Re Nostrum Oil & Gas Plc

The Company applied for directions to convene a single meeting of its unsecured noteholders (the Scheme Creditors) to consider a scheme of arrangement under Part 26 of the Companies Act 2006. The proposed scheme would implement a group-wide restructuring, impose a moratorium on enforcement by noteholders and deliver a package of new secured and unsecured notes, equity and warrants. The court's function at the convening stage is procedural: to determine matters of class composition, jurisdiction and other matters going to the convening of meetings, not to determine the merits or fairness of the scheme.

The court found that adequate notice had been given, that the Scheme Creditors could properly be convened as a single class despite differences in series, consent fees, board nomination rights, cross-holdings and the presence of sanctioned noteholders, and that the court had jurisdiction because the Company had become a co-issuer and the notes were now governed by English law. The court accepted mechanisms proposed for dealing with "Sanctions Disqualified Persons" (a holding trust and delayed entitlement) and authorised directions to convene the meeting, with minor amendments to recitals concerning licences.

Background and parties: The Company is an English public company and parent of a group operating in Kazakhstan. Its principal indebtedness arises from two series of unsecured notes (2022 Notes and 2025 Notes) guaranteed by group companies. The Group has suffered falling production and reserve write-downs and defaulted on interest due in July 2020. Restructuring negotiations with an ad hoc group of noteholders and the largest shareholder (ICU) produced a lock-up agreement and shareholder approval of the restructuring in April 2022.

(i) Nature of the application: An application to convene a single meeting of Scheme Creditors under Part 26 CA 2006 to consider a scheme of arrangement that would implement a Restructuring: issue new secured and unsecured notes, issue equity representing c.88.89% on a fully diluted basis, provide warrants and impose a moratorium on enforcement until completion or a long-stop date. The scheme would also discharge claims against group obligors and include a Deed of Release for advisers and directors.

(ii) Issues framed by the court:

• Whether adequate notice was given for the convening hearing;
• Whether the Scheme Creditors should be treated as a single class (class composition), given series differences, a Lock-Up Fee, board nomination rights, cross-holdings and the presence of sanctioned creditors;
• Whether the court had jurisdiction to sanction the scheme (including the effect of the Company acceding as co-issuer and changes to governing law); and
• Whether any other issue (not going to merits) required refusal to convene the meeting.

(iii) Reasoning and conclusions: The court applied the Practice Statement and relevant authorities and concluded:

• Notice: the Practice Statement Letter was circulated by the Clearing System, giving just under six weeks' notice. Considering complexity, consultation and urgency, this was adequate.
• Class composition: the court applied the test that a class must not include persons with rights so dissimilar that consultation is impossible. Differences in series (maturity and coupon), the modest Lock-Up Fee (0.5%), payment of certain adviser fees, board nomination rights linked to size of holding, cross-holdings and the treatment of sanctioned creditors (entitlement preserved via a Holding Period Trust and delayed claim period) did not fracture the class. The sanctions issue was treated as a matter relating to fairness for later consideration at sanction, and the holding trust approach was acceptable at convening stage.
• Jurisdiction: the Company had acceded as co-issuer and governing law and jurisdiction provisions had been amended so that the Existing Notes are governed by English law and subject to the English Court, and the court was satisfied that these steps did not impede jurisdiction.
• Other practical directions: the convening Order was appropriate subject to minor amendments to address the possibility that a licence may not be required or that obtaining licences could delay the meeting.

The judge therefore made the convening Order with minor changes and recorded a declaration as to appointment of a foreign representative for potential Chapter 15 recognition in the United States.

The application to convene a meeting of Scheme Creditors under Part 26 CA 2006 was allowed and the court made an Order directing the convening of a single class meeting with specified directions. The judge concluded that notice was adequate, the Scheme Creditors properly form a single class, the court has jurisdiction (the Company is a co-issuer and the notes are governed by English law), and the proposed mechanisms for dealing with sanctioned creditors and releases were acceptable at the convening stage; minor amendments to recitals were required to address licence issues.