loans and bonds without filing for bankruptcy.
The case in point involves Codere SA, a gaming company based in Madrid, Spain with no U.K. offices, which wants to restructure $1.3 billion in bonds issued under New York law in London. Lawyers said if Codere’s case is turned down on jurisdictional grounds, the case could set a new precedent limiting the reach of English law.
In a preliminary ruling allowing Codere’s restructuring plan to move forward until the jurisdiction issue is decided, Judge Christopher Nugee said, “It seems to me that this is at the edge of what an English court can do. If the court can rule on Codere, you could do it with any company anywhere in the world.” Nugee added, “It’s quite an extreme form of forum shopping. It’s like grabbing someone else’s debt just to get rid of it
Codere applied for a ruling from an English court after incorporating a holding company in the U.K. last year. But it did not move its primary center of economic interest to Great Britain and its bonds remained governed by New York law. Both the center of economic activity and bond jurisdiction have been key issues for U.K. judges.
Codere wants a ruling before a shareholder meeting on December 4. Its attorney David Allison said if the restructuring is not approved, the company could become insolvent and risk losing the licenses it holds in several countries. Allison noted more than 90 percent of Codere’s bondholders approved the restructuring agreement before the case was brought to court, a point that lawyers said the U.K. court should respect.
Nugee said creditors including Silver Point Capital LP and M&G Investment Management Ltd. are set to take control of the firm following the restructuring.
Alberto Nunez-Lagos, partner at Uria Menendez law firm in Madrid, noted, “The ruling is not going to stop foreign companies seeking to restructure debt in London, but it may force them to be more careful. Spain reformed laws last year and can now compete with the scheme of arrangement. Restructuring debt can now be even cheaper and simpler in Madrid than in London.”
