Re Petropavlovsk plc (in Administration) & Ors

The court considered applications to convene single meetings of creditors under Part 26 of the Companies Act 2006 for three related companies (Petropavlovsk plc in administration, Petropavlovsk 2010 Limited and Petropavlovsk 2016 Limited) and parallel applications to place the two Jersey issuers into administration under Schedule B1 of the Insolvency Act 1986. The judge decided that, for the purposes of the convening hearing, the issuers were companies within the Companies Act and that the proposed arrangements fell within the broad concept of a "compromise or arrangement" because scheme creditors would undergo a give-and-take (including conversion of contractual rights and acceptance of the scheme timetable).

The court found notice to creditors was sufficient notwithstanding shortened timelines given the urgency created by imminent bank account closures and prior communications by the administrators. Class composition was approved: creditors' legal rights were not so dissimilar as to require multiple classes. The court accepted measures to address sanctions-related issues (including a holding period trust and alternative distribution arrangements) and approved convening orders for each scheme, granted administration orders for 2010 Limited and 2016 Limited (finding COMI in England) and authorised the issue of a letter of request to the Jersey court for recognition.

Background and parties: PLC (Petropavlovsk plc) was in administration and had sold its Russian operating businesses to UMMC. The sale consideration and related items were intended to satisfy external creditors of PLC and its two Jersey finance subsidiaries (Petropavlovsk 2010 Limited and Petropavlovsk 2016 Limited). The two Jersey companies were issuers of public debt (2024 bonds and 2022 notes respectively) for which PLC acted as guarantor. The administrators proposed three interrelated schemes of arrangement to distribute available funds to scheme creditors in full and sought convening orders under Part 26. The two issuers applied to be placed into administration under Schedule B1 of the Insolvency Act 1986.

Nature of applications / relief sought:

• Convening orders to hold a single creditors' meeting for each of the three scheme companies under Part 26 Companies Act 2006.
• Administration orders for Petropavlovsk 2010 Limited and Petropavlovsk 2016 Limited under Schedule B1 Insolvency Act 1986.
• Approval to issue a letter of request to the Jersey court for recognition of the administrators.

Issues framed by the court: (i) whether sufficient notice of the convening hearing had been given; (ii) jurisdictional questions for Part 26: whether the Jersey issuers were "companies" within the Act and whether the proposals constituted a "compromise or arrangement"; (iii) whether class composition was appropriate; (iv) the impact of sanctions and practical impediments to voting and payment (including use of a holding period trust); and (v) whether the COMI of the issuers was in England and whether administration would achieve the statutory purposes.

Reasoning and conclusions:

• Notice: although shorter than the usual 14 days, notice was sufficient given the urgent practical need (closure of UK banking facilities at end of January) and prior communications to creditors.
• Company and Part 26 jurisdiction: the Jersey issuers were properly treated as "companies" for present purposes (liable to be wound up under Part V Insolvency Act) and, in any event, the connection of the debt instruments to English law sufficed for the convening hearing. The proposed arrangements involved adequate "give-and-take" (conversion of contractual rights, waiver of intercompany claims and acceptance of scheme mechanics) to qualify as a compromise or arrangement.
• Class composition: creditors' legal rights against the scheme companies were sufficiently similar (all unsecured in insolvency) and practical differences (for example, some holders having attempted to exercise put options) did not require splitting into separate classes.
• Sanctions and practicalities: the schemes included measures to mitigate sanctions-related obstacles (holding period trust, alternative account nominations and suspension of distributions where necessary). The court was satisfied these did not fracture classes and posed minimal risk of unlawful facilitation of sanctions breaches.
• Administration applications: the issuers' COMI was found to be in England on the facts (administrative functions and contacts centred in London) and the administrators were likely to achieve a better result for creditors than liquidation because of the coordinated scheme process; administration orders were therefore made.
• Ancillary relief: the court approved the issue of a letter of request to the Jersey court to obtain recognition of the administrators.

Subsidiary findings: the sale of PLC’s Russian business to UMMC had been approved and completed, the sale consideration was structured to repay external creditors in full, intercompany claims and PLC’s holding of certain 2022 notes were to be excluded from the schemes and dealt with by netting, forgiveness or subordination.

Applications granted. The court approved convening orders for the proposed Part 26 schemes for Petropavlovsk plc, Petropavlovsk 2010 Limited and Petropavlovsk 2016 Limited, and made administration orders for Petropavlovsk 2010 Limited and Petropavlovsk 2016 Limited. The judge found that (i) notice was sufficient in the urgent circumstances, (ii) the Jersey issuers fell within the Part 26 jurisdiction for the present purposes and the proposals constituted a compromise or arrangement, (iii) class composition was appropriate, (iv) the measures to mitigate sanctions-related issues were acceptable, and (v) the issuers’ COMI was in England so that administration was appropriate and likely to achieve its statutory purposes. The court also authorised a letter of request to the Jersey court for recognition of the appointments.