Re Mechala Group Jamaica Ltd

• Jurisdiction: Jamaica
• Judge: WOLFE, C.J.
• Judgment Date: 24 February 2000
• Judgment citation (vLex): [2000] 2 JJC 2401
• Docket Number: SUIT NO. E. 469 of 1999
• Court: Supreme Court (Jamaica)
• Date: 24 February 2000

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

SUIT NO. E. 469 of 1999

IN THE MATTER of Section 192 of the Companies Act

AND

IN THE MATTER of Mechala Group Jamaica Limited

COMPANY LAW - Scheme of arrangement - Application to sanction

1 CORAM:

WOLFE, C.J

2 The Petitioning Company was incorporated under the Companies Act of Jamaica on the 10th day of August, 1995, as a company limited by shares, under the name Mechala Investments Limited. By a Special Resolution and with the approval of the Registrar of Companies the Company changed its name to Mechala Group Jamaica Limited on the 27th of August, 1996.

3 The registered office of the Company is situated at 7 Harbour Street, Kingston, Jamaica.

4 The objects for which the Company was incorporated were to act as an investment company and as a holding company and the several other objects set forth in the Company's Memorandum of Association.

5 The original capital of the Company was $200.00 divided into 200 ordinary shares of $1.00 each. By a Special Resolution duly passed at an Extraordinary General Meeting of the Company held on the 2nd day of February, 1996 the existing ordinary shares of the company were converted from $1.00 shares to 1c (one cent) shares, and the share capital of the Company was increased to $10,000.00 by creation of 980,000 ordinary shares of 1c each.

6 By a Special Resolution duly passed at an Extraordinary General Meeting of the Company held on the 26th day of July, 1996, the capital of the Company was consolidated into 10,000 shares of $1.00 each and the share capital was increased to $215,868.00 divided into 4,460 ordinary shares of $0.36 each and 8,920 non-cumulative preference shares of $24.00 each.

7 By a Special Resolution duly passed at an Extraordinary General Meeting of the Company held on the 22nd day of October, 1996, the share capital of the Company was increased to $959,428,064.00 divided into 19,839,290 ordinary shares of $0.36 each and 39,678,580 non-cumulative preference shares of $24.00 each.

8 The Company is a holding company with limited assets of its own and which conducts substantially all of its business through subsidiaries. The Company, together with its consolidated subsidiaries, is -

• (a) Jamaica's largest developer of housing, in particular low-income housing and related social and commercial infrastructure;

• (b) the second largest distributor of foods and a major distributor of hardware, pharmaceutical, personal care and consumer products, and

• (c) a major provider of insurance, investment management and other financial products and services.

9 Pursuant to two Indentures dated December 24, 1996 and February 26, 1997 respectively, made between the Company and the Bank of New York, the Company issued the undermentioned notes:

• (i) US$475,000,000 of 12¾% Senior Notes and 12¾% Series B Senior Notes due on December 31, 1999 (hereinafter referred to as "the 1999 Notes")

• (ii) U.S. $25,000,000 of 12% Senior Notes and 12% Series B Senior Notes due on December 31, 2002 (hereinafter referred to as "the 2002 notes") in order to raise funds for various purposes.

10 A portion of the net proceeds of 1999 Notes was used to pay off approximately J$2 billion of the then existing Jamaican dollar - denominated indebtedness incurred by the company and its subsidiaries in the ordinary course of business. The result to the company was a significant reduction in interest cost while undertaking a foreign exchange risk. The company utilized its remaining net proceeds from sale of the 1999 Notes to consummate the acquisition of a 50% interest in International Finance Holding Ltd. which was owned by the Bank of Nova Scotia.

11 The net proceeds from the sale of the 2002 notes were used to refinance approximately J$840.2 million of Jamaican dollar denominated indebtedness incurred by the Group in the ordinary course of business. Such indebtedness was to mature by its terms at various dates during 1997. Again the result to the company was a significant reduction in interest cost while undertaking a foreign exchange risk.

12 The Company through the President of the Mechala Group Jamaica Ltd., Joseph Arthur Matalon, avers that the Company's business and results of operations have been and are expected to continue to be, adversely impacted on by the protracted decline in the Jamaican economy. The company did not generate operating income or cash flow sufficient to cover its interest expense during 1997 and 1998 and has a working capital deficiency of U.S. $70,211,000 at December 31, 1998.

13 The Company has not made the interest payments due on the 1999 Notes and the 2002 Notes payable on June 30, 1999 and August 15, 1999 respectively and will be unable to repay or refinance the 1999 Notes at their scheduled maturity on December 30, 1999.

14 The report of the Company's independent Accountants on the Company's Consolidated Financial Statements at December 31, 1998 expressed doubt about the company's ability to continue as a "going concern".

15 In addition, the company's recent poor operating performance in tandem with the difficult Jamaican economic environment and with the worldwide scarcity of capital available to companies located in emerging markets together with a variety of other factors has made it impossible for the company to refinance the Notes.

16 As a consequence of the foregoing the company deemed it necessary to ask the Holders of the Notes to accept a Scheme of Arrangement.

17 On November 18, 1999, upon an Exparte Originating Summons for Leave to Convene a meeting to consider a Scheme of Arrangement the Court ordered:

• 1. That the Applicant be at liberty to convene separate meetings to be held at the Jamaica Conference Centre, Duke Street, Kingston on Tuesday, the 21st December, 1999 at 2.00 p.m. and 4.00 p.m., respectively, and if for any reason that venue should be unavailable then at the Kingston Hilton Hotel, Knutsford Boulevard, New Kingston.

  • (a) of the Holders of all the Applicant's issued and outstanding "12¾% Senior notes due 1999 and 12¾% Series B Senior Notes due 1999" aggregating Seventy Five Million United States Dollars (US$75,000,000). Principal amount (hereinafter called the "1999 Notes') issued pursuant to Indenture dated December 24, 1996 and made between the Applicant and the Bank of New York.

  • (b) of the Holders of all of the Applicant's issued and outstanding "12% Senior Notes due 2002 and 12% Series B Senior Notes due 2002 aggregation Twenty Five Million United States Dollars (US$25,000,000) Principal amount (hereinafter called the "2002 Notes") issued pursuant to Indenture dated February 26, 1997 and made between the Applicant and The Bank of New York,

  both for the purpose of considering, and if thought fit, approving without modification a Scheme of Arrangement proposed to be made between the Applicant and the Holders of the 1999 Notes and the 2002 Notes.

18 The meetings of Noteholders were duly held in accordance with the above Order.

19 At the meeting of the holders of "the 1999 Notes."

• (a) Thirty six Holders of 1999 Notes whose Notes amounted in aggregate to US $42,654,000.00 and which represented 93.43% of the Aggregate Principal amount of "1999 Notes" present in person or by proxy voted to accept the scheme of arrangement; and

• (b) Two Holders of 1999 Notes whose Notes amounted in aggregate to US$3,000,000.00 and which represented 6.57% of the Aggregate Principal amount of 1999 Notes present in person or by proxy voted to reject the Scheme of Arrangement"

20 The Scheme of Arrangement as modified was approved by a majority in number of the Noteholders which represents more than 75% in value of the Aggregate Principal amount of 1999 Notes of the...