Compromising Foreign Law Governed Debt Under English Law Restructuring Processes
June 2025
Over the years, a substantial body of case law has developed involving overseas companies seeking to use English schemes of arrangement to compromise their debt. English courts have been willing to sanction such schemes, provided factors are establishing a sufficient connection with England and it can be demonstrated that the scheme will be effective in the jurisdictions where the debtor has its assets and creditors, where it is incorporated, and by whose law its debts are governed1.
This article explores how a sufficient connection is usually established, and examines two recent cases where foreign law debts were successfully restructured using English restructuring plans, where there was no personal nexus with the English jurisdiction and where the approval of the restructuring plan by creditors of foreign law debt provided the basis for the English High Court’s exercise of its “cross-class cram down” powers under section 901G of the Companies Act 2006. Each decision offers valuable guidance for companies aiming to restructure foreign law governed debt using English law restructuring processes.
Over the years, a substantial body of case law has developed involving overseas companies seeking to use English schemes of arrangement to compromise their debt. English courts have been willing to sanction such schemes, provided factors are establishing a sufficient connection with England and it can be demonstrated that the scheme will be effective in the jurisdictions where the debtor has its assets and creditors, where it is incorporated, and by whose law its debts are governed1.
This article explores how a sufficient connection is usually established, and examines two recent cases where foreign law debts were successfully restructured using English restructuring plans, where there was no personal nexus with the English jurisdiction and where the approval of the restructuring plan by creditors of foreign law debt provided the basis for the English High Court’s exercise of its “cross-class cram down” powers under section 901G of the Companies Act 2006. Each decision offers valuable guidance for companies aiming to restructure foreign law governed debt using English law restructuring processes.
A Brief History of the Use of English Schemes of Arrangement to Compromise Debt by Overseas Companies
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A Brief History of the Use of English Schemes of Arrangement to Compromise Debt by Overseas Companies
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Establishing a Sufficient Connection
Ordinarily, a sufficient connection will be established where the debts which are the subject of the scheme or restructuring plan are governed by English law (including where the governing law of the debts has been changed) or where a debtor has a personal nexus to England, e.g., where the debtor (including a newly created debtor assuming existing debts) is incorporated in England. An increasingly common method of bringing a restructuring within the jurisdiction of English courts is by using a co-obligor structure wherein an English entity, often a newly formed SPV, becomes a co-obligor or guarantor of the main debtor’s debt2. This structure can also be used for restructuring non English law governed debt.
A sufficient personal connection can also be established where a debtor has its centre of main interests (COMI) in England or shifts its COMI to England3. Again, in this case, the governing law of a debtor’s debt has less importance and non-English law-governed arrangements can equally be addressed through an English scheme (or restructuring plan) (subject to there being an ability for the scheme or restructuring plan to be recognised in the relevant jurisdiction).
A question however arises as to whether an English scheme (or restructuring plan) could be used to restructure non-English law-governed debt (alongside English debt) in circumstances where there is no personal nexus with the jurisdiction. This was the scenario in Re Hong Kong Airlines [2022] EWHC 3210 (Ch) (“Hong Kong Airlines”) and in Re Sino-Ocean Group Holding Limited [2025] EWHC 205 (Ch) (“Sino Ocean”), both of which are considered further below.
Effectiveness
Before looking at the decisions in Hong Kong Airlines and Sino Ocean more closely, it is important to note that English courts will not act in vain when sanctioning a scheme of arrangement (or a restructuring plan) 4. Accordingly, one of the key factors that English courts will have regard to when considering whether to sanction a scheme (or restructuring plan) comprising debt governed by foreign law is whether the scheme (or restructuring plan) will be recognized and given effect in the jurisdiction whose law governs the relevant debt5 and where the debtor is incorporated in or holds assets in some other overseas jurisdiction, in those jurisdictions as well 6.
Effectiveness is typically established through expert evidence from legal practitioners in the relevant jurisdiction. Alternatively, where parallel and inter-conditional schemes of arrangements (or similar restructuring procedures) are being utilised in the jurisdiction whose law governs the relevant debt (and if necessary, where the debtor is incorporated or holds significant assets), a court is likely to be satisfied as to the efficacy of the English scheme by the existence of such parallel proceedings 7.
Effectiveness
Before looking at the decisions in Hong Kong Airlines and Sino Ocean more closely, it is important to note that English courts will not act in vain when sanctioning a scheme of arrangement (or a restructuring plan) 4. Accordingly, one of the key factors that English courts will have regard to when considering whether to sanction a scheme (or restructuring plan) comprising debt governed by foreign law is whether the scheme (or restructuring plan) will be recognized and given effect in the jurisdiction whose law governs the relevant debt5 and where the debtor is incorporated in or holds assets in some other overseas jurisdiction, in those jurisdictions as well 6.
Effectiveness is typically established through expert evidence from legal practitioners in the relevant jurisdiction. Alternatively, where parallel and inter-conditional schemes of arrangements (or similar restructuring procedures) are being utilised in the jurisdiction whose law governs the relevant debt (and if necessary, where the debtor is incorporated or holds significant assets), a court is likely to be satisfied as to the efficacy of the English scheme by the existence of such parallel proceedings 7.
The Rule in Gibbs8
One key issue relevant to effectiveness is the rule in Gibbs. In a nutshell, the Gibbs rule provides that debt can only be amended or discharged pursuant to the laws governing that debt. A common misconception is that the Gibbs rule only applies to English law governed debt. However, the English law position is that it is of universal application (e.g. French law debt can only be discharged under French law, NY law debt can only be discharged under NY law etc.). As a result, unless an exception applies or the law applicable to the debt recognizes an English scheme, an English scheme will not be effective to compromise debts governed by foreign law.
In circumstances where there is a personal nexus, English schemes are typically considered to be reasonably likely to be recognized overseas, either based on comity or some other route under local insolvency or bankruptcy laws (ironically, something that Gibbs rule would preclude in a reverse scenario, i.e., where English law debts are compromised in a foreign process9). In the absence of a personal nexus however, this route is not available.
One significant exception to the rule in Gibbs rule arises when a party voluntarily submits to the jurisdiction of the foreign restructuring process. The party does not have to consent to the foreign restructuring process to submit to the jurisdiction. Actively engaging in the proceedings would amount to submitting to the jurisdiction, thereby becoming bound by any discharge or variation in that foreign jurisdiction. It was this exception which formed the basis for the English High Court’s willingness to compromise Hong Kong law governed debt as part of two recent restructuring plans.
Hong Kong Airlines Case
In December 2022, in Re Hong Kong Airlines [2022] EWHC 3210 (Ch) (“Hong Kong Airlines Case”), the English High Court sanctioned a restructuring plan proposed by Hong Kong Airlines Ltd (“HKA”) which sought to restructure approximately US$6.2 billion of debt, a majority of which was foreign law governed (Hong Kong and People’s Republic of China (“PRC”)).
The decision clarified that the considerations that an English court will have regard to in considering whether to sanction a restructuring plan involving foreign law governed debt will be broadly the same as those for schemes of arrangement. It also provided further guidance on the factors which could give rise sufficient connection.
HKA was incorporated and registered in Hong Kong and had its COMI there. Its debts were governed by English, Hong Kong, and PRC law. Due to the rule in Gibbs applying to English and Hong Kong law governed debts, parallel proceedings were required in both Hong Kong and England.
Hong Kong Airlines Case
In December 2022, in Re Hong Kong Airlines [2022] EWHC 3210 (Ch) (“Hong Kong Airlines Case”), the English High Court sanctioned a restructuring plan proposed by Hong Kong Airlines Ltd (“HKA”) which sought to restructure approximately US$6.2 billion of debt, a majority of which was foreign law governed (Hong Kong and People’s Republic of China (“PRC”)).
The decision clarified that the considerations that an English court will have regard to in considering whether to sanction a restructuring plan involving foreign law governed debt will be broadly the same as those for schemes of arrangement. It also provided further guidance on the factors which could give rise sufficient connection.
HKA was incorporated and registered in Hong Kong and had its COMI there. Its debts were governed by English, Hong Kong, and PRC law. Due to the rule in Gibbs applying to English and Hong Kong law governed debts, parallel proceedings were required in both Hong Kong and England.
The restructuring plan sought to compromise:
Liabilities to critical aircraft lessors/financiers whose aircraft were to be retained on amended terms.
Unsecured creditors, including those aircraft lessors/financiers whose aircraft would be returned (32% English law, 49% Hong Kong law and 19% PRC law).
Certain perpetual notes and related guarantees governed by English law.
The first two categories of liabilities described above were also included in the Hong Kong scheme of arrangement.
The English High Court found sufficient connection based on the following factors:
- HKA's registration as an overseas company in England;
- the perpetual notes being governed by English law;
- 42% of HKA’s total indebtedness was governed by English law and there was no requirement that an overwhelming majority of the debtor’s indebtedness had to governed by English law in order for a sufficient connection to be established;
- there was active participation in the plan by a very significant portion of the holders of Hong Kong and PRC law governed debt;
- the plan was proceeding "hand-in-glove" with the Hong Kong scheme of arrangement and “far from exercising an exorbitant jurisdiction the English court [was] simply playing its part in cross-border insolvency proceedings”; and
- in relation to the inclusion of the Hong Kong law governed debts in the English law restructuring plan, notwithstanding the restriction imposed by the rule in Gibbs, the Court considered there to be utility in having a comprehensive plan in one jurisdiction supported by parallel schemes, rather than “a jigsaw of parallel schemes”.
On the international effectiveness of the English restructuring plan, the Court expressed that it needed to be satisfied that “the scheme will achieve a substantial purpose in the key jurisdictions in which the Company has liabilities or assets, and for that purpose will require credible evidence that the scheme has a real prospect of being recognised and given effect”10. The Court satisfied itself as to this question based on the following matters:
- an expert report confirming that a Hong Kong court (being the jurisdiction of HKA’s incorporation) would be likely to give effect to the compromise of English law governed liabilities by the English restructuring plan;
- an expert report confirming that the courts of the BVI and Cayman (being the jurisdiction of incorporation of the guarantors of the perpetual notes) would recognise and give effective to the compromise of the English law governed obligations under the perpetual notes by the English restructuring plan;
- the plan had been approved by 91.86% of the plan creditors who would be unlikely to seek to undermine the plan in other jurisdictions available to them; and
In relation to claims governed by PRC law:
- 99% of the unsecured creditors holding such claims had voted in favour of the plan; and
- CBD, a critical lessor, had approved the plan, making it unlikely that either of these groups of creditors would seek to undermine the plan in PRC and having the result that a Court in the PRC was likely to acknowledge that the relevant creditors had submitted to the English jurisdiction.
The first two categories of liabilities described above were also included in the Hong Kong scheme of arrangement.
The English High Court found sufficient connection based on the following factors:
- HKA's registration as an overseas company in England;
- the perpetual notes being governed by English law;
- 42% of HKA’s total indebtedness was governed by English law and there was no requirement that an overwhelming majority of the debtor’s indebtedness had to governed by English law in order for a sufficient connection to be established;
- there was active participation in the plan by a very significant portion of the holders of Hong Kong and PRC law governed debt;
- the plan was proceeding "hand-in-glove" with the Hong Kong scheme of arrangement and “far from exercising an exorbitant jurisdiction the English court [was] simply playing its part in cross-border insolvency proceedings”; and
- in relation to the inclusion of the Hong Kong law governed debts in the English law restructuring plan, notwithstanding the restriction imposed by the rule in Gibbs, the Court considered there to be utility in having a comprehensive plan in one jurisdiction supported by parallel schemes, rather than “a jigsaw of parallel schemes”.
On the international effectiveness of the English restructuring plan, the Court expressed that it needed to be satisfied that “the scheme will achieve a substantial purpose in the key jurisdictions in which the Company has liabilities or assets, and for that purpose will require credible evidence that the scheme has a real prospect of being recognised and given effect”10. The Court satisfied itself as to this question based on the following matters:
- an expert report confirming that a Hong Kong court (being the jurisdiction of HKA’s incorporation) would be likely to give effect to the compromise of English law governed liabilities by the English restructuring plan;
- an expert report confirming that the courts of the BVI and Cayman (being the jurisdiction of incorporation of the guarantors of the perpetual notes) would recognise and give effective to the compromise of the English law governed obligations under the perpetual notes by the English restructuring plan;
- the plan had been approved by 91.86% of the plan creditors who would be unlikely to seek to undermine the plan in other jurisdictions available to them; and
In relation to claims governed by PRC law:
- 99% of the unsecured creditors holding such claims had voted in favour of the plan; and
- CBD, a critical lessor, had approved the plan, making it unlikely that either of these groups of creditors would seek to undermine the plan in PRC and having the result that a Court in the PRC was likely to acknowledge that the relevant creditors had submitted to the English jurisdiction.
Sino-Ocean
More recently, in Re Sino-Ocean Group Holding Limited [2025] EWHC 205 (Ch), the English High Court was once again presented with a foreign debtor seeking to compromise Hong Kong law governed debt as part of an English law restructuring plan. This time however, the inclusion of such debts in the restructuring plan was contested because over 75% of the class of creditors holding Hong Kong law governed debts (the “Class A Creditors”) had voted in favour of the restructuring plan, enlivening the Court’s cross-class cram down powers under section 901G of the Companies Act 2006 which could be used bind dissenting classes of creditors to the restructuring plan.
Sino-Ocean Group Holdings Limited (“Sino-Ocean”) was incorporated in Hong Kong and listed on the Hong Kong Stock Exchange. A majority of its assets were indirectly held and located in the PRC. To address its ~US$6 billion in debt, it proposed a restructuring plan to compromise English law governed Notes and Hong Kong law governed syndicated bank debt as part of a cross-jurisdictional restructuring. Due to the rule in Gibbs, it was necessary for the English law restructuring plan to be accompanied by a scheme of arrangement (promulgated by a subsidiary of Sino-Ocean) in Hong Kong to effectively comprise the debts of the Class A Creditors, who were the only class of creditors included in the Hong Kong scheme of arrangement.
A dissenting creditor who held only English law governed debt sought to challenge the inclusion of the debts of the Class A Creditors in the restructuring plan as unnecessary and unjustified on the basis that:
Due to the rule in Gibbs, those debts could not effectively be compromised by the restructuring plan, as a result of which, the interests of the Class A Creditors were not affected by the restructuring plan;
Their claims could be adequately compromised by the Hong Kong scheme alone; and
The only reason for those inclusion of those debts in the restructuring plan was to engage the Court’s cross-class cram down powers.
The arguments above were dismissed by the Court which found that:
- in circumstances where over 80% of the Class A Creditors had voted in favor of the plan and submitted to the jurisdiction of the English Court, the rule in Gibbs would not prevent the compromise of those claims by the English restructuring plan and the plan would have a substantial effect on those creditors;
- in determining whether a particular creditor or class of creditors were affected by the plan, it was necessary to look at the impact of the restructuring as a whole, rather than just the English restructuring plan in isolation; and
- accepting that foreign law governed debts could not be included in a plan merely because an additional step in a foreign jurisdiction was necessary to bind the creditors who did not vote in favour of the plan would be inconsistent with the will of Parliament as it would deny companies that were operating internationally the ability to deal holistically with the different classes of their creditors under a restructuring plan.
The arguments above were dismissed by the Court which found that:
- in circumstances where over 80% of the Class A Creditors had voted in favor of the plan and submitted to the jurisdiction of the English Court, the rule in Gibbs would not prevent the compromise of those claims by the English restructuring plan and the plan would have a substantial effect on those creditors;
- in determining whether a particular creditor or class of creditors were affected by the plan, it was necessary to look at the impact of the restructuring as a whole, rather than just the English restructuring plan in isolation; and
- accepting that foreign law governed debts could not be included in a plan merely because an additional step in a foreign jurisdiction was necessary to bind the creditors who did not vote in favour of the plan would be inconsistent with the will of Parliament as it would deny companies that were operating internationally the ability to deal holistically with the different classes of their creditors under a restructuring plan.
Conclusion
The decisions in Re Hong Kong Airlines and Re Sino-Ocean reinforce the utility of English restructuring processes as a central forum for multinational restructurings and a viable mechanism for compromising foreign law-governed debt. They highlight English courts’ readiness to facilitate holistic, multi-jurisdictional restructurings and provide useful guidance for both English and overseas debtors seeking to avail themselves of English law restructuring processes and the ability bind dissenting creditors thereunder, particularly through the cross-class cramdown provisions.
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