Metinvest BV, Re

The court considered an application under Part 26 of the Companies Act 2006 for sanction of a scheme of arrangement (the Second Moratorium Scheme) that would impose a moratorium on enforcement by holders of three series of Eurobonds issued by the Scheme Company. The judge found that the statutory requirements for sanction were met, that the creditor classing was appropriate, and that the class was fairly represented: the scheme meeting approved the scheme unanimously by those voting with a high turnout. The court also accepted that it had jurisdiction to sanction a scheme concerning a Netherlands company. On the merits, the court concluded that the proposed standstill was appropriate because the restructuring described in agreed non-binding heads of terms offered materially better recoveries for noteholders than an insolvency or disorderly realisation of assets, which risked producing significantly lower returns given the group’s asset location and commercial difficulties.

This is an application by Metinvest BV for sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 to continue a moratorium on enforcement by holders of three series of Eurobonds (the 2016, 2017 and 2018 Notes). The Scheme Company was in default under the Notes and also in default under pre-export financing facilities (PXF Facilities), although the latter were subject to a separate contractual standstill. The Second Moratorium Scheme sought to extend the moratorium previously sanctioned by this court (the First Moratorium Scheme) to permit negotiation and documentation of a consensual restructuring set out in non-binding heads of terms.

Procedural history: Proudman J convened the original meeting application, Asplin J sanctioned the First Moratorium Scheme on 29 January 2016, and Newey J ordered convening of the meeting for the Second Moratorium Scheme on 8 June 2016. A creditors’ meeting was held on 28 June 2016 at which those voting approved the Second Moratorium Scheme unanimously by number and value, and the turnout represented about 85% by value of those entitled to vote.

Issues framed by the court included: (i) compliance with statutory requirements for sanction of a Part 26 scheme, (ii) whether creditors were properly classed and fairly represented, (iii) whether the court should exercise its discretion to sanction the scheme, and (iv) the court’s jurisdiction to sanction a scheme of a company registered in the Netherlands.

Reasoning and conclusions: The judge found full compliance with the statutory requirements and the convening order. Following the reasoning applied by Proudman J and Newey J, the court concluded that a single class of scheme creditors was appropriate. Given the unanimous approval at the meeting and high turnout, the class was fairly represented and a majority acted bona fide. On the discretionary question, the court accepted objective reasons for the majority’s vote: evidence suggested that an orderly realisation might yield about 46 cents in the dollar and that an actual disorderly realisation could produce even lower recoveries because most assets were in Eastern Ukraine and the group faced political and market difficulties. The non-binding heads of terms proposed full repayment of principal albeit with delayed maturity, offering materially better outcomes. Finally, the court followed previous rulings that it had jurisdiction to sanction the scheme despite the company’s Dutch registration. The application was therefore granted and an order in the proposed form was made.

The court sanctioned the Second Moratorium Scheme and made an order in the form proposed. The judge held that statutory requirements had been satisfied, the classing and representation of creditors were appropriate, there were objective commercial reasons favouring the scheme (including materially better creditor recoveries under the proposed restructuring compared with likely insolvency outcomes), and the court had jurisdiction to sanction a scheme concerning a Netherlands company.

Proudman J convened the original meeting application (hearing on 13 January 2016) and gave detailed reasons on class composition and jurisdiction. Asplin J sanctioned the First Moratorium Scheme on 29 January 2016. Newey J ordered convening of the meeting for the Second Moratorium Scheme on 8 June 2016. A creditors' meeting was held on 28 June 2016 at which the scheme was approved by all votes cast.