Metinvest BV, Re

When sanctioning a scheme of arrangement under Companies Act 2006 Part 26, the court must verify statutory compliance, proper constitution of the class, fair representation and bona fide voting. The court is not bound by the meeting’s decision, but substantial and informed approval will ordinarily be respected unless there is a good reason to withhold sanction. A temporary moratorium scheme may be sanctioned where it preserves stability during restructuring negotiations, particularly where insolvency would offer creditors a materially worse prospect and the scheme does not finally restructure the debt.

Metinvest BV, a company registered in the Netherlands, applied for sanction of a second moratorium scheme under Part 26 of the Companies Act 2006. The scheme concerned three classes of defaulted Eurobonds and would prevent enforcement action until 30 September 2016, subject to specified extensions or early termination.

The court had previously sanctioned a first moratorium scheme. At the convening stage for the second scheme, Newey J followed the earlier reasoning of Proudman J and Asplin J on class composition and jurisdiction. Creditors then approved the scheme unanimously, representing approximately 85% by value of those entitled to vote. The central issues were whether the statutory and procedural requirements had been met, whether the creditors had been fairly represented and had acted bona fide, whether the court had jurisdiction, and whether the scheme was appropriate for sanction.

1. Jurisdiction. The court had jurisdiction to sanction the scheme. There was no material reason to depart from the conclusions reached at the earlier stages of this litigation.
2. Statutory and procedural compliance. The statutory majorities were obtained by a substantial margin. The convening order had been complied with, and the single class of scheme creditors was properly constituted. The court accepted the earlier analysis that insolvency was the appropriate comparator and that the creditors’ rights were sufficiently similar for them to form one class.
3. Representation and voting. The class had been fairly represented. The vote was unanimous, the turnout was approximately 85% by value, and there was no objection from any scheme creditor. The creditors had acted bona fide.
4. Discretion to sanction. The court was not bound by the meeting’s approval. Nevertheless, in these circumstances it would require a good reason to conclude that an intelligent and honest creditor acting in its own interests would not approve the scheme. The evidence supplied objective reasons for approval. An orderly realisation in insolvency might produce recovery of no more than 46 cents in the dollar and might prove impossible because of the group’s assets and financial difficulties. The proposed restructuring, by contrast, contemplated repayment of principal at delayed maturities.
5. Scope of the order. The scheme imposed only a temporary standstill on enforcement action. Any final restructuring would require a further application for sanction. The Second Moratorium Scheme was sanctioned and an order was made in the proposed form.

This was a first-instance sanction application. The judgment records that Proudman J dealt with the convening application for the First Moratorium Scheme, Asplin J sanctioned that scheme, and Newey J dealt with the convening application for the Second Moratorium Scheme. This court followed the reasoning at those earlier stages and sanctioned the Second Moratorium Scheme.