In the matter of Petropavlovsk Plc (in administration) & Ors

The court may sanction a scheme of arrangement where the statutory requirements have been met, the relevant class has been fairly represented, the majority has acted bona fide for proper purposes, and an intelligent and honest creditor might reasonably approve the scheme. The court must also consider whether the scheme contains any technical or legal defect and, where international elements exist, whether it will have substantial effect in relevant foreign jurisdictions. Strong creditor support, English-law liabilities and payment in full may establish fairness and international effectiveness. The court should ordinarily adopt conclusions on class composition reached at the convening hearing.

Three companies in administration applied for sanction of schemes under Part 26 of the Companies Act 2006. The schemes were intended to enable external creditors to be paid in full, while addressing banking difficulties and the group’s Russian associations. Each scheme meeting approved the relevant scheme, with substantial majorities and no opposition. Minor amendments were proposed before sanction, including amendments concerning creditor claims, future liabilities and the holding trust.

The court considered whether the modifications were permissible, whether the statutory and procedural requirements were satisfied, whether creditors were fairly represented and had voted bona fide, whether the schemes were fair, whether any blot or jurisdictional defect existed, whether the schemes would be recognised abroad, and whether sanctions created an obstacle to implementation.

1. The court approved the proposed modifications because they did not materially adversely affect any scheme creditor. The modifications improved clarity, allowed additional time for claims and provided flexibility in holding disputed or future-claim funds.

2. The court applied the established sanction-stage questions: compliance with statutory requirements; fair representation and bona fide voting; whether an intelligent and honest creditor might reasonably approve the scheme; and whether there was any blot or defect. For schemes with international elements, the court must also consider whether sanction would be futile because the scheme would lack recognition or effect abroad.

3. The statutory requirements were satisfied. The classes had already been considered at the convening hearing, and the court ordinarily adopts those conclusions at sanction. The meetings complied with the convening order and the statutory majorities were obtained.

4. The classes were fairly represented. The high turnouts, overwhelming support and absence of opposition provided compelling evidence that creditors voting in favour acted bona fide and in the interests of the relevant classes. The court should give substantial weight to creditors’ commercial judgment and should not second-guess an unopposed decision to approve schemes under which creditors were expected to be paid in full.

5. No blot or jurisdictional defect existed. The English-incorporated company required no further sufficient connection with England. For the foreign companies, the English-law governing provisions of the principal debts established sufficient connection. The schemes were compromises or arrangements within Part 26.

6. The schemes were likely to have substantial effect abroad. English-law debts, overwhelming creditor support, payment in cash in full, support from the largest creditor and the absence of opposition all supported that conclusion.

7. The sanctions regime did not presently prevent sanction. The court considered regulations 18C, 60ZZB, 16 and 18B of the Russia (Sanctions) (EU Exit) Regulations 2019. The relevant exceptions and the scheme’s holding arrangements meant that sanctions issues could be managed cautiously by the administrators and trustees. Sanction was therefore granted for all three schemes, subject to the approved technical amendments.