IN THE MATTER OF NOSTRUM OIL & GAS PLC

At a scheme convening hearing, the court does not decide the merits or fairness of the proposed scheme. It considers whether the statutory and procedural requirements for convening meetings are satisfied, including class composition, jurisdiction and other issues that could prevent sanction.

Class composition depends on creditors’ legal rights if the scheme is not implemented. Differences in interests, including cross-holdings, modest consent fees, personal sanctions status and potential board-nomination rights, do not fracture a class unless the differences in rights are so substantial that consultation is impossible. The appropriate notice period is fact-sensitive and depends on the scheme’s complexity, prior consultation and urgency. Steps taken to confer English jurisdiction for a scheme are permissible.

Nostrum Oil & Gas plc applied under Part 26 of the Companies Act 2006 for an order convening a single meeting of creditors holding interests in two series of unsecured notes. The proposed scheme formed part of a wider financial restructuring involving new notes, shares and warrants, and a moratorium on enforcement while regulatory approvals were obtained.

The issues included the adequacy of notice, whether differences between noteholders required separate classes, whether sanctioned creditors could be included in the class, and whether the company had jurisdiction to promote the scheme after becoming a co-issuer and changing the governing law and jurisdiction provisions of the notes. The central question was whether the meeting should be convened without determining the scheme’s merits or fairness.

1. Convening order made. The court ordered the convening of a single meeting of the Scheme Creditors, subject to minor amendments to the order.
2. At this stage the court’s function was procedural. It was not to determine the merits or fairness of the scheme. The relevant questions included class constitution, jurisdiction and other matters which might prevent sanction, consistently with Re Telewest Communications plc [2004] BCC 342.
3. The notice period was adequate. The appropriate period is fact-sensitive. Relevant factors include the complexity of the scheme, the degree of prior consultation with creditors and the urgency arising from the company’s financial distress. Here, creditors had known the restructuring terms for months, the scheme was urgent because of the approaching maturity of the 2022 Notes, and six weeks’ notice was sufficient.
4. The creditors could vote in one class. The governing test concerns legal rights, not interests. Creditors should be placed in separate classes only where their rights are so dissimilar that consultation with a view to a common interest is impossible. The court should avoid excessive subdivision of classes.
5. Differences in interest rates and maturities, a modest lock-up fee, adviser-fee payments, potential board-nomination rights, cross-holdings and the inability of sanctioned creditors temporarily to receive consideration did not fracture the class. The sanctioned creditors retained their pro rata entitlement on trust. Their position involved a difference in interests arising from personal status, rather than different scheme rights.
6. The court had jurisdiction. The company fell within section 895(2)(b) of the Companies Act 2006, and the proposal was a compromise or arrangement within section 895(1). It was permissible for the company to become a co-issuer and amend the governing law and jurisdiction provisions in order to confer jurisdiction on the English court.
7. The scheme’s releases of claims against group obligors and certain persons involved in the restructuring were permissible in principle where necessary to give effect to the arrangement and prevent claims defeating its purpose. The court was satisfied that the proposed directions were appropriate.