Indah Kiat International Finance Company B.V., Re The Companies Act 2006, Court of Appeal - Chancery Division, February 12, 2016, [2016] EWHC 246 (Ch)

Resolution Date:February 12, 2016
Issuing Organization:Chancery Division
Actores:Indah Kiat International Finance Company B.V., Re The Companies Act 2006

Case No: CR-2016-000243

Neutral Citation Number: [2016] EWHC 246 (Ch)




Royal Courts of Justice

Rolls Building, Fetter Lane,

London, EC4A 1NL

Date: 12 February 2016

Before :


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William Trower QC and Adam Goodison (instructed by Squire Patton Boggs (UK) LLP)

for Indah Kiat International Finance Company B.V.

Felicity Toube QC and Ryan Perkins (instructed by Dechert LLP)

for APP Investment Opportunity LLC

Hearing dates: 21 and 22 January 2016

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  1. This is an application by Part 8 Claim Form by Indah Kiat International Finance Company B.V. (the ``Scheme Company'') for an order convening a single meeting of its scheme creditors (the ``Scheme Creditors'') to consider and if thought fit approve a scheme of arrangement (the ``Scheme'') pursuant to Part 26 of the Companies Act 2006.

  2. The application is strenuously opposed by one of the Scheme Creditors, APP Investment Opportunity LLC (``APPIO''), which contests the jurisdiction of this court to entertain or sanction the Scheme. In the first instance, APPIO simply seeks an adjournment of the Scheme Company's application on the grounds that inadequate notice has been given to Scheme Creditors. However, it also raises a significant number of other issues concerning the adequacy of the evidence and disclosure by the Scheme Company, together with questions concerning the procedure and scope of the court's jurisdiction to sanction creditor schemes for foreign companies in relation to debts governed by foreign law.


  3. The Scheme Company is a special purpose vehicle which was incorporated for financing purposes in the Netherlands. The debts proposed to be compromised by the Scheme are the debts of the Scheme Company under Indentures creating two series of notes issued by the Scheme Company in 1994 (the ``Notes''). The Notes were due in 2002 and 2006, had a combined face value of US$350 million and carried interest at rates of 11.875% per annum and 12.5% per annum. The Notes have at all times been held in global form by a custodian on behalf of a trustee for noteholders (the ``Trustee'') but interests in the Notes are traded by ``Noteholders'' through the clearing systems, DTC, Euroclear and Clearstream.

  4. The Notes are guaranteed by PT Indah Kiat Pulp & Paper Tbk (the ``Parent'') which is the sole shareholder of the Scheme Company, and which was the recipient of an immediate loan from the Scheme Company of all of the monies subscribed for the Notes in 1994. Pursuant to its guarantee, the Parent undertook to the Trustee to be jointly and severally liable with the Scheme Company as if it were the principal debtor and not merely as surety. The Parent also provided security over certain of its assets to secure its obligations in relation to the Notes.

  5. The Indentures, the Notes and the obligations of the Parent in relation to them are all governed by New York law and the parties submitted to the non-exclusive jurisdiction of the New York courts in relation to such obligations. Under New York law, the rights of the holder of any indenture security (such as the Notes) to receive payment of principal and interest on or after the due dates and the right to take enforcement action cannot be impaired or affected without the consent of the holder: see section 316(b) of the Trust Indenture Act 1939, 15 USC §77ppp.

  6. The Scheme Company's liabilities under the Notes are exactly off-set in its balance sheet by the debt owed to it by the Parent, and it has negligible other assets or liabilities. In contrast, the Parent is a substantial enterprise incorporated in Indonesia and is a member of the Asia Pulp and Paper group of companies which operates a global pulp and paper business (the ``APP Group''). Approximately 52.72% of the Parent's shares are owned and controlled by a company in the Sinar Mas Group which is a large conglomerate owned and controlled by the Widjaja family of Indonesia. The remaining shares in the Parent are listed on the Indonesia Stock Exchange.

  7. The only alleged connection of the Scheme Company with England is said to be that its centre of main interests (COMI) was shifted to England from the Netherlands about three months ago for the sole purpose of promoting the Scheme. It is common ground that the Parent has no connection whatsoever with England.

  8. The Notes fell into default in about 2001 after an economic crisis in Indonesia and the South East Asian region affected the Parent's business during the 1990s. An attempt to restructure the Notes by way of an exchange offer failed in 2004, and the Notes were then the subject of a number of judgments against the Scheme Company and the Parent in the Supreme Court of New York between 2004 and 2006. These judgments (together the ``US Judgments'') include the so-called ``Gryphon Judgments'' which were entered in favour of various plaintiffs in 2004 and 2006 in a total amount of about US$233 million, and the so-called ``US Bank Judgment'' entered in 2005 in favour of the then Trustee for the balance of the Notes in the total sum of about US$315 million. Together with accrued interest, the total amount due in respect of the Notes as at 31 December 2014 was about US$946.9 million, and must now exceed US$1 billion.

  9. The response of the Scheme Company and of the Parent to attempts to enforce the defaulted Notes in Indonesia was to engage in protracted litigation in the Indonesian courts which eventually resulted in a decision of the Indonesian Supreme Court in 2011 purporting to invalidate the Notes and the obligations of the Scheme Company and the Parent in relation to them (``the Indonesian Judgment'').

  10. The Indonesian Judgment was not, however, given under the governing law of the Notes, and as a consequence, there are, as the Scheme Company's evidence acknowledges, ``questions over the international enforceability'' of the Indonesian ruling. Indeed, it emerged during the hearing before me that an attempt by the Scheme Company and the Parent to request the New York courts to recognise and give effect to the Indonesian Judgment invalidating the Notes was rejected some years ago. Moreover, Mr. Trower QC, who appeared for the Scheme Company, accepted and indeed asserted that notwithstanding the Indonesian Judgment, the Trustee and the Noteholders were creditors of the Scheme Company and of the Parent ``for the purposes of these proceedings''.

  11. In response, Miss Toube QC, who appeared for APPIO, invited me to extract an undertaking from the Scheme Company and the Parent to this court, as a condition of being permitted to promote the Scheme, to the effect that they would not seek to deny that APPIO was a creditor in respect of the Notes before any other court in any other jurisdiction. In my judgment such an undertaking would serve no useful purpose and I decline to require it. So far as this court is concerned, there can be no doubt that the Indonesian Judgment would not be regarded as discharging the Notes or the security in respect of the Notes, which are governed by New York law: see Gibbs v Societe Industrielle at Commerciale des Metaux (1890) LR 25 QBD 399 and National Bank of Greece v Metliss [1958] AC 509. The only other courts in which the matter is likely to arise in the foreseeable future are the New York courts which have already accepted that Notes are valid and binding, and the Indonesian courts which have ruled to the contrary. An undertaking to this court is unnecessary as regards the former and most unlikely to have any effect upon the latter.

  12. Since the Indonesian Judgment in 2011 the Parent has not been troubled by any further attempts to enforce the Notes in Indonesia. In 2012 the Parent and the Trustee compromised attempts to enforce the US Bank Judgment in the United States on the basis that they would turn over any relevant property in the US to satisfy that judgment. However, the Scheme Company and the Parent profess not to have any relevant property in the United States. Perhaps not surprisingly, no attempts have been made to enforce the Notes or the US Judgments against the Scheme Company in the Netherlands. There matters rested for several years, with neither debtor company making any effort or proposals to reduce or discharge their long-overdue debts to Scheme Creditors.

  13. The situation appears to have changed when, in or about late March last year, APPIO took an assignment from the Trustee of a portion of the rights under the US Bank Judgment corresponding to Notes of which APPIO was the beneficial owner. APPIO thereby became a judgment creditor of the Scheme Company and the Parent, and entitled to take enforcement action in its own name. It is currently owed a principal sum of about US$11.7 million, which together with interest and costs amounts to about US$37.8 million. Since taking its assignment, APPIO has sought to take steps towards enforcement in the United States, including commencing a proceeding in the New York court to renew the US Bank Judgment so as to prevent it expiring by reason of limitation, and seeking discovery from the Scheme Company and the Parent to identify any relevant property in the US.

  14. APPIO's activities seem to have prompted the Parent and the Scheme Company into action. Various statements in the evidence filed by the Scheme Company and the draft Explanatory Statement were summarised in Mr. Trower's skeleton argument as follows,

    ``The objectives of the Scheme are to provide finality and certainty as regards the past problems concerning the Notes and the Debt; to provide for a better overall outcome for the general body of the Scheme Creditors than the likely alternatives; to create an environment where no Scheme...

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