Re PGS ASA

The court granted the applicant's order under section 896 of the Companies Act 2006 to convene a meeting of certain creditors to consider a proposed scheme of arrangement. The judge found that the proposed restructuring constituted a compromise or arrangement within Part 26 of the Companies Act 2006, that adequate notice had been given for the convening hearing, and that the scheme was urgent given PGS's defaults and forbearance timetable. The court gave a provisional ruling that scheme creditors should vote as a single class because, on the insolvency comparator, the lenders' rights were materially the same and the proposed scheme provides identical rights on exit. The various fee arrangements (lock-up fee, work fees and adviser fees), and the underwriting/backstop arrangements for convertible notes, were held not to fracture the class. On international jurisdiction the court identified no roadblock: PGS is a foreign company within section 895, the Credit Agreement is governed by English law and contains an English jurisdiction clause, and relevant exceptions under the Recast Judgments Regulation (Articles 25 and 8) were available. The convening order was made, with directions for a virtual scheme meeting and standard provisions for conduct of the meeting.

Background and parties: PGS ASA, a Norwegian public limited company and parent of a global group providing marine seismic services, sought an order under section 896 of the Companies Act 2006 to convene a meeting of its lenders under a Credit Agreement to consider a scheme of arrangement restructuring approximately US$872 million of indebtedness. The group had also export credit facilities outside the scheme. The scheme formed part of a wider financial restructuring prompted by a severe COVID-19 related decline in revenue that left PGS in default of its debt obligations.

Nature of the application: A Part 8 application to convene creditor meetings for the purpose of considering and voting on the proposed scheme of arrangement.

Issues framed by the court:

• whether adequate notice had been given for the convening hearing;
• whether the proposal constituted a compromise or arrangement under Part 26;
• the correct composition of the class or classes of creditors for voting;
• whether various fee arrangements (lock-up fee, work fees, adviser fees) or backstop arrangements fractured the class;
• whether there were any jurisdictional roadblocks to convening and ultimately sanctioning the scheme, including application of the Recast Judgments Regulation;
• whether international effectiveness should be considered at convening or sanction stage.

Court's reasoning and conclusions: The court accepted that the 26 November 2020 Practice Statement notice provided adequate and timely notice given the urgency, prior consultation and the relative simplicity of the scheme. The scheme was a compromise or arrangement within Part 26 as it involved give and take (maturity extension, amended amortisation and fees). On class composition, comparing creditors' rights against the insolvency comparator, the judge concluded that all scheme lenders had materially identical rights (pari passu ranking, access to security, acceleration in insolvency) and would receive identical rights under the scheme; accordingly one class was appropriate. The court examined the lock-up fee (25 basis points), the $1.2 million work fee and adviser fee arrangements and held none were material enough to fracture the class, noting timing, quantum and pre-existing engagement terms. Regarding jurisdiction, PGS is a foreign company within section 895 and the English governing law and jurisdiction clause in the Credit Agreement, together with Article 25 and Article 8 of the Recast Judgments Regulation as potential exceptions, removed any obvious jurisdictional bar. The court declined to decide international effectiveness at the convening stage, treating that as a discretionary matter for the sanction hearing where evidence (including as to Norway) would be adduced. On that basis the court authorised the convening of a single creditors' meeting and made directions including provision for a virtual meeting.

The application under section 896 of the Companies Act 2006 is granted and the court ordered that the scheme meeting be convened. The judge concluded there was adequate notice and urgency, the proposal was a compromise within Part 26, the scheme creditors should vote in a single class because their rights were materially the same on the insolvency comparator and they receive identical rights under the scheme, fee arrangements did not fracture the class, and there were no jurisdictional roadblocks to convening the meeting. International effectiveness was deferred to the sanction hearing.