In the matter of Nostrum Oil & Gas Plc

At the sanction stage of a scheme under Companies Act 2006 Part 26, the court must be satisfied that the statutory requirements have been met, the class was fairly represented, the statutory majority acted bona fide and for proper purposes, and the scheme is one which an intelligent and honest member of the class might reasonably approve.

The court is not required to decide that the scheme is the fairest or best available arrangement. In commercial matters it should be slow to differ from the informed decision of the properly consulted class. For an international scheme, there must also be a reasonable prospect of recognition and effectiveness in relevant foreign jurisdictions. A holding trust for creditors unable lawfully to receive scheme consideration may be a fair and proper solution.

Nostrum Oil & Gas Plc applied for sanction of a scheme of arrangement with creditors holding two series of unsecured notes with an aggregate principal amount of approximately US$1.125 billion. The scheme implemented a financial restructuring and provided for new notes, shares and warrants.

Some creditors were subject to sanctions in the United Kingdom, the European Union, the United States and Guernsey. They were unable to deal with the notes and could not vote at the scheme meeting. The scheme provided for their consideration to be held on trust until they could lawfully receive it.

The scheme meeting was convened pursuant to an earlier order and approved the scheme overwhelmingly. The issues were whether the statutory and procedural requirements had been met, whether the scheme was fair, whether the co-issuer structure created a blot, and whether the court would be acting in vain because of the scheme’s international elements.

1. The scheme was sanctioned. The court identified the usual sanction questions: compliance with the statute; proper constitution and fair representation of the class; bona fide voting for proper purposes; whether the scheme was one which an intelligent and honest member of the class might reasonably approve; and whether there was any other blot or defect.

2. The class had been properly constituted at the convening stage and there was no material factor or obvious error requiring the court to revisit that decision. The meeting had been properly convened, the explanatory statement was adequate, and the statutory majorities had been obtained. The high turnout and overwhelming vote demonstrated that the meeting was representative and that the majority had acted in accordance with the interests of the class.

3. The fairness inquiry had a specific and limited meaning. The court did not have to decide that the scheme was the fairest or best arrangement. Given proper consultation, representative attendance and the absence of improper motive, the court would be slow to differ from the creditors’ commercial judgment. The scheme produced materially better likely recoveries than the insolvency alternatives.

4. The 0.5% lock-up fee did not make the scheme unfair. It was properly disclosed, modest, and did not materially influence the voting decision. The treatment of Sanctions Disqualified Persons was also fair. Holding their scheme consideration on bare trust until receipt became lawful did not place them at a greater disadvantage than the sanctions themselves imposed.

5. The co-issuer structure did not constitute a blot. The steps conferring English jurisdiction had been taken to achieve the best possible outcome for creditors, rather than to evade debts. This was an instance of permissible good forum shopping.

6. The court would not be acting in vain. The overwhelming support for the scheme, the lock-up arrangements and independent expert evidence established a reasonable prospect that the scheme would be recognised and given effect in the Netherlands, Kazakhstan and the United States.

The scheme was accordingly sanctioned in the terms of the order made.