IN THE MATTER OF SMILE TELECOMS HOLDINGS LIMITED

A restructuring plan must involve some element of give and take. It cannot merely expropriate creditors’ or members’ rights without compensating advantage. A small payment may suffice where the surrendered rights have no genuine economic value.

Under section 901C(4) of the Companies Act 2006, economic interest is assessed against the relevant alternative on the balance of probabilities. The court must exercise particular caution before excluding a class from voting. An affected stakeholder seeking to challenge valuation evidence should normally do so at the convening hearing with proper evidence.

The court may sanction a plan for an overseas company affecting creditors and members where there is sufficient connection with England, the proposed steps can operate under the law of incorporation, and there is a reasonable prospect of recognition where necessary.

A Mauritian holding company sought sanction under Part 26A of the Companies Act 2006 for a restructuring plan transferring ownership to its super-senior lender, compromising other debts and extinguishing existing shareholdings. The proposed relevant alternative was formal insolvency. On the valuation accepted at the convening hearing, every stakeholder other than the super-senior lender was out of the money.

Miles J had ordered under section 901C(4) that only the super-senior lender needed to be summoned to a meeting. It approved the plan. Certain senior creditors later questioned the valuation through correspondence and a competing report, but did not appear at either substantive hearing or adduce evidence through the ordinary expert process.

The court considered whether the plan was a compromise or arrangement, whether the earlier section 901C(4) determination should be revisited, and whether an English plan could effectively alter the constitution and capital of a Mauritian company and compromise rights requiring recognition in Nigeria and South Africa.

1. The restructuring plan was sanctioned. It constituted a compromise or arrangement. The payments described as ex gratia were properly characterised as consideration for the modification or extinction of participants’ rights. Because those rights were commercially worthless in the relevant alternative, even the small payments offered sufficient compensating advantage to prevent the plan from amounting to uncompensated expropriation.

2. For section 901C(4) of the Companies Act 2006, genuine economic interest is assessed against the relevant alternative on the balance of probabilities. The power to prevent a class from voting is particularly draconian. The convening court must therefore be entirely satisfied by adequate evidence and should defer a decision where the evidence, notice or opportunity to investigate objections is insufficient.

   The affected creditors had received proper notice and an opportunity to contest the valuation at the convening hearing. They gave no good reason for failing to do so. In the absence of properly filed evidence, expert engagement, cross-examination or argument, the court would not conduct its own specialist valuation inquiry or go behind Miles J’s conclusion that only the super-senior lender had a genuine economic interest.

3. The ordinary discretionary requirements for sanction were satisfied. The statutory formalities had been observed, the sole economically interested creditor had approved the plan, and there was no basis to question its commercial judgment. Subject to the international-effectiveness issue, no blot prevented sanction.

4. The company had a sufficient connection with England. Its centre of main interests had been moved to England, and the overwhelming majority of the compromised debts were governed by English law. Either consideration provided substantial support for exercising the Part 26A jurisdiction.

5. The statutory jurisdiction extended in principle to a plan affecting the constitution and share capital of an overseas company. A parallel proceeding in the place of incorporation was not an absolute requirement. The court could sanction where reliable evidence showed that the necessary corporate alterations could instead be implemented through a locally valid procedure.

   The English order would not itself alter the Mauritian company’s constitution. The plan’s power of attorney could, however, be registered and used in Mauritius to pass the required resolutions. The court accepted that conclusion after receiving CPR-compliant foreign-law evidence.

6. International effectiveness required a reasonable prospect, rather than certainty, that the plan would be recognised and given effect where dissenting creditors might act. The evidence supplied a sufficient basis for concluding that the compromises would be effective against relevant creditors in Nigeria and South Africa. The necessary jurisdiction and discretionary grounds were therefore established.

• High Court, sanction stage: The court sanctioned the restructuring plan: [2022] EWHC 740 (Ch).
• High Court, convening stage: Miles J held that only the super-senior lender had a genuine economic interest and needed to be summoned to a meeting under section 901C(4) of the Companies Act 2006: [2022] EWHC 387 (Ch). No permission to appeal that determination was sought.