Madagascar Oil Limited, Re

The court considered a Part 8 claim under Part 26A Companies Act 2006 to sanction a restructuring plan for Madagascar Oil Limited (MOL) under sections s.901A, s.901C, s.901F and s.901G. The judge analysed the statutory tests for sanction, including the separate requirements for cross-class cram down (the "no worse off" test and the ‘‘relevant alternative’’ enquiry), and the court's discretion to sanction where dissenting classes exist. The court rejected the creditor Outrider’s alternative relevant alternatives and found that the most likely relevant alternative was MOL liquidation with BMK buying the assets to preserve operations. The court held that the Plan met the statutory conditions, was not unfairly distributed between BMK and Outrider in light of the contribution of new money and the risks involved, and that there was a reasonable prospect of international effectiveness (recognition) in Mauritius and Madagascar under the Model Law and exequatur procedures. The court therefore exercised its discretion to sanction the Plan.

This is a first instance sanction hearing under Part 26A of the Companies Act 2006. MOL (the plan company), whose main asset is its shares in Madagascar Oil S.A. (MOSA), sought an order under s.901F sanctioning a restructuring plan dealing with guarantee and intercompany claims held by two creditor parties: BMK (the majority shareholder parent) and Outrider Master Fund LP (Outrider). The Plan proposed compromises of guarantee claims, subordination of intercompany debt, and a BMK-provided new money package to restart production at the Tsimiroro Oilfield.

Background and parties

• MOL is a Mauritius-registered authorised company and 99.8% shareholder of MOSA. BMK is MOL’s immediate parent and the principal continuing investor. MOSA holds a Production Sharing Agreement (PSA) for the Oilfield in Madagascar but has not produced commercially since 2016.
• Outrider held significant guaranteed claims under a Facility and Amended and Restated Guarantee governed by English law (cap c. US$80m). The Plan creditors were BMK and Outrider, who voted respectively for and against the Plan at separate creditor class meetings convened by the court.

Procedural posture

• The convening hearing and case management restricted Outrider’s grounds of objection to four matters: international effectiveness, the relevant alternative (RA), whether BMK was ‘in the money’, and unfairness of the Plan.
• The sanction hearing involved witness and expert evidence and addressed cross-border recognition issues in Mauritius and Madagascar, including prior Mauritian proceedings (statutory demand, set-aside, injunction and a dismissed recognition application).

Issues framed by the court

• Whether Conditions A and B under s.901A (financial difficulties and purpose) were met.
• Whether the cross-class cram down provisions (s.901G) could be applied: in particular the identification of the relevant alternative and satisfaction of the ‘‘no worse off’’ test.
• Whether the Plan was fair in allocation of restructuring benefits between BMK and Outrider given BMK’s provision of new money and retention of equity.
• Whether an English sanction order would be effective internationally, especially in Mauritius and Madagascar (Model Law recognition and exequatur).

Reasoning and findings

• The judge accepted MOL’s evidence that the Group is in financial distress and that the Plan’s purpose is to mitigate those difficulties by restructuring debt and securing BMK new-money to restart production (s.901A satisfied).
• The court accepted Mellor J’s convening decision to separate creditor classes and found the meetings, explanatory materials and voting proper.
• On the RA, the judge rejected Outrider’s alternative scenarios (Outrider-funded acquisition, MOSA liquidation) as insufficiently likely, finding BMK’s proposed acquisition route on liquidation to be the most likely alternative; accordingly Outrider would be no worse off under the Plan than in that RA.
• On fairness, the court applied the approach in recent authority (Adler, Thames, Saipem) and concluded that BMK’s new-money contribution and the risk it bears justify the Plan’s allocation of benefits to BMK, while Outrider receives a capped cash or revenue-share exit and an anti-embarrassment participation right.
• Regarding international effectiveness, the court was satisfied there was a reasonable prospect of recognition in Mauritius under the Model Law or by exequatur and of recognition in Madagascar by exequatur; the prior dismissal of a Mauritian recognition application did not preclude future recognition of any English sanction order.
• Overall, the statutory conditions for sanction were met and it would not be futile to sanction the Plan.

Outcome: The court sanctioned the Plan and exercised its discretion to approve it.

This was a first instance sanction hearing. The court ordered that the restructuring Plan be sanctioned. The judge held that (i) the statutory conditions under Part 26A (s.901A, s.901C, s.901F and the s.901G cram-down requirements) were satisfied, (ii) the relevant alternative advanced by Outrider was not the most likely outcome and Outrider would not be worse off in the accepted relevant alternative, (iii) the allocation of restructuring benefits was fair in context because BMK’s new-money and risk justified its favorable position, and (iv) there was a reasonable prospect of international recognition in Mauritius and Madagascar so sanction would not be futile.