Madagascar Oil Limited, Re

In exercising the cross-class cram-down jurisdiction under Companies Act 2006 Part 26A, satisfaction of the “no worse off” condition is necessary but not sufficient. The court must also determine whether the restructuring surplus has been fairly allocated between creditor classes. The relevant alternative is the outcome most likely to occur without sanction, not an outcome which is merely possible or theoretically more advantageous. The plan company bears the burden of establishing fairness, including the market basis or justification for returns on new money. A plan may appropriately favour a creditor providing essential new funding, expertise and restructuring support, provided the allocation is justified and the dissenting creditor receives fair value for the rights released. The court must also be satisfied that there is a reasonable prospect of international recognition, so that it would not be acting in vain.

Madagascar Oil Limited, a Mauritian authorised company, sought sanction under Companies Act 2006 Part 26A for a restructuring plan concerning debts owed to BMK Resources Ltd and Outrider Master Fund LP. BMK voted in favour and Outrider voted against. The plan compromised guarantee and intercompany claims, provided for releases and offered Outrider either an upfront payment or a capped revenue share.

Outrider objected on grounds concerning the relevant alternative, the “no worse off” condition, cross-class cram-down, fairness, international effectiveness and the alleged discretion of foreign parties to defeat the plan. The court considered the likely liquidation outcome, the allocation of restructuring benefits, and the prospects of recognition in Mauritius and Madagascar.

1. Sanction granted. The statutory conditions for sanction under Part 26A were satisfied, the creditor classes were properly constituted, the meetings and explanatory materials were adequate, and the plan was capable of implementation.
2. The relevant alternative under s.901G(4) was the outcome most likely to occur without sanction. On the evidence, this was liquidation of MOL followed by BMK’s purchase of its principal assets, rather than Outrider’s late and inadequately supported proposal to acquire MOSA or a liquidation of MOSA.
3. Outrider would be better off under the plan than in that relevant alternative. The “no worse off” inquiry included the value of rights against MOSA released by the plan, as well as rights against MOL.
4. Satisfaction of the “no worse off” condition did not determine fairness. The court had to examine how value preserved or generated above the relevant alternative was allocated between the creditor classes, whether a better allocation was realistically achievable, and whether the differential treatment was justified.
5. The plan’s allocation was fair. BMK was providing essential new money, specialist expertise and the practical means of restarting production. Its retention of a greater share of future value was justified by those contributions and risks. Outrider received value reflecting its economic interest, including an upfront payment or revenue share and protection through the anti-embarrassment provision.
6. The plan company bore the burden of establishing fairness, including the market basis or justification for returns on new money. However, Outrider had not properly raised or tested the alleged unfairness of the loan terms in its pleaded grounds or evidence. The evidence nevertheless supported the conclusion that the proposed funding was necessary and its terms were not shown to make the plan unfair.
7. There was a reasonable prospect that the sanction order would be recognised in Mauritius under the Model Law or by exequatur, and in Madagascar by exequatur. The court would therefore not be acting in vain. The foreign injunction did not prevent the Part 26A proceedings or the compromise effected by the plan.
8. The plan’s releases of MOSA’s guarantee liabilities and of directors and advisers were necessary or appropriate to implement the restructuring and did not disclose a blot. Outrider’s objections were rejected and the plan was sanctioned.