DeepOcean 1 UK Ltd & Ors, Re

A restructuring plan may satisfy condition B in section 901A(3) of the Companies Act 2006 even though the company will cease trading. Mitigation is not confined to preserving the company as a going concern. A plan may mitigate the effects of financial difficulties by reducing the losses that creditors would otherwise suffer.

At the convening stage, the court determines jurisdiction, the statutory threshold conditions, class composition and procedural adequacy. It does not determine the plan’s merits or fairness. Creditors must be divided according to whether their existing and proposed rights are so dissimilar that they cannot consult together with a view to their common interest.

Three companies in a subsea cable-laying and trenching group applied under section 901C of the Companies Act 2006 for orders convening creditor meetings to consider restructuring plans. Persistent losses and the withdrawal of wider group funding meant that the companies faced administration or liquidation. The plans would release creditor claims in return for dividends exceeding the nominal or nil returns expected in the likely insolvency alternative.

The court considered its jurisdiction, the conditions in section 901A, the proposed creditor classes, notice and meeting arrangements. A vessel owner questioned whether condition B could be satisfied because the plans were not intended to preserve the companies as going concerns. Issues also arose concerning disputed charterparty claims, third-party guarantee releases, recognition in the Netherlands and the timing of any sanction hearing.

1. The applications were granted. Each applicant was a company liable to be wound up under the Insolvency Act 1986. Article 8 of the Recast Judgments Regulation (EC 1215/2012) supplied jurisdiction over EU-domiciled plan creditors because substantial numbers of creditors were domiciled in the United Kingdom and the claims were sufficiently connected to require determination together.

2. Condition A in section 901A(2) of the Companies Act 2006 describes the required financial difficulties qualitatively. They must be sufficiently serious to create a possibility that the company will become unable to carry on business as a going concern. Persistent underperformance, dependence on group funding and the imminent withdrawal of that support established the required real possibility.

3. Condition B in section 901A(3) was also satisfied. The court must identify the effects of the financial difficulties and determine whether the compromise is intended to lessen their gravity or seriousness. Mitigation need not preserve the company’s ability to trade as a going concern. A plan which improves creditors’ recoveries over those available in the likely insolvency may mitigate the severity of their losses even where the company will cease trading. The availability of Part 26A to liquidators supported that construction.

4. The expression “compromise or arrangement” in Part 26A bears the same meaning as under Part 26. The proposed releases and enhanced distributions contained sufficient give and take.

5. The Part 26 class-composition test applies to restructuring plans. The question is whether creditors’ rights are so dissimilar that they cannot consult together with a view to their common interest. Separate meetings were appropriate for secured lenders, the landlord, vessel owners and other unsecured creditors. Within each proposed class, the relevant existing rights and the rights conferred by the plans were sufficiently similar.

6. The convening hearing was not the occasion to decide fairness, the effect of the plans on claims against a third-party guarantor, recognition in the Netherlands or the final value of disputed vessel-owner claims. The meeting chair was to admit the vessel-owner claims at the values asserted. The explanatory statement was to describe fairly both possible outcomes of the valuation dispute. Any contested cross-class cramdown or recognition issues could be addressed at the sanction stage.

not stated in the judgment.