Madagascar Oil Limited, Re

At a convening hearing for a restructuring plan, the court considers jurisdiction and whether any issue makes convening meetings pointless. English-law governing documents may provide a sufficient connection with England and Wales, even where the plan company is incorporated abroad. Financial difficulties satisfy Condition A of section 901A where they create a possibility that the company will be unable to continue business as a going concern. Condition B requires a compromise or arrangement involving sufficient give and take, which may be supplied by releases and new money provided by a creditor. Class composition depends on creditors’ rights, including rights under the plan and in the relevant alternative, rather than their economic interests. Different rights out of the plan may make consultation impossible. Questions of fairness and international effectiveness generally belong to the sanction hearing.

Madagascar Oil Limited applied under section 901C of the Companies Act 2006 to convene separate meetings of its two creditors, Outrider Master Fund LP and BMK Resources Ltd, to consider a restructuring plan under Part 26A.

The plan proposed to compromise both creditors’ claims. BMK would provide substantial new funding and receive releases and nominal consideration. Outrider would receive an option of a cash payment or revenue share, together with an anti-embarrassment payment. The company was incorporated in Mauritius, while the relevant debt documents were governed by English law. The issues included notice, jurisdiction, satisfaction of Conditions A and B, class composition, possible roadblocks, the explanatory statement and meeting arrangements.

1. Application granted. Separate meetings of BMK and Outrider were convened under section 901C. The court expressly left issues of merits, fairness and international effectiveness principally to the sanction hearing.
2. The plan company had a sufficient connection with England and Wales. The Facility Agreement, Guarantee and intercompany liabilities were governed by English law, and the relevant documents formed a negotiated suite binding both plan creditors. Those matters were sufficient at the convening stage.
3. Condition A under section 901A(2) was satisfied. The company could not pay the guarantee claims and faced winding-up proceedings. Its financial difficulties were sufficiently serious to create the possibility that it could not carry on business as a going concern.
4. Condition B under section 901A(3) was satisfied. A compromise or arrangement requires an element of give and take. BMK was not merely giving: it obtained significant releases, while also committing new money needed to restart production. Outrider received an option, a potential revenue share or cash payment, and a further payment right.
5. BMK and Outrider could not consult together in a single class. Although their rights in the relevant alternative were similar, their rights out of the plan were materially different. BMK was required to inject new money and remain invested, whereas Outrider was offered an exit and valuable contingent rights. Their inability to find common ground reinforced that conclusion.
6. A meeting consisting of one creditor is permissible. In a Part 26A plan, the absence of that creditor from the meeting does not necessarily prevent cram-down under section 901G.
7. There was no jurisdictional or practical roadblock making convening pointless. Artificiality in class composition and international effectiveness were principally matters for sanction. The explanatory statement was comprehensible to the sophisticated creditors and contained no manifest defect requiring refusal to convene.
8. The proposed releases of claims against non-party subsidiaries, directors and advisers created no present roadblock. The court accepted that third-party releases may be necessary where contribution, subrogation or a deed of contribution would otherwise recreate the liabilities being compromised.

First-instance convening decision. The court ordered separate meetings of BMK Resources Ltd and Outrider Master Fund LP and directed a subsequent sanction hearing.