High Court sanctions €241 million Schleich restructuring, rejects sanctioned creditor's objections

The High Court has sanctioned a restructuring of approximately €241 million in debt owed by the German toy group Schleich, rejecting objections from a sanctioned creditor and confirming that arrangements holding distributions in trust to comply with US sanctions do not amount to the unlawful enforcement of foreign public law. Justice Hildyard also warned that companies proposing material changes to schemes of arrangement after obtaining a convening order should ordinarily return to court before proceeding to a creditor vote.

SCUR-Alpha 1092 GmbH, a German holding company within the Schleich group, sought approval under Part 26 of the Companies Act 2006 for a restructuring of its liabilities under an English-law senior facilities agreement. The scheme covered a €169 million term facility and a €20 million revolving credit facility, both of which had matured but remained subject to deferral arrangements.

The restructuring provides for a €119.6 million new super senior facility, including €16 million of new money, alongside a €12 million restated term facility and a €35 million payment-in-kind facility. Remaining liabilities will be compromised, reducing the group's total debt, excluding local credit lines, from €241 million to €166.6 million. Ownership of the group will also transfer from its existing sponsor to an autonomous Dutch foundation.

At a creditors' meeting on 22 September 2026, 11 of the 13 creditors voting supported the scheme, representing approximately 80.9% of the debt voted. The dissenting creditors included MeSoFa Vermögensverwaltungs AG in Abwicklung, which holds approximately 16% of the scheme liabilities and is subject to US sanctions.

MeSoFa challenged aspects of its treatment under the restructuring, particularly the requirement that its entitlements be transferred to a holding period trust rather than distributed directly. Although the UK's Office of Financial Sanctions Implementation had confirmed in July that MeSoFa was not subject to a UK asset freeze, the US Office of Foreign Assets Control (OFAC) required its restructuring entitlements to be held in trust until sanctions were lifted or a separate transfer authorisation was obtained.

Justice Hildyard rejected the suggestion that the trust amounted to an impermissible indirect enforcement of US sanctions by an English court. He distinguished between enforcing foreign public law, which English courts generally cannot do, and recognising foreign legal restrictions when approving commercial arrangements designed to comply with them.

The judge found that the trust was a conventional mechanism for preserving creditors' entitlements while restrictions prevented immediate payment. MeSoFa would receive the same economic entitlements as other creditors, with the trust affecting only when and how those entitlements could be accessed. The possibility that the trust might continue indefinitely did not render it unfair, given that the restrictions arose from the sanctions regime rather than the scheme itself.

The Court also considered whether the restructuring unfairly favoured creditors providing new financing. Participating lenders were entitled to elevate existing debt equal to 1.45 times their new commitments into the super senior facility, while certain lenders received backstop fees of 4%. Justice Hildyard concluded that these arrangements were commercially justified and did not undermine the fairness of the creditor vote. The fact that MeSoFa, which was in liquidation, could not participate in the new financing did not make the scheme unfair.

A separate issue concerned substantial changes made to the restructuring after the Court's original convening order. The company had abandoned plans to pursue a German StaRUG restructuring process and instead introduced a contingent debt subordination mechanism to address potential German tax liabilities of up to €21.8 million.

Although Justice Hildyard accepted that the amendments did not alter the composition of creditor classes or undermine the vote, he expressed concern that the company had proceeded without seeking further directions from the Court. He said that where material changes are made to documents previously considered at the convening hearing, the better course will ordinarily be to return to the court, even if only by correspondence, so that the judge can determine whether further directions are necessary. The Court nevertheless approved the changes retrospectively, finding that creditors had been adequately informed and that the overwhelming support for the restructuring should not be disturbed.

The judge also addressed the adequacy of disclosure, noting that the final supplemental explanatory statement, which ran to nearly 2,000 pages, had been distributed just six days before the creditors' meeting. While that period would ordinarily have been insufficient given the complexity of the documentation, creditors had received successive drafts and explanations over several months, enabling them to make an informed decision.

MeSoFa also sought reimbursement of approximately €346,000 in legal costs, arguing that the expenses had been incurred in preserving its rights under the financing documents. The Court rejected that contractual claim, finding that the costs did not fall within the relevant indemnity provision. A separate application for costs under the Court's general discretion was left open for later determination.

On the commercial merits, the Court accepted evidence that the restructuring offered better estimated recoveries than insolvency. Non-participating creditors were projected to recover 13.9% in the scheme's mid-case scenario, compared with 10.7% in an insolvency, while the high-case recoveries were 19.7% and 14.8%, respectively.

Justice Hildyard also accepted expert evidence that the English scheme was highly likely to be recognised in Germany, where the company has its centre of main interests, including through the 2019 Hague Judgments Convention or German domestic law.

Read the decision here.

Adam Al-Attar KC of South Square, instructed by Latham & Watkins, represented the scheme company. Written submissions from Nicholas Yeo KC of Three Raymond Buildings and Christopher Snell of 33 Chambers were considered on behalf of MeSoFa.