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

The court sanctioned three schemes of arrangement under Part 26 of the Companies Act 2006 proposed by Petropavlovsk PLC (in administration), Petropavlovsk 2010 Ltd and Petropavlovsk 2016 Ltd. The judge applied the familiar sanctioning tests (compliance with statutory requirements, fair representation and bona fide voting, whether an intelligent and honest person might approve the scheme, and whether there is any blot or defect), citing authorities including Re Telewest and Re KCA Deutag. The statutory majorities were obtained, class composition and convening order compliance were satisfactory, and the schemes were supported by overwhelming creditor votes. The court approved minor technical amendments (including a definition of Majority Scheme Creditors, an update to the Voting Instruction Deadline, a clarification of proof deadlines and a rule 14.44-style valuation approach for future claims) and held that international recognition and UK sanctions issues did not prevent sanctioning.

The applicants were three companies in administration seeking the court's sanction for proposed schemes of arrangement under Part 26 of the Companies Act 2006. The schemes were designed to enable the group’s external creditors to be paid in full and to address urgent banking and administration issues. A convening hearing had been held on 20 December 2022 (reported at [2022] EWHC 3448 (Ch)) and scheme meetings were held on 11 January 2023.

Nature of the application: sanction of three Part 26 schemes for Petropavlovsk PLC, Petropavlovsk 2010 Ltd and Petropavlovsk 2016 Ltd.

Issues framed by the court:

• Compliance with statutory requirements (class composition, compliance with the convening order and achievement of statutory majorities).
• Whether each class was fairly represented and voted bona fide.
• Whether the schemes were ones an intelligent and honest person might reasonably approve.
• Whether there was any blot or defect, including issues of international recognition and the impact of UK sanctions regulations.

Court’s reasoning and findings: the convening order and class composition conclusions from the convening hearing were adopted. The relevant statutory majorities were obtained (unanimous approval for the 2010 and 2016 schemes in number and value; overwhelmingly favourable votes for the PLC scheme). The court concluded the classes were fairly represented and had acted bona fide. The schemes were judged fair in substance because they provide for full payment of scheme claims as assessed, subject to usual verification and the approved valuation approach for future claims (in line with Insolvency Rules 2016, rule 14.44). Minor amendments to definitions, proof deadlines and the process for reserving and transferring funds to the holding period trust were approved as not materially adverse. The likelihood of recognition in other jurisdictions was accepted given that the principal debts are governed by English law, solid creditor support, and advisers’ advice as to Jersey recognition. The possible impact of the Russia-related sanctions regime (including regulation 18C and related exceptions, and regulation 60ZZB) was considered and the court concluded that, given the scheme protections and statutory exceptions, sanctions do not prevent sanctioning; the holding period trust regime and scheme safeguards allow administration of potential sanctions issues.

The court therefore granted sanction to all three schemes, subject to minor technical drafting changes.

The court granted sanction to all three schemes of arrangement under Part 26 Companies Act 2006 and approved the proposed modifications. Rationale: the statutory requirements had been satisfied, the classes were fairly represented and had acted bona fide, the schemes were ones that an intelligent and honest person might reasonably approve (notably because scheme creditors are to be paid in full), there was no material blot or defect and the schemes were likely to be recognised abroad; sanctions issues had been considered and were manageable within the scheme structure.

This is a first instance sanction hearing following a convening hearing held on 20 December 2022, reported at [2022] EWHC 3448 (Ch). The sanction hearing judgment is reported at [2023] EWHC 264 (Ch).