Hurricane Energy Plc, Re

At a convening hearing under Companies Act 2006, the court does not decide whether a proposed restructuring plan is fair. It should stop the process only where an obvious defect would prevent later sanction. The Part 26A threshold conditions are relatively low: financial difficulty need only be likely to affect going-concern viability, and the plan need only be designed to mitigate its effect. “Affected by” has a broad meaning. Shareholders with an economic interest are affected where a plan dilutes their participation in capital and profits, so they must be permitted to participate. Class meetings may be convened together where rights are sufficiently similar and no material incentive fractures the class.

Hurricane Energy plc applied under Part 26A of the Companies Act 2006 to convene meetings to consider a restructuring plan. The plan proposed releasing part of the bond debt, extending maturity, and issuing shares to bondholders, substantially diluting the existing shareholders.

The application raised issues concerning notice, jurisdiction, the statutory threshold conditions, class composition, possible obstacles to later sanction, and meeting directions. The central questions included whether the bondholders formed one class and whether the shareholders’ rights were affected sufficiently to require their participation.

Order. The application was granted. Meetings of the bondholders and shareholders were ordered for 11 June 2021, with a sanction hearing listed for 21 June 2021.

1. Convening stage. The hearing was not concerned with the fairness of the Plan or the likelihood that it would ultimately be sanctioned. The court should refuse to convene meetings only where an obvious problem created a roadblock to sanction. Shareholders’ objections concerning financial information, the timing of the restructuring and proposed changes to the board were matters for the sanction hearing.
2. Notice, jurisdiction and thresholds. Notice must be sufficient, in the circumstances, to enable affected persons to consider the proposal, obtain advice and attend. Twenty-one days’ notice was sufficient for the bondholders. An RNS announcement and website publication caused no prejudice to shareholders, although shareholders who received no notice would not be bound by paragraph 10 of the Practice Statement and could raise relevant convening issues at sanction: Port Finance Investment Limited [2021] EWHC 378 (Ch). The Company’s incorporation in England and Wales established jurisdiction. Conditions A and B under section 901A of the Companies Act 2006 were met. The threshold for Condition A was relatively low. Condition B was satisfied because the Plan was designed to mitigate the financial difficulties and could produce a better, or at least no worse, return than the relevant alternative, including if the vessel charter was not extended: Re DeepOcean 1 UK Limited [2020] EWHC 3549 (Ch).
3. Classes and affected rights. The class-composition test asks whether existing rights and rights conferred by the Plan are not so dissimilar as to make consultation in a common interest impossible: Sovereign Life Assurance v Dodd [1892] 2 QB 573; Re Virgin Atlantic Airways [2020] BCC 997. The bondholders could consult in one class because their rights were the same and no lock-up arrangement, consent fee or comparable adviser fee fractured the class. The reasoning in Re Port Finance Investment Limited was applied to the disclosed success fee.
4. Shareholders. The phrase affected by in section 901C(3) has a broad ambit. Shareholders with an economic interest are affected where the Plan dilutes their participation in the company’s capital and profits. The Plan also triggered the statutory disapplication of relevant allotment and pre-emption rights. Section 901C(4) did not exclude the shareholders because the Company had not established that they lacked an economic interest. Their meeting therefore had to be convened. The fact that section 901G permits cross-class cram-down did not make their participation immaterial.
5. Directions. The meetings could be held remotely in accordance with the guidance in Re Castle Trust Direct [2020] EWHC 969 (Ch), subject to the court being satisfied that participants could participate effectively.