The restructuring of the Vroon group after years of negotiation and challenges serves as a lesson in how to adapt to changing conditions and to overcome the same to achieve a successful restructuring. It took years of negotiation for stakeholders to negotiate a proposed restructuring with market conditions ever changing in the meantime. However, once a proposed restructuring had been agreed in principle, challenges relating to its implementation remained. Such challenges included: pressure from lender enforcements, a non-consenting shareholder, multiple bilateral facility agreements and a non-consenting creditor. These challenges were overcome by using a parallel process of a Dutch WHOA and an English scheme of arrangement which was the first of its kind.
The Dutch shipping group, Vroon, faced pressure on liquidity since 2016 due to its debt obligations as well as challenges in the shipping industry generally. The group's debt profile was complex with 28 different financing arrangements and 14 different lenders (as at the time the claim form for the scheme was submitted) with different security packages. Furthermore, the restructuring covered around a dozen jurisdictions, which added cross-border challenges that had to be addressed. In response to the initial challenges the group faced, in November 2018, the group entered into an English law framework agreement. Under the framework agreement there was a uniform maturity date of 31 March 2021, as well as cross-guarantees and new security for the benefit of all framework agreement lenders.
By the fourth quarter of 2019, there were breaches of certain covenants under the framework agreement. The Covid-19 pandemic also exacerbated the pressures on the group with global shipping demand impacted and operational challenges and costs.
On 30 June 2020, the Vroon group defaulted under the framework agreement. On 31 March 2021, being the final maturity date under the framework agreement, the amounts outstanding were not repaid triggering a global acceleration event. The stakeholders undertook complex and lengthy negotiations for a proposed restructuring. Whilst this was ongoing there was a de facto standstill amongst the lenders.
Prior to the restructuring, the parent of the group was Vroon Group B.V. which was ultimately owned by Mr F.D. Vroon (the Shareholder). Immediately below Vroon Group B.V. sat an intermediate holding company, Lamo Holding B.V. (the Company). The Company is the holding company for the other group companies.
The proposed restructuring
The proposed restructuring contained an equity component and multiple debt components. The equity component consisted of a partial debt-for-equity-swap, whereby the Company's shares were transferred to a Dutch foundation (stichting administratiekantoor, STAK). The STAK is in essence a Dutch orphan structure. Subsequently, the STAK would issue depositary receipts (certificaten) to the lenders and the Shareholder, which made them the de facto owners of the Vroon group. Similarly, the debt component was split between facilities/vessels/lenders which intended to remain going forward and those that would exit in the short term. There were also separate deals for lenders/facilities that were either outside the framework agreement, were expected to be repaid in full or that had particular strategic importance to the ongoing operations of the business. The different aspects were included in a bespoke restructuring deal.
As such creditors were split into three categories (with some creditors falling in more than one of the categories listed below):
- "NewCo Creditors" – these creditors and the vessels they financed were those that intended to remain long term for the ongoing business. Their debt needed to be right-sized and as such these creditors agreed to release their claims under their relevant "bilateral" or "semi-bilateral" facility agreement(s). In exchange, these lenders received a written-down participation in a centralised syndicated loan facility at the level of the Company financing the "NewCo Vessels" (we will come back to the complexity of the financing structure at Challenge 2);
- "Exiting Creditors" - these creditors and the vessels they financed were those that intended to exit in the short term. As such they agreed to their vessels being sold in a controlled process over an 18-month period and having their claims against the Vroon group settled against the proceeds of such sale; and
- "Excluded Creditors" – these creditors would receive separate negotiated deals due to the unique nature of their financing arrangements.
NewCo Creditors and Exiting Creditors, in exchange for their write-downs or estimated deficiencies in respect of the sale of the vessels (as the case may be), were also allocated depositary receipts in the Company and a share of cash in the group.
The challenges and solutions
Challenge 1: Pressure from lender enforcements
In the second half of 2022, certain lenders became impatient and took enforcement action over vessels. This could have started a chain reaction amongst lenders to take similar action which could have pushed the group into bankruptcy. However, a WHOA (also known as the 'Dutch scheme) was launched which, whilst also addressing other implementation issues as detailed at challenge 3 below, provided a group-wide stay against enforcement. The stay was granted by the court on an ex parte basis. The stay granted the group breathing space in order to continue trading and implement the proposed restructuring. The reach of such a stay (in theory) was potentially challengeable but no such challenge came. This may be due to institutions' reluctance to breach court orders (particularly given the international nature of such institutions) and may also be due to the short distance to the finish line of the restructuring at the time the WHOA was launched. It is worth noting that the stay on enforcement under the WHOA complemented the dual process as the English scheme of arrangement does not have the ability to provide such a stay against enforcement by a secured creditor.
Challenge 2: Multiple bilateral facility agreements with one non-consenting scheme creditor
Another challenge in the implementation of this restructuring was that the financing structure to be restructured consisted of a number of "bilateral" or "semi-bilateral" facility agreements (the semi-bilateral facility agreements being so called "club deals") with different lenders, different borrowers and different security packages. As such the use of a scheme of arrangement or restructuring plan was not obvious or simple. To be able to use a scheme of arrangement to compromise the claims of one non-consenting lender, a deed of contribution was entered into prior to the convening hearing in favour of the individual borrowers under the facility agreements to prevent "ricochet claims" with the Company agreeing with each debtor subsidiary that in the event of the debtor making a payment under its loan, the Scheme Company will contribute half of that payment.
The scheme was therefore convened with two classes: Exiting Creditors and NewCo Creditors (as detailed above). There was a full turn out at the scheme meetings with only one creditor opposing (they were present in each class). The opposing creditor did not however turn up or seek to object at the sanction hearing and as such Mr Justice Leech sanctioned the scheme on 26 May 2023 and the opposing creditor was crammed.
Challenge 3: Non-consenting shareholder and WHOA creditor
Another major challenge was that the Shareholder was not supportive of the deal. Shareholder support was required to transfer consensually the shares in the Company to the STAK. However, as this was not forthcoming, a court-led restructuring process in the form of the WHOA was required to implement the debt-for-equity swap. In addition to opposing the WHOA, the Shareholder initiated unsuccessful proceedings before the Dutch Enterprise Chamber to hinder the restructuring process – this was the first time that parallel WHOA and Dutch Enterprise Chamber proceedings were initiated in the Netherlands. Also, a creditor opposed the final WHOA plan.
The Shareholder objected to the WHOA on the grounds that there was no fair distribution of the value to be realised under the restructuring plan. According to Dutch law, a restructuring plan can only be sanctioned if the value available under the restructuring plan is distributed fairly and in accordance with the statutory ranking of claims respecting the absolute-priority-rule. The Shareholder argued that the debt amount was inflated to distribute to the lenders more under the plan than they were entitled to. Furthermore, the Shareholder argued that the value available for distribution under the plan was much higher than presented by the debtor under the plan, implying surplus value available for distribution to the Shareholder. The Dutch court, however, was not convinced by these arguments and accepted the valuation used by the appraiser engaged by the group as well as the calculation of the total amount of debt owed to the lenders as presented by the group.
Alongside the Shareholder, an unsecured creditor also objected on the grounds that it was not given sufficient time to consider the contents of the restructuring plan. They also argued that losing a certain guarantee impacted the terms of one of its shipping insurance contracts. The Dutch court was not convinced that a longer voting period would have led to a different outcome of the vote and stated that the creditor should have discussed the impact of losing the guarantee with their insurer prior to the hearing, which they failed to do. Accordingly, the Dutch court sanctioned the WHOA.
Whilst the dual process of the WHOA and the scheme had many benefits, it also provided the Shareholder with a second forum in the English court in which to object to the restructuring. The Company argued that the Shareholder (who was not a scheme creditor) should not get "a second bite of the cherry" and argued that the Shareholder's real objection was not to the scheme but rather to the WHOA and the transfer of shares in the Company to the STAK. However, the Shareholder argued that the mechanism for the issuance of the depositary receipts was the implementation agreement (appended to the Explanatory Statement for the scheme) and not the WHOA. Mr Justice Leech did not decide on this point but rather made a case management decision to re-list the sanction hearing for two further days to give the Shareholder a full opportunity to be heard in relation to the fairness of the scheme. It is worth noting that Mr Justice Leech stated that if the Dutch court had handed down its decision before the first hearing on 16 May 2023, he would have refused to give the Shareholder an opportunity to challenge the Company's evidence in relation to the comparator (e.g. insolvent liquidation or solvent wind down) because they would have in essence been attempting to reargue valuation issues which the Dutch court had already decided against them. On the other side of the sea, the Dutch court waited to hand down its final decision as well, seemingly pending the outcome before the English court. In this parallel procedure it seemed that both courts were hesitant to issue the first court order and were waiting for the other court to provide its final decision. Eventually, the Dutch court went first and the English court handed down its final judgment an hour after the Dutch court sanctioned the WHOA plan.
Whilst Mr Justice Leech was ultimately satisfied that the insolvent liquidation of the group (rather than a solvent wind down) was the correct comparator, he also noted that even if there had been significant doubt in his mind that this was the relevant comparator, he would have still sanctioned the scheme for the same reasons as Mann J in Bluebrook that "it is not a legitimate or sensible use of the Court's powers to force the parties to enter into further negotiations (especially after they have been negotiating for seven years)".
Ultimately both the scheme and the WHOA were sanctioned on 26 May 2023 and enabled the restructuring to be implemented shortly thereafter.
As such the true parallel nature of the scheme and the WHOA and the interconditionality between the two led to additional time in achieving the restructuring but ultimately provided a solution to a complex situation.
The Vroon restructuring was the first-of-its-kind restructuring involving multiple complexities, including the first parallel Dutch WHOA and English scheme of arrangement. It has shown that different restructuring tools can be adapted such that many challenges can be overcome by using creative ways and parallel processes in different jurisdictions.