Citibank NA, London Branch v Oceanwood Opportunities Master Fund & Ors

For a contractual voting exclusion referring to a person who controls an issuer, control is not confined to share ownership. However, it must involve influence sufficiently pervasive to place the person on the issuer’s side of the issuer–creditor divide. Contractual rights exercised under security and intercreditor arrangements, including majority voting rights, enforcement directions, vetoes and information rights, do not themselves amount to control. The court must construe the provision in its commercial and contractual context. A creditor’s negotiation with, and protection of its interests against, a distressed debtor is not control merely because the creditor has substantial economic influence.

Citibank, acting as security agent and note trustee, sought directions concerning whether Oceanwood, the majority holder of secured notes issued by Norske Skog AS, could give binding enforcement directions. The Indenture excluded notes owned by a person directly or indirectly controlling the issuer from the calculation of voting majorities.

Foxhill alleged that Oceanwood was disqualified because its majority noteholding gave it control, or alternatively because its financing, veto rights, involvement in restructuring negotiations, role in appointing directors and proposed bid for the secured assets amounted to de facto control. Foxhill did not participate in the trial, and Citibank advanced the opposing arguments. The central issues were whether Oceanwood’s interest had to be disregarded under section 2.09 and whether its directions constituted instructions from an Instructing Group.

1. Majority noteholding. Oceanwood’s majority holding did not constitute control within section 2.09. The loan documentation expressly contemplated majority noteholder directions concerning enforcement and the exercise of security rights. Treating the majority holder as disqualified merely because it could direct voting of pledged shares would produce a commercially absurd result and defeat the contractual scheme. The directions therefore constituted instructions from an Instructing Group, and Oceanwood’s interest was not to be disregarded.
2. Meaning of control. Control could extend beyond equity ownership. It might include contractual control or a shadow controller able, in practical terms, to control the issuer. The relevant influence must nevertheless be sufficiently pervasive and must place the alleged controller on the issuer’s side of the issuer–creditor divide. The question is one of fact and degree, and no universal definition applies across different statutory or contractual contexts.
3. De facto control. Oceanwood’s liquidity and guarantee facilities, vetoes, information rights, restructuring negotiations, acquisition of other creditors’ interests and participation in the appointment of directors did not establish the required control. Those activities were undertaken as creditor protection and negotiation. They did not give Oceanwood positive, pervasive control over the issuer’s management or policies. The appointment of directors did not show that they were accustomed to act on Oceanwood’s instructions, and the shadow-director allegation was unsupported.
4. The court answered the three directed questions respectively: Yes, an instruction relying on Oceanwood’s majority interest was an instruction from an Instructing Group; No, Oceanwood’s interest was not to be disregarded because of its majority holding; and No, it was not to be disregarded on the alleged de facto-control facts.