Re PGS ASA

The court sanctioned a scheme of arrangement under section 899 of the Companies Act 2006. The judge applied the well-established sanction principles: compliance with statutory requirements, fair representation of the class and bona fides of the majority, whether the scheme is one an intelligent and honest creditor might reasonably approve, and whether there is any technical or other blot. The court found the classes were properly constituted, the convening order and explanatory statement complied with statutory requirements, and the necessary statutory majorities had voted in favour. The very high turnout and near-unanimous vote, expert evidence that the scheme produced materially better recoveries than an insolvency comparator, the absence of unfair bias from cross-holdings, lock-up and work fees, and the presence of English governing law and jurisdiction clauses led the court to conclude the scheme was fair and likely to have substantial international effect. Limited post-meeting modifications relating to recovery of an erroneous interest overpayment were held to fall within the scheme's clause permitting post-meeting modifications and did not materially and adversely affect any creditor.

This was a first-instance sanction hearing of an application by PGS ASA for approval of a scheme of arrangement under Part 26 and section 899 of the Companies Act 2006. PGS, a Norwegian company, sought sanction of a restructuring that would amend and extend its credit facilities, convert revolving and term facilities into a single new term loan with common maturity, amend amortisation and covenant terms, and provide scheme consideration including amendment fees and optional payment-in-kind or convertible notes. The application followed a convening order and convening judgment ([2020] EWHC 3622 (Ch)).

Nature of the application: sanction of a scheme of arrangement under section 899 Companies Act 2006.

Key facts and procedural posture:

• The convening order directed a single class meeting; the scheme meeting was held virtually on 20 and 27 January 2021 and the vote occurred on 27 January 2021.
• 186 of 190 creditors attended; the requisite majorities were obtained: 185 of 186 present and voting supported the scheme representing 95.33% by value of those present and voting. Four creditors had acceded to a Lock-Up Agreement but did not vote.
• An administrative error had led to overpayment of default interest to certain lenders; PGS proposed mechanisms to recover or deduct the sums and made limited further amendments to facilitate recovery.
• Expert evidence (Alvarez & Marsal) was before the court showing likely materially better recoveries under the scheme than under insolvency (insolvency comparator recoveries materially lower).

Issues framed: (i) compliance with statutory requirements for convening and class composition; (ii) whether the class was fairly represented and the majority acted bona fide; (iii) whether the scheme was one an intelligent and honest creditor might reasonably approve; (iv) whether there was any blot or defect and whether the scheme would achieve substantial international effect; (v) whether limited post-meeting modifications were permissible.

Court's reasoning: The court followed the four-part sanction test as summarised in Re KCA Deutag. It concluded statutory requirements were satisfied, the meeting was properly constituted and representative, and the majority acted bona fide. The overwhelming creditor support, together with the expert evidence on comparative returns, gave a strong presumption that the scheme was fair. Potential sources of unfairness (lock-up fee, work fee, adviser fees, amendment fees, backstop arrangements) were considered immaterial or fully disclosed and thus did not undermine fairness. On international effect, the English governing law and jurisdiction clauses, the contractual lock-ups and expert foreign-law reports made it likely the scheme would achieve substantial effect in relevant jurisdictions. Limited post-meeting modifications to address the interest overpayment fell within the scheme's clause permitting modifications and did not materially prejudice creditors. Accordingly the scheme was sanctioned.

The court sanctioned the scheme. The application under section 899 of the Companies Act 2006 is granted because statutory requirements were met, the class was properly represented and acted bona fide, the scheme is one an intelligent and honest creditor might reasonably approve (supported by high creditor turnout and expert evidence of superior recoveries to an insolvency), there was no identifiable blot or technical defect, and the scheme is likely to have substantial international effect. Limited post-meeting modifications addressing an erroneous interest overpayment were permissible and did not materially and adversely affect creditors.