New Judgment – Re SCUR-Alpha 1092 GmbH [2026] EWHC 2735 (BP): sanction of the Schleich group scheme of arrangement

On 23 October 2026 Mr Justice Hildyard sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 proposed by SCUR-Alpha 1092 GmbH, the German holding company of the Schleich toy group. The judgment follows the convening judgment of 10 June 2026 (Re SCUR-Alpha 1092 GmbH [2026] EWHC 1414 (Ch)). Beyond the usual sanction questions, the Judge considered from first principles whether a holding period trust for a creditor subject to US sanctions engages the rule against the enforcement of foreign penal and public laws, set out how the court should approach the comparator in a Part 26 scheme, confirmed the fairness of pro rata new money with elevation, and stated his preferred mechanism for undertakings by non-scheme parties.

Background

The Scheme compromised the Scheme Company’s liabilities under the €169 million Existing Term Facility and the €20 million Existing RCF, both governed by English law with exclusive English jurisdiction, both matured and deferred under a lock-up agreement. On the Restructuring Effective Date, ownership of the group passes from the sponsor to an autonomous Dutch foundation; a €119.6 million New Super Senior Facility is established, comprising exchanged loans and €16 million of new money, in which every eligible creditor could elect to participate pro rata until the business day after the meeting; creditors lending under the Interim Facility or the new facility elevate existing loans equal to 1.45x their commitment; the remaining Scheme Liabilities are exchanged pro rata into a €12 million Restated Term Facility and a €35 million Holdco PIK Facility, and the balance is waived. The Steering Committee receives backstop fees of 4%. The entitlements of a Sanctions Disqualified Person are held by a Holding Period Trustee. Total debt falls from €241 million to €166.6 million.

Three developments followed the Convening Order. OFSI confirmed on 2 July 2026 that MeSoFa, a creditor in Austrian liquidation whose joint liquidator is a UK-designated person, was not owned or controlled by him, and the Scheme Company at once admitted MeSoFa to the vote, although the Convening Order had confined voting to Eligible Scheme Creditors. OFAC issued the licence needed to implement the Restructuring on 6 July 2026, and on 18 August 2026 replaced an initial condition requiring MeSoFa’s property to be held in a blocked account at a US institution with a condition that it be held on trust by the Holding Period Trustee until MeSoFa ceases to be subject to US sanctions or OFAC authorises its transfer. The Scheme Company abandoned a contemplated StaRUG to compromise potential German tax liabilities of up to c. €21.8 million and substituted a contingent “QR Structure”, under which, if those liabilities crystallise above a threshold, loans convert in reverse order of ranking into a deeply subordinated facility (qualifizierter Rangrücktritt), so that the IDW S6 restructuring opinion on which the Restructuring is conditional can be given. The amendments were explained in a Supplemental Explanatory Statement of nearly 2,000 pages, circulated in draft on 14 August and 11 September 2026 and in final form six days before the meeting.

At the Scheme Meeting on 22 September 2026, 13 of the 14 Scheme Creditors (c. 97.4% by value) voted. The Scheme was approved by 11 of them (c. 84.6% by number) holding c. 80.9% by value. MeSoFa (c. 16%) and one RCF lender (c. 2.6%) voted against. MeSoFa attended the sanction hearing in an observational capacity only. Its written submissions did not invite the court to refuse sanction, but maintained that the Holding Period Trust was unnecessary because its own OFAC wind-down licence permitted it to receive its entitlements directly, and claimed its costs under clause 23.3 of the SFA, asking that the Scheme’s release of claims under the finance documents be deleted.

The decision

Post-convening amendments

• The Judge was “a little troubled” that the Scheme had been modified materially after the Convening Order without returning to court. Where there is a material change between the documents before the court at convening and those put to the meeting, the better course will usually be to refer the matter back to the convening judge, if necessary by a letter inviting the judge to say whether a hearing is required. Here the amendments did not touch the class and were clearly explained, so the departure did not warrant upsetting the vote: [59]–[63]. Six days’ notice of the final Supplemental Explanatory Statement would, without more, have been inadequate, but the iterative provision of information from 8 May 2026 was fair and sufficient; the case was “the reverse” of Re Sunbird Business Services Ltd [2020] EWHC 2493 (Ch): [64]–[66]. The admission of MeSoFa to vote, which enlarged the franchise and was the opposite of the disenfranchisement considered in Re Nostrum Oil & Gas plc and Re VEON Holdings BV, was approved retrospectively, with a warning that approval should ordinarily be sought in advance: [53].

Representation

• Neither the lock-up, nor the elevation right open to every eligible creditor on the same pro rata terms, nor the backstop fees rendered the vote unrepresentative. Support from creditors outside the Steering Committee, including creditors receiving no backstop fee and one taking no new money, indicated that the committee’s terms did not drive the vote: [71]–[72]. A post-convening transfer of an unfunded Interim Facility commitment between two lenders, to which the Scheme Company’s participation was nominal, was an arrangement “behind the curtain” which did not affect the class or the fairness of the Scheme (Re Apcoa Parking Holdings GmbH [2014] EWHC 3849 (Ch)): [73]–[77].

The comparator

• The mid-case recovery for a non-participating creditor was 13.9% under the Scheme against 10.7% in the insolvency scenario, and the high case 19.7% against 14.8%; but the insolvency high case exceeded the Scheme low case. The Scheme Company relied on Standard Profil for the proposition that the mid-case is the right comparison. The Judge was “wary of an invariable or even usual presumption, without more, that the mid-case is necessarily the right comparator” in a Part 26 scheme, where the comparator, though well established in the authorities as a parameter, is not a statutory test, in contrast to the “no worse off” test which forms part of the architecture of Part 26A. He preferred to consider the matter in the round and, if satisfied that creditors had been properly informed and that their vote at a properly constituted meeting was not vitiated, to follow their lead unless there were good grounds for supposing that the Scheme low case or the insolvency high case was more likely than the vote implied: [80]–[84].

New money and elevation

• The materially better outcome for new money participants, reserved at convening, was not unfair. Every creditor in the class could subscribe pro rata, all were treated equally, and those who took up the option were entitled to the return it carried: Re Standard Profil Automotive GmbH [2025] EWHC 2313 (Ch) at [14]; Re ED&F Man Treasury Management plc [2020] EWHC 2290 (Ch); Re OQ Chemicals Holding Drei GmbH [2024] EWHC 2036 (Ch); Re Fossil (UK) Global Services Ltd [2025] EWHC 2741 (Ch). The 1.45x elevation ratio and 4% backstop fees were within the range of comparable transactions, the final commitment date fell after the meeting so that every creditor voted knowing the terms before deciding whether to lend, and MeSoFa’s inability to participate, being in liquidation, was not unfairness caused by the Scheme: [86]–[88]. The QR Structure binds every creditor alike, follows the agreed ranking and keeps the Restructuring available: [89]–[91].

Foreign sanctions and the exclusionary rule

• The Judge considered from first principles whether the Holding Period Trust, required by the OFAC licence, engaged the rule in Dicey, Morris & Collins (16th ed), Rule 20, that the English court will not enforce, directly or indirectly, a penal, revenue or other public law of a foreign state. Although holding period trusts have been used in a number of sanctioned schemes involving OFAC sanctions (Nostrum, Praesidiad, Mega Newco, VTB Capital), no English authority had substantively addressed the point, and the rule goes to jurisdiction: [100]–[105]. The question was one of characterisation. The trust was not targeted as a means of enforcing US sanctions. It was a mechanic habitually included in schemes to deal with creditors under a restriction on immediate receipt, and the particular provisions had been developed to recognise, not to enforce, OFAC sanctions, in the same way that English courts routinely take account of foreign law as a fact bearing on what can lawfully or practically be done (Banque Indosuez SA v Ferromet Resources Inc [1993] BCLC 112). The exclusionary rule was not engaged. It was “difficult to see how else the issue could safely be resolved in practice”: [106]–[108].

The Holding Period Trust

• MeSoFa’s own OFAC wind-down licence authorised MeSoFa, but not the Scheme Company, the Obligors (which include US entities), the Agents, the trustee or the new lenders, to deal with its property in the Restructuring; those parties act under the Scheme Company’s licence, which required the trust. The Scheme provided for direct transfer if MeSoFa obtained its own authorisation: “the route out of the trust is in MeSoFa’s hands”: [96]–[99]. The trust goes to how entitlements are held, not to the rights themselves; it is a fixed trust of vested interests, so its potentially indefinite duration raises no question of remoteness; its duration tracks the OFAC licence condition and no more; and the power, after three years and with a separate OFAC authorisation, to transfer trust property to an alternative transferee is a realisation power of the kind approved in Nostrum and Praesidiad, not a forfeiture. The court could not “abolish” the trust, having no unilateral power to rewrite a scheme’s terms (Re SGB-SMIT GmbH [2023] EWHC 2551 (Ch) at [25]): [109]–[112].

Undertakings by non-scheme parties

• Non-scheme group companies, many of them foreign, had undertaken by English-law deed poll to be bound by the Scheme, the undertaking being expressed to be “in favour of” the Scheme Company, the Scheme Creditors and the court. The Judge was uneasy at the absence of an express undertaking given to the court and of confirmation that its consequences, including punishment for contempt, had been explained: [128]–[130]. A post-hearing note confirmed that no rule prevents an undertaking to the court being offered by deed poll; that it must be clear that the undertaking is given to the court; and that, if accepted, it has the same force as one given by counsel, provided it is clear, has been explained and the giver has submitted to the jurisdiction: [132]. The Judge’s clear preference is that the undertaking be given through counsel for the scheme company, acting as the undertaking party’s counsel for that limited purpose, with express confirmation that its consequences have been explained. For the future, a deed poll should state unambiguously that the undertaking is given to the court, record that its consequences have been explained, and authorise counsel to give it on the party’s behalf: [133]. Each undertaking party so authorised counsel, and the order records the undertakings: [134], [150].

Other points

• The outstanding conditions were the ordinary mechanics of closing and no reason to withhold sanction (Re Smile Telecoms Holdings Ltd [2021] EWHC 685 (Ch)): [120]–[122]. On the evidence of Professor Thole, recognition in Germany was highly likely under Article 5 of the Hague Judgments Convention 2019, in force between the United Kingdom and Germany since 1 July 2025, or section 328 ZPO: [123]–[127]. The Scheme Company was entitled, and correct, to refuse MeSoFa’s claim to an indemnity for its costs under clause 23.3 of the SFA; the court had no power to modify the release in the Scheme as approved; and it would be very rare, if ever, for the court to order a company to fund in advance a creditor’s costs of opposing a scheme on account of its effect on that creditor. An uninvited post-hearing letter from MeSoFa was considered “with some considerable misgiving” (Re Stanford International Bank Ltd [2011] Ch 33 at [197]) and did not alter these conclusions: [135]–[148].

Adam Al-Attar KC of South Square appeared for the Scheme Company, instructed by Latham & Watkins LLP. Written submissions on behalf of MeSoFa by Nicholas Yeo KC and Christopher Snell (instructed by Gherson LLP) were considered.

Read the full judgment here: [link]