Oil and gas company’s proposed schemes of arrangement approved
An oil and gas group had has its petition for sanction of schemes of arrangement under part 26 of the Companies Act 2006 granted by the Outer House of the Court of Session.
Premier Oil plc and Premier Oil UK Limited proposed identical schemes with the same Scheme Creditors, leading the court to deal with their applications simultaneously. The companies formed part of the same group of companies (the Group), with the PO as the parent company and POUK the operating member in Scotland.
The petition was opposed by three respondents. The first respondent was a creditor of the Group, Fund III Investment 1 (Cayman) Ltd. They were part of a group of companies, ARCM, that controlled 15 per cent of total commitments under the Group’s indebtedness and represented their single largest creditor. The second and third respondents comprised two separate groups of supporting creditors who supported the motion of the petitioners.
The petitions were heard by Lady Wolffe.
The Group’s current capital structure was created in 2017 by previously sanctioned schemes of arrangement. Part of these, the Override Arrangements, provided for a common set of voting rights, covenants and events of default for the Scheme Liabilities. Amendments to these documents were sought by the petitioners.
The previous arrangement provided for seven different classes of creditors, six relating to private debt and one to publically traded debt. The size of ARCM’s holdings gave them a de facto blocking vote for decisions requiring unanimity or a significant majority voted on by 2 of the private classes per the 2017 voting rules.
The proposed amendments would alter the voting rules from a majority in each of the seven creditor groups to a majority in two overarching categories of creditor: Retail Bondholders (i.e. the public debt creditors) and Private Creditors (i.e. all the other classes of creditor apart from the Retail Bondholders). This would turn the 6 classes of private creditors into a single voting group, effectively removing ARCM’s blocking veto in majority votes. The first respondents challenged this as an impermissible confiscation of their voting rights, as they did not receive anything in return for the removal of the veto.
The petitioners proposed two classes of creditors to vote on the new schemes: the “Super Senior Creditors”, who were secured creditors, and the “Senior Creditors”, comprising essentially all the other private creditors and the Retail Bond holders. These two classes of creditors had previously met and approved the new schemes. With the exception of ARCM funds, the schemes were approved by approximately 99 per cent in value of the Super Senior and Senior Creditors, with a high turnout for the vote.
The first respondents also challenged the composition of these two voting classes, arguing that they should have divided the voting groups by debt instrument, reflecting the classification of debtors in the 2017 arrangements. Furthermore, the Explanatory Statement accompanying the schemes was inadequate to such an extent that none of the creditors who voted in favour of them could have made a properly informed decision.
Additional arguments including submissions regarding forced acquisitions, unfair comments made about ARCM at the outset of each creditor meeting that may have indicated bias, and the overriding unfairness of the schemes were also made against the proposed schemes by the first respondents.
In her decision, Lady Wolffe addressed the first respondents’ arguments on confiscation of voting rights, saying: “At times ARCM’s submission amounted to the contention their voting rights are sacrosanct; that it was illegitimate on the part of the petitioners to resort to the Part 26 jurisdiction when it was not insolvent; or that that constrained the nature of a scheme that could be promoted or the Court’s role. In my view, the voting rights are simply contractual rights. They do not acquire some other complexion, making them immutable or beyond the reach of any future Part 26 scheme, because they resulted from the 2017 Schemes.”
She continued: “[S]o far as I understand this argument, it is premised on the contention that the first respondent’s voting rights will be altered, regardless of the outcome of the other elements of the Scheme. However, this submission does not accurately reflect the conditionality and the sequential nature of the different elements of the Schemes. It suffices to note that the amendment to the voting rights does not take effect immediately, as ARCM appeared to contend. These provisions (including the change in clause 23 to the voting rights) will take effect, only if the series of transactions (the equity raise, the Acquisitions and the additional financing from RBL) complete. More specifically, it is only upon delivery of the A&E effective notice to the lenders (which brings the extension of the Scheme Debt Maturity into effect), that the proposed changes to the Override Agreement take effect, Considering the Schemes as a whole (and assuming their different elements take effect), there is ‘give and take’ and of which the amendments to the voting rights form part.”
On the voting classes used to vote on the proposed amendments, she said: “I am not persuaded that the factors ARCM invoke make it ‘impossible’ for the Senior Creditors or the Super Senior Creditors to consult together in their respective classes with a view to their common interest. The differences of the quantum of indebtedness owed to different creditors (or the currencies in which that is expressed) are permissible differences. In respect of the different interest rates payable (and which was not regarded as fracturing class for the purposes of the 2017 Schemes), the Schemes will harmonise interest rates to a very significant degree.”
She continued: “Accordingly, apart from the distinction between those creditors who are secured (i.e. the Super Senior Creditors) and the remaining Scheme Creditors (i.e. the Private Creditors and the Retail Bondholders), there is a commonality of rights to a very significant degree. Subject to consideration of ARCM’s submission about interests derived from rights, I find that ARCM’s challenge on the basis that the petitioners had not convened correctly composed classes of creditors fails.”
On the adequacy of the Explanatory Statement, she said: “On analysis ARCM’s criticisms of the Explanatory Statement simply reflect differences of commercial judgement. Given the size and complexity of the Proposed Transaction and the sector and market in which it operates, the Group is not surprising that different experts, making difference judgements about assumptions and forecasts come to different views. The differences are no more than differences of commercial judgement.”
For these reasons, and others, the first respondents’ arguments were rejected and the sanctions approved.
© Scottish Legal News Ltd 2020