In the matter of Petroserv Marine

At a scheme convening hearing, the court must be satisfied that it has jurisdiction, including that the company falls within Companies Act 2006 Part 26 and that the proposal is a compromise or arrangement. The adequacy of notice is fact-sensitive. Urgency, the simplicity of the scheme and the participants’ ability to understand its effect may justify a notice period well above the minimum required. Class composition should reflect substantial similarity of rights. A single class is inappropriate where recoveries and interests differ materially between creditor groups, while fragmentation beyond the existing creditor tranches is unjustified where their rights are essentially the same.

Petroserv Marine Inc applied for a convening order in relation to a proposed scheme of arrangement under Part 26 of the Companies Act 2006. The company was incorporated in the British Virgin Islands and proposed a restructuring involving four lender tranches, labelled Tranches A to D. Labrador Marine Corporation was not included in the proposed scheme classes but appeared through counsel, and its non-participation was discussed without being determined.

The court considered the adequacy of notice, jurisdiction and the composition of the scheme classes. The central issues were whether the company and proposed compromise fell within the court’s Part 26 jurisdiction, whether 20 days’ notice was sufficient, and whether the lenders should be divided into four classes.

1. Notice. The appropriate notice period is acutely subject-matter and fact dependent. Twenty days’ notice was sufficient in the circumstances. The scheme was urgent, its purpose being to restructure the company’s business before the benefits of restructuring were lost. Although the documents contained substantial amendments, the scheme was straightforward to understand, and the persons affected were able to appreciate its implications and had ample time to consider them.
2. Jurisdiction. The company satisfied the definition applicable under Part 26 of the Companies Act 2006. Although incorporated in the British Virgin Islands, it was liable to be wound up under the Insolvency Act 1986. Any question whether there was a sufficient connection with the jurisdiction was discretionary rather than jurisdictional. The proposed scheme was a compromise or arrangement between the company and its lenders. The court therefore had jurisdiction to make the convening order.
3. Class composition. A single class comprising all four lender tranches was inappropriate because the lenders’ interests and recoveries differed depending on whether the scheme was approved or the company entered liquidation. Conversely, there was no justification for fragmenting the classes beyond the four existing tranches. The rights of lenders within each tranche were essentially the same, and differences in interests did not require further subdivision. Four classes allocated by lender and tranche were therefore appropriate.
4. The court was minded to make the convening order in that broad form and proceeded to consider its detailed terms.