HSE Finance SÀRL, Re [2025] EWHC 1386 (Ch)

[2025] EWHC 1386 (Ch)Case No CR-2025-002916
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Venue 7 Rolls Building, Fetter Lane, London, EC4A 1NLDate 5 June 2025
Before
Mr Justice Hildyard
In the matter of HSE Finance S.À R.L.- and –In the matter of The Companies Act 2006
Hearing Hearing dates: 6 – 7 May 2025
Richard Fisher KC and Stefanie Wilkins (instructed by Latham & Watkins) for the Scheme Company
Approved JudgmentThis judgment was handed down remotely at 10.30am on 5 June 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
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Introduction

[1]At an adjourned hearing on 7 May 2025 I acceded to HSE Finance S.à r.l.’s (the “Scheme Company”) application for an order (the “Order”) to convene a single meeting of certain of its creditors (the “Scheme Creditors”) for the purpose of considering and, if thought fit, approving a scheme of arrangement (the “Scheme”) under Part 26 of the Companies Act 2006 (the “CA 2006”). The Scheme Company’s application for that Order (and associated relief) was made by a Part 8 Claim Form dated 28 April 2025.[2]The purpose of this judgment is to provide my detailed reasons for the Order and directions then made.

The Scheme Company and the HSE Group

[3]The Scheme Company is an intermediate holding company in the HSE corporate group (the “HSE Group”). The Scheme Company is incorporated under the laws of the Grand Duchy of Luxembourg, and the other members of the HSE Group are incorporated either in that jurisdiction or in Germany.[4]The Scheme Company wholly owns (directly or indirectly) a number of subsidiaries, each of which is incorporated in Germany.[5]The Scheme Company has the following ultimate shareholders:(1) 83.57% shareholding: PSMA Holding S.à r.l. (the “Sponsor”), a Luxembourg company;(2) 15% shareholding: a German limited partnership, referred to as the “Management Equity Vehicle”; and(3) 1.43% shareholding: Mr Richard Reitzner, the chairman of the supervisory board of the principal operating company.[6]Two structure charts setting out a simplified form of the HSE Group structure and the Scheme Company’s principal indebtedness before and after the restructuring of which the Scheme is a part (see paragraph [10] below) are attached to this judgment. (I should note that the charts contain modifications made by the Scheme Company’s solicitors to the versions in evidence at the convening hearing: these are intended by them to clarify certain aspects and make the charts more readily understandable.)[7]The HSE Group operates a live-commerce retail business in Germany, Austria and Switzerland (“the DACH region”) through multiple media channels, including television, internet and mobile devices and social media platforms. Television sales channels operated by the HSE Group and ecommerce contribute the majority of the HSE Group revenue. The HSE Group primarily sells fashion items, beauty and wellness products, jewellery and household products which are marketed under its own or exclusive brands. As at 31 December 2024, the HSE Group employed approximately 900 people.[8]The Scheme Company itself is a holding company. Its key asset is its investment in its subsidiaries. It has no business operation functions: its function is to act as the financing entity for the HSE Group. In that regard, it has substantial financial indebtedness (€630 million plus outstanding but up to date interest) as the borrower in respect of two series of debt notes (the “Existing Notes”).

Purpose and effect of the Scheme in outline

[9]The purpose of the Scheme is to compromise the Existing Notes, which are now governed by English law (following a recent amendment), and which are (and always have been) subject to the terms of an English law intercreditor agreement.[10]The Scheme is proposed as part of the implementation of a comprehensive restructuring (“the Restructuring”) of certain of the HSE Group’s financial indebtedness. The Restructuring includes the replacement or extension of revolving credit facilities (which are not the subject of the Scheme itself but which are a crucial source of liquidity) and is more fully explained in the Explanatory Statement issued by the Scheme Company to the Scheme Creditors pursuant to section 897 of CA 2006 (the “Explanatory Statement”).[11]If sanctioned by this Court, the Existing Notes (and the Guarantees provided by the Existing Guarantors (the “Guarantees”)) will be released and discharged in exchange for a combination of new senior secured notes, new PIK notes, and contingent value rights (“CVR”, a debt instrument under Luxembourg Law) which will be stapled to the new PIK notes, all as further explained in paragraph [64] below.

Details of the indebtedness of the Scheme Company and the HSE Group

[12]In more detail, the Scheme Company is the issuer of the Existing Notes, which comprise:(1) €380 million in 5.625% fixed rate senior secured notes due 15 October 2026 (the “Fixed Rate Notes”); and(2) €250 million in floating rate (3M EURIBOR Currently 2.1% + 5.75%) senior secured notes due 15 October 2026 (the “Floating Rate Notes”).[13]The Existing Notes are governed by an indenture dated 6 May 2021 (the “Existing Notes Indenture”), which was amended on 14 April 2025 to change the governing law from the law of New York to the law of England and Wales.[14]The validity of that change in governing law (including a change for the purpose of promulgating and supporting the Scheme) as a matter of New York law is addressed and confirmed in the expert evidence of Mr Daniel Glosband (“Mr Glosband”).[15]As is customary, the Existing Notes are held in global note form. The Common Depository is Deutsche Bank AG, acting through its nominee, BT Globenet Nominees Limited (the “Common Depository”), which is the registered holder of the Existing Notes. Its rights are recorded through Euroclear SA/NV and Clearstream Banking S.A., (together, the “Clearing Systems”).[16]The ultimate beneficial owners and the holders of book-entry interests (the “Existing Noteholders”), may receive definitive registered notes if:(1) one of the Clearing Systems notifies the issuer that it is unwilling or unable to continue to act as depositary, and a successor depositary is not appointed by the issuer within 120 days; or(2) the owner of a book-entry interest requests such exchange in writing delivered through one of the Clearing Systems following an Event of Default (as defined in the Existing Notes Indenture) and enforcement action is being taken in respect thereof under the Existing Notes Indenture.[17]Each of the Scheme Company’s subsidiaries (together, the “Existing Guarantors”) is a guarantor of the obligations under the Existing Notes Indenture, and has provided collateral. More specifically, the Existing Notes are secured by security interests over the “Shared Collateral”, which is:(1) the shares in each of the Existing Guarantors;(2) certain material bank accounts of the Scheme Company and the Existing Guarantors;(3) receivables owing to the Scheme Company and the Existing Guarantors in respect of certain material intercompany loans; and(4) certain trademarks, domain names and software of Home Shopping Europe GmbH, which is the principal operating company in the HSE Group.[18]The total principal outstanding under the Existing Notes is €630,000,000, together with approximately €10,553,569 in accrued interest.[19]The Scheme Company (with certain other group members) is also a guarantor in respect of a €35,000,000 revolving credit facility (the “RCF”) which I have mentioned above. The RCF is also secured by the Shared Collateral. This is presently undrawn, save that approximately €600,000 has been drawn under ancillary facilities, in respect of certain customs guarantees. The RCF is intended to be refinanced on an agreed basis prior to (and as a condition of) the Restructuring becoming effective.[20]The Scheme Company has no trade or other creditors, other than certain professional advisory and audit fees in relations to legal, tax and accounting advice.[21]The HSE Group does have certain other indebtedness or financial arrangements (albeit for which the Scheme Company is not liable/a party), as described below:(1) Lease liabilities (including future lease liabilities) in relation to office and studio space at the HSE Group’s German headquarters. These will not be compromised as part of the Restructuring because the leases are integral to the business operations of the HSE Group. The warehouse, in particular, has been configured to the specific requirements of the business and so alternative arrangements would be impracticable;(2) A factoring facility used for customer instalment payments, which is important for the ongoing trading of the business; and(3) An uncommitted supplier financing facility for up to €20 million made available by UniCredit: this has been cancelled from May 2025 onwards but it is intended that the HSE Group will restore this facility or transition to another lender if the Restructuring is successful.

The financial difficulties which have prompted the Scheme

[22]The HSE Group has had to face a number of trading challenges in recent years.[23]The financial difficulties of the Scheme Company and the HSE Group have been addressed at some length in the factual evidence, and in particular in the witness statements of Mr Stuart Twinberrow (“Mr Twinberrow”) and Mr Rainer Stäbler (“Mr Stäbler”) (both of which are dated 30 April 2025). Mr Twinberrow describes himself as having been “the manager” of the Scheme Company since 3 February 2023. His evidence is that “In Luxembourg, a manager and a director are generally equivalent roles, particularly when referring to private limited liability companies, as is the case here.” In any event, he states that he is authorised to provide the evidence in his witness statement on behalf of the Scheme Company (as was also confirmed to me by Counsel).Mr Stäbler describes himself as a director of the relevant subsidiaries and also their “CFO”. In his witness statement, he states that he is authorised in his capacity “as CFO and as a director of the Subsidiaries”; but again Counsel confirmed to me that Mr Stäbler is expressly authorised also by the directors and management of the Scheme Company.[24]In summary:(1) The products sold by the HSE Group are predominantly discretionary in nature. Rising inflation, geopolitical tensions, supply chain disruptions and increasing energy prices have combined to result in weakened consumer sentiment, especially in Germany, and in consequence, reduced demand.(2) The HSE Group has faced increased expenses in dealing with excess inventory. Having weathered the Covid-19 pandemic largely successfully, the HSE Group had predicted that the business would grow further in 2022. It therefore ordered higher volumes of products to meet the anticipated higher sales. However, in light of the weakened demand described above, exacerbated by the Russian invasion of Ukraine and the subsequent cost of living and gas price crisis in early 2022, these sales did not materialise.(3) Moreover, these events (amongst others) have caused increased shipping and logistical expenses, particularly in relation to products manufactured in China (which is a key source for the business);(4) The HSE Group’s revenue in the DACH region (which comprises Germany, Austria and Switzerland) declined by more than 15% from 31 December 2021 to 31 December 2024 and its Adjusted Bond EBITDA in that region declined by 44% during the same period; and(5) In June 2024, the HSE Group divested its Russian business. Russia had been a substantial contributor to the revenue of the HSE Group. Following the Russian invasion of Ukraine, there was a marked decrease in both revenue and profitability in this part of its business. The HSE Group completed the sale of the Russian business to a local investor in June 2024, following a strategic decision in 2023. This transaction resulted in the loss of Russian EBITDA for the HSE Group, and the purchase price was only €7 million because of restrictions on the sale of Russian assets.[25]Notwithstanding these financial difficulties, an unusual feature of this proposed Restructuring is that no Event of Default has in fact occurred in respect of the Existing Notes and furthermore, such is their “covenant light” nature that one would not be likely to occur unless and until there was a failure to pay interest/principal on the Existing Notes.[26]Further, as matters presently stand, and without taking into account any further deterioration which the presentation of the application premised on the need for a scheme might trigger should the Scheme not ultimately be sanctioned, the HSE Group is forecast to have sufficient liquidity over the course of 2025 to continue its operations.[27]However, the Scheme Company and HSE Group have concluded that such is the deterioration of their financial position that there is no real prospect of the Existing Notes being repaid in full or refinanced at par.[28]In short, Mr Twinberrow’s evidence on behalf of the Scheme Company is that its current assets and anticipated profit through to October 2026 will not generate sufficient cash to repay the Existing Notes.[29]Moreover, his evidence is that the Scheme Company is unlikely to be able to refinance the Existing Notes at par, or otherwise be able to fund the repayment of the Existing Notes. In particular:(1) Financing banks have indicated that further financing is not available at the current leverage levels of the HSE Group, which have increased from 3.7x as of 31 December 2021 to 7.6x as of 31 December 2024.(2) The Scheme Company and the Sponsor have had discussions with a number of financial advisers which support this conclusion.(3) The Existing Notes have been trading at a depressed price of 45.79% of face value for the Fixed Rate Notes and 43.16% of face value for the Floating Rate Notes (as at 25 April 2025).(4) S&P Global Ratings and Moody’s have recently downgraded the Scheme Company with a negative outlook, referring to an unsustainable capital structure and high default risk.[30]Mr Stäbler focuses in his witness statement predominantly on the Scheme and its intent and provisions; but as I read his evidence, he agrees with Mr Twinberrow, both as regards the reasons for the financial difficulties and as to their severity.[31]In those circumstances, the evidence of Mr Twinberrow and Mr Stäbler is that after careful review, and independent advice, as well as discussions with certain of the Existing Noteholders (as to which see further below) and its existing financing and relationship banks, the view of the directors and managers of the Scheme Company and the HSE Group is that the Scheme Company will not generate enough cash to repay the Existing Notes when they become due for repayment in October 2026, and the Scheme Company does not have a reasonable prospect of refinancing these liabilities at par or otherwise sourcing sufficient funds for their repayment.[32]It is important to assess what would be the likely alternative if the Scheme were to fail. This is more subjective than usual because no Event of Default has occurred or is imminent.[33]In summary, the Scheme Company’s evidence is that if the Scheme is not pursued or is not sanctioned, the financial position of both the Scheme Company and the HSE group will quickly worsen. The directors and managers anticipate that a serious liquidity crisis would follow, and that the only viable alternative to ceasing trading and opening insolvency proceedings in Germany would be a director-led sale of the business through a share sale of its immediate Subsidiaries or its key operating assets, which would have to be accomplished before its liquidity and cash position was unsustainable.[34]The evidence of both factual witnesses is that such a sale would have to be arranged and implemented within two months of it becoming clear that the Scheme had failed. An accelerated process would be necessary because the value of the business would deteriorate after the two-month window, leading to lower recoveries.[35]The Scheme Company’s submission is that in those circumstances, this Scheme must be tested against the most likely alternative: that is usually referred to as the “Comparator”; but another phrase (and the one adopted in the context of Part 26A restructuring plans) is “the relevant alternative”.[36]A report has been undertaken by Ms Lisa Rickelton (“Ms Rickelton”) of FTI to assess the suggested comparator of a director-led quick sale (“the Comparator Report”). Of course, Ms Rickelton has had to base her assessment of the trading position both now and over the next 18 months or so on the evidence (such as cash flow forecasts) and views provided by management. However, she has carefully reviewed the constituent elements of the views they have expressed for consistency and reasonableness and it appears, on my reading of her report, that she is content in that regard.[37]She agrees, in summary, that on the basis of her projections from management cash flow forecasts to produce what she calls a “sensitised cash flow analysis”:(1) “Given the lack of a pre-existing imminent liquidity threat or other factor which would require an immediate insolvency filing, it is unlikely that the directors would resolve to place Group entities immediately into an insolvency process following a failure of the Scheme”;(2) “The sensitised cash flow analysis suggest that the impacts of a failed Scheme are likely to lead to a significant and immediate cash outflow in June 2025. Depending on the level of creditor action [for example, demanding difficult credit terms], the Group may continue to have sufficient liquidity to continue operating for several months, although liquidity is likely to become severely strained.”(3) “However, given the potential adverse liquidity impacts set out... the directors would need to monitor liquidity developments and projections very closely” and “it is feasible that if impacts were sufficiently adverse that the directors may conclude they have a duty to instigate insolvency proceedings in the absence of other options”;(4) “An unplanned insolvency process resulting in a piecemeal sale of assets would likely be highly value-destructive, given the nature of the business and relative lack of tangible assets…”(5) That said, however, she considers that “the most likely Comparator comprises a consensual going concern sale of the business. A sale of the business as a whole would be most likely to maximise value and returns to the Existing Noteholders…”[38]One issue that has concerned me, even at this early stage, is as to whether, if the Scheme fails, a director-led sale within such a limited time-scale is a realistic prospect. In particular, it is relevant (and a concern) in this context that the consent of 90% of the Existing Noteholders would be required for such a sale. The question arises why that should be regarded as realistic, in circumstances where that percentage of support is regarded as unlikely to be achieved unless and until the Scheme fails.[39]As to that, the Scheme Company and the HSE Group’s analysis and evidence (especially in the witness statement of Mr Stäbler), are as follows:(1) Even if the Scheme/Restructuring has failed, it will not be (given the existing support evidenced by the LUA) because of an inability to garner more than 75% creditor support;(2) Whilst it is correct that the Scheme Company has not obtained the 90% support necessary to effectuate the Restructuring on a consensual basis, this is thought likely to be a consequence to some degree of creditors having assumed that the Scheme/Restructuring is likely to progress given the published level of support;(3) Although some Existing Noteholders are ‘restricted’ and cannot vote in favour of the Scheme, it is likely that any such restrictions would not apply where the underlying investment is close to or entering insolvency proceedings; and(4) where the choice is between the director led sale process, and an insolvency in due course where recoveries are likely to be materially worse than the director led sale, the Scheme Company considers it likely that the prospect of materially lower returns will galvanise the remaining Existing Noteholders.[40]In summary, it seems to me that the identification of the Comparator is not entirely straightforward. I return to this later in this judgment in the specific context of the principal issue of class composition. Further, the evidence described above may well have to be reviewed if the Scheme proceeds to the sanction hearing. For present purposes I note that the Scheme Company’s position is, and depends upon, the Comparator being accepted to be a director-led sale within two months.

The benefits of the Scheme in comparison to the Comparator

[41]I turn to contrast the proposed Comparator and the position if the Scheme is sanctioned. This is of central relevance in seeking to weigh whether different series of creditors under loan note arrangements may have different and possibly conflicting perspectives in relation to the Scheme.[42]The Scheme Company has put forward evidence that the Scheme provides a clearly better outcome for all of the Existing Noteholders than the Comparator.[43]In relation to this comparison, in addition to Ms Rickelton’s Comparator Report, Mr Alexis Anaman, also of FTI, has provided a valuation of the Scheme Company and its subsidiaries (the “Valuation Report”). As I should have said earlier, both reports have been prepared in accordance with CPR Part 35, following the observations made in Re Chaptre Finance plc [2024] EWHC 2908 (Ch) at [78].[44]The Comparator Report indicates that the returns to the Existing Noteholders would be materially worse if the Comparator were to occur, estimating the recoveries for Scheme Creditor claims in the two scenarios (calculated as at the date of the sanction hearing) as being: Claim €m Low Case High Case €m €m % €m % Scheme 641 326 51% 413 64% Comparator Scenario 641 231 36% 299 47%[45]The Valuation Report also records that the expert has conducted a valuation on a discounted cash flow basis. This methodology also supports the Scheme outcome as being higher than in the proposed Comparator. In that regard:(1) The principal driver for the difference in outcomes is the 30% discount This is the mid-point for the distressed discount, Ms Rickelton expressing the view that a discount of between 25 and 35% is likely: Comparator Report at 2.16. applied to the business sale proceeds necessitated by a sale process being conducted on a going concern basis but in c. 2 months, and in a distressed scenario: Comparator Report at 2.16 and Section 5;(2) Ms Rickelton is satisfied that it would be necessary/likely to conduct a sale process in that period in order to preserve the value of the business and avoid a materially worse deterioration in value if the process took longer: see Comparator Report at 2.13 and 2.14 and Section 4; and(3) Ms Rickelton is also satisfied that a sale of the business and/or its assets in an insolvency of the HSE Group’s operating entities would be likely to be value destructive and result in lower sale proceeds given the nature of the business and the lack of tangible assets: see Comparator Report at para 2.12.2.

The evidence of creditor support for the Scheme

[46]This is not the stage at which it is necessary or appropriate to determine whether the Scheme is indeed likely to result in a better outcome for the Scheme Creditors than the proposed Comparator. However, the Scheme appears to have the overwhelming support of the Scheme Creditors. Some 89% of Scheme Creditors have signed a lock-up agreement as of 29 April 2025 (of whom 83% are already verified holders of Scheme Claims (as defined in the Scheme)).[47]No Scheme Creditors have indicated any opposition to the proposed Restructuring on any grounds, and no one appeared to oppose or critique the Scheme at the convening hearing.

Could a solution be achieved consensually without a Scheme?

[48]This high level of support invites the question whether what is proposed could be achieved consensually. The position of the Scheme Company is that the level of support is high, but not quite high enough.[49]Under the Existing Notes Indenture, the threshold required to implement a consensual restructuring is 90% unless and until an Event of Default occurs. As previously noted, none has occurred and none is imminent.[50]Further, not only does it appear that the 90% threshold has not actually as yet been met, but also certain Existing Noteholders (around 1.3%) that are party to the Lock-Up Agreement (i.e. are among the 89%) are ‘restricted’ and are understood to be unable, for fund, constitutional or governance reasons (not all of which are known to the Scheme Company), to comply with certain positive obligations provided for under the Lock-Up Agreement. These restrictions may include an inability to vote in favour of the Restructuring, albeit that the Scheme Company and its advisers apparently do not have full visibility of the extent and nature of any restrictions. Based on the experience of the advisers, the restrictions are likely to pertain to voting in favour of an ‘amend and extend’ type transaction, such as the Restructuring.[51]Moreover, given the high levels of trading of the Existing Notes, and their public nature, the Scheme Company has not been able to identify and contact directly all remaining Existing Noteholders to seek their consent despite its best efforts to do so.[52]Accordingly, the Scheme Company has proposed the Scheme in order to effect this part of the restructuring, in circumstances where there are practical impediments to a consensual compromise (despite the super-majority support for such a course).

Development of the proposals

[53]In June 2024, the Scheme Company and the Sponsor entered into discussions with certain of the Existing Noteholders concerning the refinancing or restructuring of the Existing Notes.

Formation of the Ad Hoc Group

[54]This led to the formation, in October 2024, of what Mr Twinberrow describes as “an informal ad hoc group of certain Noteholders”, referred to as the AHG.[55]The Scheme proposals have been developed over the past year in close consultation with the AHG. The composition of the AHG is of relevance in considering at this hearing whether the Existing Noteholders in the AHG may have a separate, fracturing, interest, in terms of class composition; and it will very likely be the subject of further scrutiny if the Scheme proceeds to a sanction hearing. I turn therefore to summarise the evidence available in this respect.[56]Mr Twinberrow stated in his first witness statement that the Existing Noteholders in the AHG held some 73% of the total Existing Notes; and that was my understanding at the convening hearing. No details of the interests of those “certain Noteholders” was provided. The formation of such a group in order to assist in the efficient development of re-financing proposals is quite usual; but, of course, it may be of concern if the group is unrepresentative of the creditors affected by the proposals, or controlled by a group of creditors with interests different from the others. At the convening hearing, therefore, I requested further details as to the constitution of the AHG.[57]My request prompted a review of the membership and, in turn, of the percentage interests of the “certain Existing Noteholders”. It was eventually clarified in a second (corrective) witness statement by Mr Twinberrow dated 8 May 2025 that:(1) The holdings of the Existing Noteholders in the AHG had been miscalculated “due to a misunderstanding by Kroll regarding the identity of the Ad Hoc Group members…because they included certain Existing Noteholders as members…when they were, in fact, not members of the Ad Hoc Group” (Kroll Issuer Services Limited, acting in their capacity as Lock-Up agent under the Lock-up agreements described later).(2) The correct figure is 53.52% and thus materially different (for which Mr Twinberrow has sincerely apologised).(3) As to the information I had requested: (a) There were five institutions that comprised the membership of the AHG. (b) All five AHG members were cross-holders of the Existing Notes at an institutional level.(4) Mr Twinberrow provided further details in respect of the percentage holdings of all consenting noteholders who have entered into the Lock-up arrangements to which I now turn.

The Lock-Up Agreement

[58]On 28 March 2025, the Scheme Company, the AHG, the Sponsor, HSE Holding S.à r.l. and certain of the Existing Noteholders entered into a Lock-Up Agreement (the “Lock-Up Agreement”). As of the date of the convening hearing, 89% of the Existing Noteholders have acceded to the Lock-Up Agreement, albeit only 83% have fully evidenced their holdings.[59]The Lock-Up Agreement provides, in summary, that:(1) the Scheme Company (and others) would implement the Restructuring in accordance with the appended term sheets: clause 8.1(a)(i); and(2) each of the parties would take all steps necessary to support the Restructuring, including voting in favour of a Scheme to implement it: clause 7.1, and in particular clause 7.1(a)(vii)(B).[60]It is relevant to note that no early bird or other fee is payable in return for entering into the Lock-Up Agreement, and the arrangement is open to all Scheme Creditors.[61]It is also relevant for the same reasons as I have been interested in the constitution of the AHG, and in particular to assess whether the AHG or the commitments which the Lock-Up agreements establish might be said to result in a “class within a class”.[62]Mr Twinberrow’s second witness statement provides useful information in this respect. In particular, he has clarified that:(1) Of the consenting (locked-up) Existing Noteholders, comprising both AHG and other Existing Noteholders: (a) on a fund level there were 30 (and there are now 31) that are solely fixed rate noteholders and 31 funds that are solely floating rate noteholders; (b) there were three institutions in the non-AHG cohort that are solely floating rate noteholders; and (c) on an institutional level there were (as at 8 May 2025) only five institutions (none of whom are AHG members) that were not cross-holders and were solely holding fixed rate notes.(2) In terms of overall cross-holdings (among the locked-up Existing Noteholders in both the AHG and the non-AHG cohort): (a) there were 128 (now 129) locked-up Existing Noteholders (according to the available evidence); (b) of these, 67 held positions in both the Fixed Rate Notes and the Floating Rate Notes; (c) this represented 75.08% by value of the locked-up debt (now 74.98% due to an additional holder who is not a cross-holder, acceding to the Lock-up Agreement on 7 May 2025) and 62.63% of the overall principal amount.[63]These analyses, both of the AHG and of the holdings of consenting (locked-up) Existing Noteholders (both AHG and non-AHG members) seem to me to indicate that there is no fracturing or creation of a “class within a class”, and that support for the Scheme is fairly equal across the fixed and floating rate cohorts.

Overview of the terms of the Scheme

[64]In greater detail, the effect of the Scheme, if sanctioned, would be to release and discharge the Existing Notes in exchange for new notes, and contingent value rights (“CVRs”) as follows:(1) €630 million in principal amount of the Existing Notes will be cancelled, in exchange for a new issuance of: (a) €340 million in aggregate principal amount of floating rate senior secured notes due 2029 by HSE Investment S.à r.l (the “New SSN Issuer”) (the “New SSNs”); and (b) €192 million in aggregate principal amount of floating rate PIK holdco notes initially due 2030 (the “New PIK Notes”) to be issued by the Scheme Company; and(2) the portion of Existing Notes that is not exchanged for the New SSNs or the New PIK Notes on the Restructuring Effective Date (together with all accrued and unpaid interest on all of the Existing Notes until and including the Restructuring Effective Date (as defined in the Restructuring Implementation Deed referred to in paragraph [68] below)) will be cancelled in exchange for CVRs to be issued by the New PIK Notes Issuer/Company. (a) These will entitle the Existing Noteholders to receive 37% of any Distributions (as defined in the term sheet appended to the Practice Statement Letter) in respect of the Scheme Company. The CVRs will be stapled to the New PIK Notes. (b) CVRs are a contingent liability under Luxembourg Law and are a debt instrument capable of transfer, subject to compliance with the stapling provisions. The CVRs will be secured by a Luxembourg law governed share pledge over all of the shares of the Scheme Company, which will become enforceable upon certain events of default.(3) The holders of the New SSNs (and, after refinancing or full repayment of the New SSNs, the holders of the New PIK Notes and CVRs), will (through a representative) have a call option to purchase all of the shares in PSMA Luxco S.à r.l. (the “Parent”), exercisable in certain circumstances.[65]The Existing Notes are guaranteed by the Guarantors. The Scheme also provides for the discharge and release of the Scheme Creditors’ rights against the Existing Guarantors It is now well established that a scheme may provide for the release or variation of creditors’ rights against third parties (such as guarantors) where it is “necessary to give legal or commercial effect to the compromise or arrangement between the scheme company and its creditors”: Re Van Gansewinkel Groep [2015] Bus LR 1046, [63] (Snowden J); see also In re Lehman Brothers International (Europe) (in administration) (No 2) [2010] Bus LR 489, [65] (Patten LJ); applied in Re Thames Water[2025] EWCA Civ 475 at [240]. . The commercial necessity of varying the existing obligations of the guarantors is clear: if the Scheme Creditors were able to pursue claims in respect of their existing rights against the Existing Guarantors (despite having released their claims against the Scheme Company), the Existing Guarantors would be able to seek an indemnity from the Scheme Company, i.e. so-called “ricochet” claims, defeating the purpose of the Scheme. It is therefore clear that the Scheme may properly operate to vary the obligations of the guarantors in respect of the Existing Notes.[66]There are certain conditions precedent to the effectiveness of the Scheme, which are customary in a transaction of this nature and are described in Mr Twinberrow’s witness statement.[67]The Restructuring provides for certain benefits to accrue to management and the Sponsor, which are contingent on certain milestones, including(i) the successful sale or refinancing of the HSE Group;(ii) obtaining and maintaining certain supplier financing; and(iii) the refinancing of the New SSNs at par. Mr Twinberrow explains (and the Explanatory Statement states) that these arrangements have been made in order to ensure that management remains incentivised to pursue the success of the HSE Group, and that the dilutive effect of the CVRs affects the Sponsor rather than the management equity vehicle: Twinberrow-1 at [58(c)] and [59]-[60].

Principal Scheme documentation

[68]The Scheme empowers the Scheme Company to execute a “Restructuring Implementation Deed” on behalf of itself and as agent for the Scheme Creditors (acting under a power of attorney granted by the Scheme).[69]The Restructuring Implementation Deed in turn provides for the execution of the various documents that will give effect to the compromise of Scheme Creditor claims and the provision of the Scheme consideration.[70]It also provides for Scheme Creditors to release and grant a discharge of any (defined) Liability arising in connection with principal, any interest (including accrued, default or penalty interest), premium or other amounts owing under the Existing Notes Documents, and including any (defined) Liability under any Guarantee.[71]The Scheme Company, on behalf of itself and as agent for the Scheme Creditors (again acting under a power of attorney granted by the Scheme) will also execute a Deed of Release. This document would effect the following releases of claims:(1) Each Scheme Creditor grants (for itself, any transferees of its Scheme Claim, and (to the extent legally able to do so) each of its Affiliates and Related Investment Affiliates (as defined in the Deed of Release)), a release of – in broad terms - any Claim or Liability which might arise from the preparation and implementation of the Restructuring. These releases are given in favour of each Release Beneficiary (as defined in the Deed of Release, but including Group companies, shareholder parties, Scheme Creditors, administrative parties, advisers, and each of their relevant related parties). This release is to give comfort to the HSE Group that there will be no residual liabilities in respect of the primary Scheme Claims, and to mitigate the risk of ‘satellite’ litigation concerning the Restructuring;(2) Each Group Releasing Party (as defined in the Deed of Release, comprising the Scheme Company, the New SSN Issuer and each of the Existing Guarantors) and each Shareholder Releasing Party (as defined in the Deed of Release, comprising the Holdco, the Parent and the Sponsor) has agreed to grant a similar release in favour of Scheme Creditors, administrative parties, advisers, and each of their relevant related parties (the “Transaction Release Beneficiaries”, as defined in the Deed of Release) of any Claim or Liability which might arise from the preparation and implementation of the Restructuring. These releases were negotiated as part of the Restructuring and were necessary to obtain the requisite support of the Existing Noteholders and shareholder parties.[72]To effect the transactions contemplated by the Scheme, the consent of certain third parties is required. Mr Twinberrow’s evidence is that each of those is expected to execute and deliver, prior to the Scheme sanction hearing, a deed of undertaking in favour of the Court, the Scheme Company and the Scheme Creditors which will bind it to the terms of the Scheme and require it to take such steps as are necessary for the Scheme to be effective.

Issues for determination at this convening stage

[73]Although I have set out the background at some length, since it has seemed to me important to do so in the particular circumstances, the function of the Court at this convening stage is a limited one.[74]In particular, it is “emphatically not” to consider the merits or fairness of what is proposed, which will arise for consideration at the future sanction hearing if the Scheme is approved by the statutory majority of creditors at the class or classes directed: Re Telewest Communications plc (No.1) [2005] BCLC 752 at [14].[75]Rather, the issues to be addressed at this stage are:(1) whether proper notice has been given of this convening hearing to persons affected;(2) whether there are any potentially insuperable objections to the Court’s jurisdiction to sanction the Scheme, or if there are any factors such as to make it improbable that it would accomplish its purpose;(3) whether the Court should proceed to order one or more meetings of creditors and, in that regard, to consider whether to accept the Scheme Company’s proposals as to what meeting or meetings should be directed (including how such meetings are to be constituted and conducted), and to give directions (including as to their date) in that regard;(4) whether the draft Explanatory Statement and other documentation to be provided to Scheme Creditors in advance of the proposed scheme meeting appears to be in proper form.[76]These issues are identified in The Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006) dated 26 June 2020, which makes clear that the applicant must also draw the Court’s attention at the convening hearing to any issues concerning class composition, or the conduct of the scheme meeting(s), and any issues as to the Court’s jurisdiction to sanction the scheme: see Practice Statement, [6]. The Court will also consider the adequacy of the Explanatory Statement: see Practice Statement, [15].

Notice given to scheme creditors

[77]It is necessary that the relevant Scheme Creditors should have been given adequate notice of the convening hearing. In that respect, Practice Statement, [8] provides that notice:
“… should be given to persons affected by the scheme in sufficient time to enable them to consider what is proposed, to take appropriate advice and, if so advised, to attend the convening hearing. What is adequate notice will depend on all the circumstances.”
[78]The requisite period of notice is fact-sensitive, and will depend on ‘the complexity of the scheme or plan, the urgency of the company’s financial position, the sophistication of the creditors’ and any other relevant matters: Re Project Lietzenburger Strasse Holdco [2023] EWHC 2849 (Ch) at [29] per Miles J.[79]Here, the Practice Statement Letter was distributed to Scheme Creditors on 15 April 2025, some 21 days in advance of the convening hearing, which was listed for 6 May 2025.[80]I am satisfied that this is an appropriate period of notice in circumstances where(i) the Scheme Creditors are noteholders who can be expected to be sophisticated creditors; and(ii) there have already been updates to major creditors during the course of March and April, as described in Mr Twinberrow’s witness statement.[81]The steps that the Information Agent and the Scheme Company took to notify the creditors are set out in a witness statement of Mr Paul Kamminga dated 30 April 2025, a director of Kroll Issuer Services Limited (“the Information Agent”). In short, the Information Agent published the Practice Statement Letter and its appendices to the Scheme Website (as defined in the Explanatory Statement). The Information Agent also sent these documents by email to the ‘corporate actions’ areas of each of Euroclear and Clearstream (which is a conventional way to notify Existing Noteholders: see, eg, Re Selecta Finance UK Limited [2020] EWHC 2689 (Ch) at [22] per Adam Johnson J), and by email to the Noteholders party to the Lock-Up Agreement. The same information was also passed on to the legal advisers to the AHG for distribution to its members. I am quite satisfied in this regard.

Whether any potentially insuperable objections to the Court’s jurisdiction can be identified at this stage

[82]The question of jurisdiction is ultimately to be determined at the sanction hearing. Nevertheless, it is conventional to address such matters at the convening hearing in order to be satisfied that there are no readily identified factors such as to indicate plainly to the Court even at this early stage “... that it has no jurisdiction to sanction the scheme, or [that] there are other factors which would unquestionably lead the court to refuse to exercise its discretion to sanction the scheme.” see Re Noble Group Ltd [2019] BCC 349 (convening judgment) at [76] per Snowden J (as he then was).[83]No such factor was identified or appeared to me in reading the evidence.[84]In particular, for present purposes, I am satisfied that prima facie (though these are matters for determination at the sanction hearing):(1) the Scheme Company is “a company” within the definition of a “company” in section 859(2)(b) of the CA 2006, so that it may invoke the Court’s jurisdiction under Part 26: see Re Drax Holdings Ltd [2004] 1 WLR 1049 at [20] and [28] per Lawrence Collins J (as he then was);(2) the Scheme is a ““compromise or arrangement” between the Company and a class of its creditors”;(3) given Mr Glosband’s expert evidence as to the effectiveness of the change of law, there is a sufficient connection with the jurisdiction of England and Wales for it to be compliant with principles of comity for the English Court to exercise its jurisdiction if persuaded it is available and fair to do so;(4) on the basis of the expert evidence of Mr Glosband (in relation to the USA), Dr Stefan Sax (in relation to Germany) and Dr Andre Prum (in relation to Luxembourg), the Scheme is likely to be recognised and given effect in the key jurisdictions in which the Scheme Company has liabilities or assets Re DTEK Energy BV [2021] EWHC 1551 at [27];(5) in those circumstances, I should proceed on the basis that there is sufficient prospect of the Scheme taking effect so that the Court would not be wasting its time and acting in vain.

Class Composition

[85]The approach to class composition is well-established. The classic formulation is that a class ‘must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest’: see Sovereign Life Assurance v Dodd [1892] 2 QB 573 at 583 per Bowen LJ.[86]This test focuses attention on the rights of creditors, rather than their interests. The key principles were summarised by Zacaroli J (as he then was) in Re Gategroup Guarantee Ltd [2021] EWHC 304 (Ch); [2021] BCC 549 in the following terms, at [183]:
“183. There is extensive case-law, as cited in Ms Toube's and Dr Mokal's skeleton arguments, in which the test for class composition in relation to schemes has been considered and various refinements have been added. I do not need to refer to all of these authorities, but confine myself to stating the following points which are now well established (in particular by Chadwick LJ in Re Hawk Insurance Co Ltd [2001] EWCA Civ 241 and by Lord Millett in Re UDL Holdings Ltd [2002] 1 HKC 172), remembering that the essential test remains as expressed by Bowen LJ over a hundred years ago. (1) The creditors' rights that fall to be considered are both their existing rights against the company and the rights conferred by the scheme/plan; (2) The existing rights must be assessed in the context of the relevant comparator, described by Hildyard J in Re APCOA Parking (UK) Ltd [2014] EWHC 997 (Ch), at [32] , as "what would be the alternative if the scheme does not proceed"; (3) It is rights, not interests, that fall to be taken into account for the purposes of class composition. Without attempting an exhaustive definition, rights of the creditors against third parties (for example against guarantors for the company's debts) will generally constitute interests as opposed to rights; differences in interests may be relevant to the discretion to sanction the scheme/plan; (4) Even if there are differences in rights as between different groups of creditors, that is not necessarily fatal to them being placed in the same class: it is still necessary to consider whether the differences are such that it is impossible for them to consult together with a view to their common interest. This has been expressed (for example by David Richards J in Re Telewest Communications plc [2004] BCC 342 at [40] ) as whether there is more to unite than to divide the relevant creditors.”
[87]As appears from this passage, there are two stages in the requisite enquiry. The first is to consider whether there is a difference in the relevant rights as between different classes of creditor. The second stage is to consider whether, if there is, those differences are such as to make it impossible for them to consult together with a view to their common interest.[88]At the first stage and in considering the ‘dissimilarity of rights’ between creditors, it is necessary to consider both(i) the existing rights that are to be varied by the scheme, and(ii) the new rights which are to be given by way of compromise: Re Hawk Insurance Co Ltd [2002] BCC 300 at [30].[89]At the second stage, the test is often put in terms of whether, in the imaginary discourse between creditors with different rights, there would, despite the differences, be “more to unite than to divide” the relevant creditors: and see for the derivation of that test and phrase the decision of David Richards J (as he then was) in Re Telewest Communications plc (No 1) [2005] 1 BCLC 752 at [40].[90]In assessing the issue at the second stage, the identified comparator is of considerable and sometimes determinative relevance. I sought to explain why in Re Stronghold Insurance Co Ltd [2019] 2 BCLC 11 at [48]-[49], as follows:
“What is now ordinarily adopted as the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed. In Re British Aviation Insurance Co Ltd [2006] 1 BCLC 665; [2005] EWHC 1621 (Ch), Lewison J (as he then was) considered this to be “critical to deciding whether all the policyholders form a single class”; and in Re Apcoa Parking (UK) Ltd [2014] EWHC 997 (Ch) I agreed that “that will necessarily inform, and in many if not most cases be the most important factor in, the discussions”
. The reason is two-fold. First, a fair comparison between a policyholder’s rights if there is no scheme and its rights under the proposed scheme depends on ascertaining the nature and quality of the right in the “non-scheme world”, and the latter depends on the appropriate comparator. Secondly, only by identifying the comparator can the likely practical effect of what is proposed be assessed and the likelihood of sensible discussion between the holders of rights so affected and between them and others with different rights be weighed fairly.”[91]I returned to this in Re APCOA Parking Holdings GmbH [2015] Bus LR 374 at [52]:
“The modern approach ... is to break the question into two parts, and ask first whether there is any difference between the creditors in point of strict legal right ...

(s) ”

The proposed classes

[92]In this instance, it is proposed that a single scheme meeting should be convened, consisting of the Existing Noteholders. Before addressing this principal issue it is also necessary to identify who are to be treated as the Existing Noteholders.[93]The Scheme in the present case follows the usual course of treating, not the record holders, but the ultimate beneficial owners of the Existing Notes (the Existing Noteholders), as the Scheme Creditors. It is well established that if the relevant instrument entitles beneficial noteholders to acquire direct rights against the Issuer (as the indenture does in this instance: see paragraph [16] above), those beneficial noteholders are treated as “contingent creditors” of the company for the purposes of the scheme jurisdiction. Because the beneficial owners of the Notes have the economic interest in the debt, they ought to be the creditors entitled to vote at the scheme meeting: Re Castle Holdco 4 Ltd [2009] EWHC 3919 (Ch), [22]-[24]; Re Noble Group [2019] BCC 349, [161]-[164] (Snowden J).[94]Deutsche Trustee Company Limited as trustee (the “Existing Notes Trustee”) and the Common Depository are each creditors in respect of the Existing Notes, because:(1) the Common Depository is the registered holder of the Existing Notes; and(2) the Existing Notes Trustee is a beneficiary of the covenants to repay principal and interest on the Existing Notes pursuant to the Existing Notes Indenture. As is customary, to avoid double-counting, the Existing Notes Trustee and the Common Depository have each confirmed in writing that they will not exercise any voting rights to which they may be entitled as a Scheme Creditor.[95]Mr Fisher KC (leading Ms Stefanie Wilkins) for the Scheme Company, submitted that in the present case the Existing Noteholders all have materially the same existing rights against the Scheme Company (principal and outstanding interest rank pari passu in respect of any sale proceeds i.e. there is no priority of Floating Rate Notes over Fixed Rate Notes, or vice versa), and are all treated in the same way under the Scheme. Insofar as there are minor differences by reference to interest rates (see below), they are insufficient to justify splitting the class.[96]This submission rather understated the differences; and Mr Fisher very properly accepted before me that there are some differences which require consideration at this stage.

(i) Different interest rates and interest payment dates

[97]Under the Scheme, all accrued unpaid interest as at the Restructuring Effective Date will be compromised in exchange for a combination of New SSNs, New PIK Notes, and CVRs. There is no difference in their treatment under the Scheme depending on whether the Existing Noteholder held Floating Rate Notes or Fixed Rate Notes. Accordingly, the rights conferred under the Scheme are identical.[98]The difference is that, as matters stand, and in the Comparator, the Floating Rate Notes and the Fixed Rate Notes have different interest rates/coupons, and interest is also payable on different dates. Thus, as I put it to Mr Fisher in the course of the hearing, the new lamps are the same, but the old lamps were not.[99]Mr Fisher accepted that, depending on the precise date of any sale and distribution, this could lead to a difference in treatment/rights in the following sense:(1) Floating Rate interest is payable quarterly on 15 May, August, November and February (currently in an amount of c. €4.9 million). Insofar as a sale and distribution occurs after 15 August 2025, holders of Floating Rate Notes will have received payment in full of the May and August 2025 interest payments. Any residual interest (approximately €1.7m) would be treated in any distribution in the same way as outstanding principal (i.e. there is no priority for unpaid interest over principal in any subsequent distribution);(2) Fixed Rate Notes interest is payable on a six monthly basis on 15 May and November (in an amount of €10.687m). Insofar as a sale and distribution occurs after 15 August 2025, holders of Fixed Rate Notes will have received payment in full of the May 2025 interest payment. As with the Floating Rate Notes, any residual interest (approximately €7.2m) would be treated in any distribution in the same way as outstanding principal;(3) The effect of the different interest payment dates is therefore that, in the comparator, and depending on the precise dates of any sale, the holders of Floating Rate Notes might benefit from payment in full of an additional three months of interest as compared to having to claim payment from the sale distributions on a pari passu basis (and therefore only recovering (on the low case) c51% in respect of that interest claim). In real terms, assuming a sale and distribution in September but after the August interest payment, this would be an additional c.€2.5 m recovery for the indirect creditors holding a beneficial interest in the Floating Rate Notes (the “Floating Rate Noteholders) as a whole over and above what they would get if the interest remained outstanding as at the Restructuring Effective Date (i.e. less than 1% of the face value of the Floating Rate Notes).[100]Accordingly, I think there is differential treatment; and the question is whether nevertheless there is more to unite than divide the two potential classes of creditors.[101]As I have explained above, it is at this point that the identification of the true Comparator is of central importance. That is also less straightforward than is more usual, in circumstances where the continuation of the status quo is unlikely but, since no Event of Default is imminent, and some continuation of trading is envisaged, cannot conclusively be excluded as a realistic possibility.[102]Put another way, in a more straightforward and usual case where an Event of Default is imminent and unavoidable, the choices are (only) between a scheme and insolvency: although not a solvent for all class differences, the fact that in such a case the relevant comparator is an insolvent liquidation may very well mean that there is inevitably more to unite creditors than divides them if the scheme offers tangible benefits.[103]It seems to me that two questions arise in this more complex context. The first is whether it can fairly be assumed that both classes of creditor would discount any real prospect of continuance if the Scheme fails for any more than a few months, and take the relevant comparison to be made for the purpose of weighing what to do to be between(a) the Scheme and(b) the Comparator (as it is submitted to be) of either a sale or an insolvency. The second question is the usual question whether, having identified the Comparator, it is clear that there would be more to unite than divide the two classes.[104]The subjective nature of the assessment to be made as to what would happen if the Scheme failed, and some reticence (as it seems to me) in stating in the evidence that the business would have no realistic prospect of surviving for more than a few months if the Scheme were to fail, gave me some pause for thought.[105]I concluded, however, that for the purpose of this convening hearing, I should proceed on the basis that the evidence of the difficulties confronting the Scheme Company, both in terms of its trading and in terms of its funding, and the fact that the failure of the Scheme would of itself very likely undermine further (and perhaps finally) any residual prospect of pulling through, is sufficient to warrant proceeding on the basis that the creditors of both classes would assume that the real comparison to be addressed is indeed between the Scheme and the Comparator as proposed.[106]The second question is, on that basis, easier to answer. As explained in Mr Twinberrow’s witness statement the Scheme Company submits, and I would for the purposes of this convening stage accept, that in the circumstances of the Comparator the differences would be immaterial:(1) Principal remains unpaid in respect of both sets of notes;(2) The Comparator anticipates a sale within approximately two months of the Scheme failing. The sums involved in terms of interest accrual over that two month period are comparatively small as compared to the principal sums, in respect of which the Scheme provides for a material recovery (i.e. in excess of 50% even on a low case) As set out in the evidence and PSL, the outstanding accrued interest assuming at sale and distribution as at 16 September 2025 would be: €7.2 million for the Fixed Rate Notes (i.e. 4 month’s interest on principal of €380 million i.e. 1.9% of face value) and €1.7 million for the Floating Rate Notes (i.e. 1 month’s interest on principal of €250 million i.e. 0.6%); ;(3) Outstanding accrued interest and principal will all be treated the same way both in the Scheme scenario;(4) A fractionally greater return on outstanding interest (i.e. less than 1% of the face value of the Existing Notes) in the Comparator scenario for Floating Rate Noteholders, depending on when the sale and distribution actually occurs, is ultimately immaterial and not a difference in rights between the Existing Noteholders which connotes that they cannot consult together in their common interest.[107]Thus, I concluded that I should accept this analysis and its conclusion that despite differences, there is more that unites than divides the two classes.

Other points relating to class composition

[108]Subject to one more general concern, I can deal more quickly with the other points on class composition (i). Professional adviser fees[109]The Scheme Company has agreed to pay all costs, charges and expenses incurred by the advisers to the AHG in connection with the negotiation, preparation and implementation of the Scheme. The arrangements are described at paragraph 3.3(c) of the Explanatory Statement:(1) There is a fee arrangement with Rothschild & Co Deutschland GmbH, the financial advisers to the AHG, in which fees are paid directly to the advisers irrespective of whether the Scheme is implemented.(2) There is a fee arrangement between the Scheme Company and Freshfields PartG mbB, who are retained as legal advisers to the AHG, in which fees are paid directly to the advisers. These fees are payable irrespective of the success of the Scheme.(3) There is a fee arrangement with Loyens & Loeff, who are legal advisers to the AHG. Fees are payable irrespective of the success of the Scheme.[110]In each case, the obligations to pay the advisers’ fees arises separately from and independent of the Scheme (i.e. they are provided for in separate agreements and they are not dependent on the Scheme taking effect). In Re Codere Finance 2 (UK) Ltd [2020] EWHC 2441 (Ch), [68]-[69] [Auth/21/481], Falk J considered that advisers’ fees incurred in the context of equivalent arrangements “should be regarded as independent of the Scheme, and therefore … do not fall to be taken into account”. I accept that the payment of the Advisers’ Fees does not give rise to any class issue. (ii). Entry into the Lock-Up Agreement[111]Entry into a lock-up agreement, by itself, does not fracture the class: Re Privatbank [2015] EWHC 3299 at [25] per David Richards J; Re Petra Diamonds US$ Treasury Plc [2020] EWHC 3565 (Ch) at [22] per Sir Alastair Norris.[112]Entry into a lock-up agreement is commonly considered by the Court in the context of class composition where there is a question about the quantum of fees payable in exchange for entering that agreement, and whether that might be said to affect the creditors’ ability to consult with other member of their class and/or whether the fees are such as to affect the decision whether to support the restructuring. That question does not arise here: no fees are payable to creditors who have entered into the Lock-Up Agreement, and I have already explained that I do not consider that the lock-up arrangements create a “class within a class”. (iii). Treatment of RCF and Leases[113]As noted above, the Scheme Company also has guarantee obligations in respect of the Revolving Credit Facility which will not be compromised by the Scheme. The HSE Group also has certain other indebtedness (for which the Scheme Company is not liable) which is described in Mr Twinberrow’s witness statement.[114]It is well-established that a Company may propose a scheme with whichever of its creditors it chooses, provided that the reason for the selection is a good commercial reason and is not arbitrary or capricious: Sea Assets Ltd v PT Garuda Indonesia [2001] EWCA Civ 1696. It is also well-established that a scheme may exclude creditors whose support is necessary for the continuation of the business: see Re Virgin Atlantic Airways Ltd [2020] B.C.C. 997 at [11] per Trower J; and Re Smile Telecoms Holdings Limited [2022] EWHC 740 (Ch) at [19] per Snowden LJ (sitting as an additional Judge of the High Court).[115]At least for the purposes of this stage, I accept that there is sufficient commercial reason for the exclusion of these creditors (i.e. their exclusion is not arbitrary or capricious), so that the class meeting proposed is sufficient:(1) The RCF is largely undrawn. It is a critical source of potential liquidity, and is also significant to the assessment of the credit rating of the HSE Group. (Mr Twinberrow has explained that it is intended that a bilateral agreement to amend and extend the Revolving Credit Facility will be reached prior to the sanction hearing (and that is a condition precedent of the Scheme).(2) The lease arrangements, the factoring facility and the supplier financing facility are not liabilities of the Scheme Company, and are in any event important to the business of the HSE Group, as Mr Twinberrow has also explained. (iv). A more general point of concern[116]One more general point that has concerned me (and perhaps with more force in the aftermath of the hearing) is whether any part of the Restructuring or the ancillary arrangements provided for or contemplated by it might introduce a fracturing element.[117]It is well-established that in assessing whether classes of creditors have been correctly constituted, the Court should not confine itself to looking at the scheme itself. It should consider also arrangements entered collaterally with the scheme: see, for example, Re Baltic Exchange Ltd [2016] EWHC 3391 at [17].[118]That was not a case or concern addressed at the hearing. It is a matter that may well have to be revisited at the sanction hearing if the Scheme is approved by the class meeting.

Proposed timetable and information to be provided to creditors

[119]Lastly, I confirm that I am content with both the proposed directions for the class meeting and the time-table, which are now set out in the Order.