Vol 4 (2007) - Issue 4

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Practical Uses of a Scheme of Arrangement – Marconi plc and Marconi Corporation plc

The restructuring of the Marconi group in 2002/2003 was one of the largest and most complex ever carried out. A consensual restructuring of circa GBP 5 billion of debt was implemented without the need for an in-solvency process, using s425 Schemes of Arrangement under the UK Companies Act, combined with s304 US Bankruptcy Code orders for the top two companies of this multinational group. The remainder of the group was left free to operate normally.

Background

The Marconi group arose from a stalwart of UK in-dustry, GEC, and had decades of corporate history in a variety of engineering-related industries. At the end of the 1990s its traditional businesses were sold and it focused heavily on the telecommunications market. At that time it had operations in around 40 jurisdictions across the world. When the telecoms market turned down at the beginning of the twenty-first century, the group’s performance suffered and it became clear that it was excessively indebted.

The group structure, in summary, consisted of an ul-timate parent company, Marconi plc (‘plc’), which was a London Stock Exchange and NASDAQ listed entity with some 200,000 shareholders. Its key subsidiary was Marconi Corporation plc (‘Corp’). Corp was the holding company of some 300 operating subsidiaries across the world. Plc had one other subsidiary that would be crucial to the restructuring, which had been established to buy back some of the outstanding bond debt.

The group’s debt mainly resulted from unsecured bank and bond lending in approximately equal proportions. The financial debt was denominated in sterling, dollars and euros. Corp was the principal obligor of the bank lending and the issuer of the bonds. Both these exposures were guaranteed by plc.

The terms of the restructuring

Two s425 Companies Act schemes of arrangement (‘schemes’) were proposed, one at plc and one at Corp, to compromise the circa GBP 5 billion debt in exchange for cash, new debt instruments and new equity (which would be publicly tradable). The plc scheme was de-pendent on the Corp scheme being passed, although the Corp scheme was not conditional on the successful implementation of the plc scheme. No other companies were to be made subject to a scheme, and the rest of the group was to continue trading as normal. The schemes were ‘all creditor’ and the majority of the consideration was to be distributed immediately upon the schemes be-coming effective: the so-called ‘first day distribution’.

The restructuring fell into the following areas: creditor identification, quantification and notification; key factors of the schemes; and the nature and distribution of the consideration.

Scheme creditors

The creditor profile on Marconi was as follows:

• Bank debt – the bank debt was syndicated, and so control and communication could be established through the agent bank for the syndicate. This bank was also a member of the bank coordinating committee.

• US dollar and euro denominated bond issues – there was an ad-hoc committee of the bondholders but the beneficial ownership was widely spread.

• Other creditors.

There were four aspects of convening that needed to be addressed: classes; identification, notification, and voting.