The courts’ role in enabling the orderly restructuring of troubled companies with a view to achieving the best possible outcome for creditors has, in some cases, been made more problematic by sanctions imposed in response to the war in Ukraine. As a High Court ruling showed, however, such difficulties can be overcome.
The case concerned the heavily indebted parent company of a group, the principal business of which was the exploitation of an overseas oil and gas field. The field’s productivity was declining as hydrocarbon reservoirs depleted and it was plain that the group was seriously over-leveraged and that restructuring was required.
Under a series of loan notes issued at relatively high rates of interest, some of which had already passed their maturity dates, the company owed creditors about $1.125 billion. In those circumstances, the company asked the Court to sanction a scheme of arrangement under Part 26 of the Companies Act 2006.
The scheme was a complex one, but the objective was to enable creditors to take a 90 per cent stake in the company and, in money terms, to recover between 29.4 per cent and 40 per cent of the sums currently due to them under the notes. That was a far better outcome than was likely to be achieved in the event of a planned or unplanned insolvency.
A complication arose in that the holders of approximately 7.1 per cent by value of the notes were persons who were subject to international sanctions arising from the Ukraine conflict. The scheme, however, expressly prevented the distribution of any consideration derived from it to sanctioned persons.
The company was, in those circumstances, confident that it would succeed in obtaining regulatory approvals and, where necessary, licences from the UK and other governments so that the restructuring could proceed.
At a meeting of creditors, the proposed scheme received the overwhelming support of more than 99 per cent of those who voted. Sanctioned persons were precluded from voting but, even had all of them cast their ballots against the scheme, the required statutory majority in favour would still have been achieved.
In approving the scheme, the Court concluded that all the statutory safeguards had been met and that there was no blot or defect in the proposal. It noted that this was apparently the first case of its kind in which the position of sanctioned persons had been expressly considered.