In the matter of Chaptre Finance Plc

The court considered an application under Part 26A of the Companies Act 2006 for permission to convene three class meetings to consider a restructuring plan intended to permit an £80 million super‑senior facility to be interposed in the Group's finance structure. The convening hearing is procedural: the court must be satisfied that adequate notice has been given, that the jurisdictional conditions in section 901A (conditions A and B) are met and that there are no obvious roadblocks to sanction, and that the proposed classes are properly constituted.

The judge found that the Plan Company faced an urgent liquidity crisis and that, absent the Plan, formal insolvency (likely administration of MGT and a creditors' voluntary liquidation of the Plan Company) was the most likely alternative (the relevant alternative under section 901G). The court was satisfied on the evidence (including the A&M report) that the Plan was a compromise or arrangement to mitigate financial difficulties and that sufficient notice had been given in the urgent circumstances. The use of a Deed Poll and a Deed of Contribution to make the Pellet Supplier a direct creditor and to record contribution rights between MGT and the Plan Company did not constitute a jurisdictional roadblock.

The court concluded that the proposed three classes (Funder Creditors, Hedging Bank Creditors and the Pellet Supplier alone) were properly constituted, addressing potential class composition objections (including the limited and already-locked-up Closed‑Out Hedging Bank). For these reasons the court ordered that the three meetings be convened.

Background and parties:

• The Plan Company, Chaptre Finance plc, is a member of a group formed to finance construction of a biomass power plant in Teesside. The plant is owned by MGT Teesside Limited and both companies, together with HoldCo, form the Group.
• Construction delays, alleged defects and the COVID‑19 pandemic caused prolonged delay and increased costs. The plant was expected to recommence operations in July 2023 and thereafter to generate substantial government‑backed revenues.
• The Group faces an urgent liquidity shortfall and, absent new money, will run out of cash in mid to late 2023; shareholders and some creditors have agreed in principle to provide an £80 million super‑senior facility if contractual amendments can be implemented.

Nature of the application:

• The Plan Company applied under section 901C(1) of the Companies Act 2006 for an order convening three creditor class meetings under Part 26A so that creditors could consider and, if thought fit, approve a restructuring plan that would introduce the Super Senior Facility and make related amendments to the intercreditor and common terms arrangements.

Key factual and contractual features of the proposed Plan:

• Three creditor groups were identified as Plan Creditors: the Funder Creditors (lenders under seven senior facilities), the Hedging Bank Creditors (four banks with swaps) and the Pellet Supplier (Enviva Wilmington Holdings LLC). Shareholders are not a voting class but have agreed to provide a significant share of the Super Senior Facility and have entered a lock‑up agreement.
• The Plan would amend the intercreditor and common terms agreements to give the Super Senior Facility priority, create an elevation of certain participating Funders’ existing debt, introduce cash‑sweep and forbearance provisions, and adjust treatment of Hedging Bank Creditors and the Pellet Supplier (including subordinating the Pellet Supplier to the Super Senior Facility on enforcement but preserving prior protections in other respects).
• A Deed Poll was executed to make the Plan Company a direct obligor to the Pellet Supplier and a Deed of Contribution was executed to record contribution rights between MGT and the Plan Company.

Issues framed by the court at the convening hearing:

• Whether sufficient notice of the convening hearing had been given in the urgent circumstances;
• Whether the jurisdictional conditions in section 901A (conditions A and B) were satisfied and whether there were any obvious roadblocks to sanction;
• Whether the proposed creditor classes were properly constituted for the purposes of voting on the Plan.

Court's reasoning on those issues:

• Notice: given the Group’s urgent liquidity position, prior negotiations with the Funders and Hedging Banks, and ongoing engagement with the Pellet Supplier, the court was satisfied that sufficient notice had been provided and that no party at the hearing sought additional time.
• Jurisdiction: condition A was satisfied because the company faced financial difficulties affecting its ability to continue as a going concern; condition B was satisfied because the Plan’s purpose was to mitigate those difficulties by enabling new capital to be introduced. The use of the Deed Poll and Deed of Contribution did not create jurisdictional roadblocks.
• Relevant alternative: applying section 901G, the court accepted the Plan Company’s evidence (supported by the Alvarez & Marsal report) that the most likely alternative was formal insolvency with materially lower recoveries to creditors.
• Class composition: the court applied the principle that a class must comprise creditors whose rights are not so dissimilar as to prevent them consulting together. It accepted three classes were appropriate. It considered and rejected arguments that differences in rights (interest rates, maturities, ECA subrogation, and the Closed‑Out Hedging Bank’s position) required further subdivision, noting the Closed‑Out Hedging Bank had signed the lock‑up and its claim was small.

Outcome of the convening hearing and directions:

• The court ordered convening of the three Plan Meetings, approved the explanatory statement for circulation and directed a timetable: proxy deadline 5 pm on 3 July 2023, meetings on 6 July 2023 and a sanction hearing on 13 July 2023.

Wider comment:

• The court emphasised that the convening hearing is not the forum to determine the merits or fairness of the Plan, which is reserved for any sanction hearing after voting.

The court ordered that the three class meetings proposed by the Plan Company be convened. The judge concluded that the convening hearing requirements were satisfied: adequate notice had been given in the urgent circumstances; the jurisdictional preconditions in section 901A were met; there were no obvious roadblocks (including the use of the Deed Poll and Deed of Contribution); and the proposed classes were properly constituted. In reliance on the cash‑flow forecasts and the A&M report, the court accepted that the relevant alternative under section 901G was imminent insolvency and that the Plan was a legitimate device to mitigate the Group’s financial difficulties. Directions and a timetable for the meetings and a sanction hearing were made accordingly.