NN2 Newco Ltd, Re Companies Act 2006

On a scheme sanction application, the court must reach its own independent view and must not act as a rubber stamp. It should give proper weight to the views of scheme members as judges of their commercial interests, but the absence of opposition does not remove the duty of scrutiny.

The court must be satisfied that the statutory requirements and class constitution are correct, that the meetings were fairly representative, and that members were acting bona fide without coercing a minority for interests adverse to the class. The scheme must be one which an honest and reasonable class member could properly support. A waivable condition concerning recognition of the scheme in another jurisdiction does not necessarily prevent sanction, particularly where the scheme would substantially achieve its purpose without that recognition.

NN2 Newco Ltd applied for sanction of a scheme affecting holders of existing notes and bonds. The scheme formed part of a restructuring involving a substantial reduction of debt, new capital and a transfer of ownership to Trafigura.

The court had previously ordered the convening of two scheme meetings in [2019] EWHC 1917 (Ch). Both classes approved the scheme by the requisite majorities. The sanction hearing addressed the effect of issues considered at the convening stage, the fairness and representativeness of the voting, the possible effectiveness of the scheme in New York, disclosure, and an objection by COMIMET.

1. The court sanctioned the scheme. It was plainly an arrangement within Part 26 of the Companies Act 2006, the statutory provisions had been complied with, the meetings were properly constituted, and the requisite majorities had approved the proposal.

2. The court must form its own independent view at the sanction hearing. Scheme members are ordinarily the best judges of their commercial interests and their decision deserves proper regard, but the court’s scrutiny remains necessary even where there is no opposition.

3. The members attending the meetings fairly represented the classes. The court considered whether benefits such as work fees and consent fees created special interests capable of undermining representation. The voting figures of members not entitled to those benefits showed that the benefits had not affected the outcome. The members were therefore acting bona fide and were not coercing the minority.

4. The scheme was fair. Compared with the likely return in an insolvency, the expected scheme return was one which an honest and reasonable class member could properly support.

5. The possible need for recognition under Chapter 15 in New York did not create a blot preventing sanction. Following the reasoning adopted in Re Magyar Telecom BV [2013] EWHC 3800, the fact that the recognition condition was waivable was immaterial. The level of support and the creditors’ execution of the securities confirmation forms indicated that the scheme would substantially achieve its purpose whether or not recognition was obtained.

6. There had been full disclosure of the relevant considerations at an appropriate level of detail. The properly informed and properly constituted majority prevailed over the individual concerns of an anxious creditor. COMIMET’s objections did not establish oppression of the minority or fundamental unfairness.

The judgment was supplemental to the court’s earlier convening judgment, [2019] EWHC 1917 (Ch). The court had ordered the scheme meetings and subsequently sanctioned the scheme.