PETITION OF PREMIER OIL PLC AND PREMIER OIL UK LTD FOR SANCTION OF SCHEMES OD ARRANGEMENT [2020] ScotCS CSOH

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> PETITION OF PREMIER OIL PLC AND PREMIER OIL UK LTD FOR SANCTION OF SCHEMES OD ARRANGEMENT [2020] ScotCS CSOH_39 (29 April 2020) URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_39.html Cite as: 2020 GWD 15-216, [2020] CSOH 39, [2020] ScotCS CSOH_39

Petitioners: Delibegović-Broome QC, van der Westhuizen; CMS Cameron McKenna Nabarro

First Respondent: Lord Davidson of Glen Clova QC, Macgregor; Dickson Minto

[1] By these two applications Premier Oil plc (“PO”) and Premier Oil UK Limited

(POUK”), respectively a public and a private company registered in Scotland, each seek

sanction under part 26 of the Companies Act 2006 (respectively “Part 26” and “the 2006

Act”) for a scheme of arrangement (“the Schemes”). POUK is the principal operating

member of the group of companies (“the Group” (also referred to in some of the

documentation as “the Scheme Companies”)) of which PO is the parent company. (PO is

the guarantor of all of the Scheme Debt Facilities (as after defined) apart from the Retail

Bonds (as after defined), which are guaranteed by POUK.) The Group comprises

63 companies in total and it carries on oil exploration and production operations throughout

the world. As at the date of these applications, PO’s issued share capital amounted to

[2] The proposed PO scheme and POUK scheme are on the same terms and each scheme

has the same Scheme Creditors. While these applications were not formally conjoined, for

ease of reference I shall refer to PO and POUK as “the petitioners” and to the Schemes

[3] The first respondent, Fund III Investment 1 (Cayman) Limited, is the only creditor to

lodge answers in opposition to the Schemes. The first respondent is part of a group of

entities collectively described in its answers as the Asia Research and Capital Management

Ltd Group (“ARCM”). As at the Record Time (being 5 pm on 10 February 2020), the funds

ARCM controlled totalled approximately 15% (or approximately US $428 million) (by value)

of total commitments under The Group’s indebtedness (“the Scheme Debt Facilities”),

although the first respondent itself only holds approximately US $85 million of

commitments under the Scheme Debt Facilities. ARCM are the largest single creditor of the

Petitioners. Their debt falls within several creditor classes as defined by the nature of the

The second and third respondents: the compearing supporting creditors

[4] The second and third respondents are two separate groups of creditors, referred to

for the sake of commercial confidentiality as “the Allen & Overy Creditor Group” and “the

Ad Hoc Creditor Group” (collectively, “the Supporting Creditors”).

[5] The Allen & Overy Creditor Group comprises creditors of the Group presently

holding principal commitments amounting to approximately US $175 million and

£100 million (as at the Record Date) which, in turn, are co-ordinating creditors of the

Group presently holding principal commitments which amount to approximately

US $915 million and £4 million. The Ad Hoc Creditor Group is made up of creditors of the

Group which between them presently hold scheme claims as at the Record Date amounting

to approximately US $935 million. The Supporting Creditors, who are said to represent

83.59% of the Super Senior Creditors and 75.4% of the Senior Creditors in value, support the

petitioners and the petitioners’ motion for sanction of the Schemes.

[6] The petitioners proposed two classes of creditors (referred to collectively as “the

Scheme Creditors”): (1) the “Super Senior Creditors” (who were secured creditors); and (2)

the “Senior Creditors” (comprising essentially all the other private creditors and the Retail

Bond holders). These two classes of creditors met and approved the Schemes. In respect of

the approval of the Schemes at the class meetings, the petitioners make the following points:

first, that, with exception of the ARCM-controlled funds, the Schemes were approved by

approximately 99% in value of the Super Senior Creditors and Senior Creditors who cast a

vote; secondly, that the turnout was very high, with 96.82% of the Senior Creditors and

99.81% of the Super Senior Creditors (in value) being represented in person or by proxy at

the Meetings; and thirdly, that while a small number of Scheme Creditors voted against the

Schemes at the Meetings, they do not seek to oppose the sanctioning of the Schemes.

[7] The Group’s current capital structure was put in place following earlier schemes of

arrangement sanctioned by this Court in 2017 (“the 2017 Schemes”). The 2017 Schemes

played a key part in the overall refinancing of the Group in 2017 (“the 2017 Refinancing”).

The two key documents of the 2017 Refinancing were the “Intercreditor Agreement” and

“the 2017 Override Agreement”. The 2017 Override Agreement provided for a common set

of voting rights, covenants and events of default for the Scheme Liabilities. The Scheme

Liabilities are secured by a common security package. The 2017 Override Agreement

provided also that the Scheme Liabilities have a single contractual maturity date of 31 May

2021 (“the Scheme Maturity Date”) (referred to in some of the documentation as “the 2021

Maturity”). If the Schemes are sanctioned these documents will be amended.

[8] Significant features of the 2017 Refinancing should be noted, as follows.

[9] Under the 2017 Override Agreement there were 7 creditor classes corresponding to

the debt instruments. (These are detailed in the petitioners’ Note on Class for the Reporter,

dated 21 February 2020 and in para 3.8 of Part A of the Explanatory Statement.) Mention

1) The Converted Group: The Converted Group emerged as follows. At the time

of the 2017 Schemes ARCM held certain German debt instruments (“the

Schuldschein debts”). In order to bring those debts within the jurisdiction of

the English courts and the 2017 Schemes, ARCM agreed to convert these into

2) RCFs: Some creditors (including ARCM and the first respondent) provided

revolving credit facilities (“RCFs”). The first respondent’s “new obligation”

argument (see below) relates to the undrawn amount under its RCF.

3) The Retail Bonds: The Retail Bonds are the only publically traded debt. All

other creditors apart from the Retail Bond holders are referred to as “the

[10] The Intercreditor Agreement governed the ranking of the Scheme Debt Facilities and

it provided that the Super Senior Creditors ranked ahead of the Senior Creditors for all

purposes (clause 2); otherwise, the Senior Creditors “ranked pari passu without any

preference between them” (clause 2.1(b) an 2.2(b)). The Super Senior Creditors’ debt

instruments were the RCF facilities and the Term Loan facilities. There are also RCFs and

Term Loan facilities that are held by the Senior Creditors. The remaining creditors (ie the

[11] Clause 23 of the 2017 Override Agreement contained complex provisions for making

amendments and granting waivers. There were a number of different categories of

amendments and waivers, each with different consent thresholds. Some categories required

unanimous or near-unanimous consent of the creditors; others required significant

majorities of, for example, 75%. Accordingly, in respect of categories of amendments and

waivers requiring unanimity, any creditor opposed had a blocking vote or de facto veto. In

respect of waiver of a Material Covenant (as provided for in clause 23.2), which included a

prohibition on entering into any sale or purchase agreement, the percentage of the debt

instrument held by ARCM in two creditor classes gave it a de facto veto in respect of this

form of waiver. In particular, clause 23.2 required that any change or waiver which affected

or related to Clauses 10 (Representations and Warranties) and to 16 (Defaults), could only be

made or given with the consent of the Majority Creditors (as defined) and at least three of

the RCF Group, the Term Loan Group, the Converted Group, the USPP Group and the

Retail Bond Group. By late 2019 ARCM was the Group’s largest single creditor. It had a

total of 15% of the Group’s debt - it is disputed whether this was accumulated incrementally

since 2017 (the petitioners’ understanding) or was held by ARCM at that time (ARCM’s

position). ARCM’s holding gives it a de facto blocking vote within two of the creditor classes,

namely, the Converted Group and the Term Loan Facilities. (Indeed, the Petition narrates

that, by reason of the Group’s inability to agree proposals voluntarily across all creditor

[12] In clause 23 of the proposed Override Agreement, the voting structure will be

simplified: instead of majorities within each of the creditor classes (as defined by debt

instrument), majorities will be required from two principal groups, namely the Retail

Bondholders and the Private Creditors (ie comprising all of the other classes of creditors

apart from the Retail Bondholders). The effect of this would be the loss of ARCM’s blocking

vote. As will be seen, ARCM challenge this as an impermissible confiscation of their voting

[13] One consequence of the 2017 Refinancing was the harmonisation and postponement

of the maturity date of the Group’s indebtedness to a single date, namely, the Scheme

[14] The liabilities owing to the Scheme Creditors amount to about US $2.56 billion. The

total lending commitments are higher, at US $ 2.83 billion (ie “Scheme Debt Facilities”), the

difference in the two figures is the extent to which the Scheme Debt Facilities are as yet

undrawn. In the discussions among the Group and its creditors prior to the promotion of

the Scheme, this was referred to as a “debt wall” (a phrase understood to have been coined

by ARCM). It was accepted at that time (though not by ARCM in these proceedings), that in

the absence of a further debt extension as part of the Scheme or of forbearance on the part of

the Group’s creditors, refinancing of this magnitude of debt at a single point in time

[15] The petitioners observe that, notwithstanding the identification of seven categories of

debt instruments within the 2017 Override Agreement, the 2017 Scheme itself was approved

at a meeting of two creditors classes, namely, the Super Senior Creditors and the Senior

Creditors, and that ARCM did not object to the composition of these two creditor classes at

that time. Consistent with the petitioners’ approach to the 2017 Schemes, the petitioners

divided the Scheme Creditors into the same two classes for the creditors’ meetings to vote

on the Schemes. (As will be seen, one of ARCM’s challenges is to class composition.)

The impetus for the Schemes: the challenge of refinancing the Scheme Debt Facilities

[16] The Group issued a statement, as required by section 897 of the 2006 Act, setting out

the proposed Schemes (“the Explanatory Statement”). Part A of the Explanatory Statement,

which takes the form of a letter from the directors of the Group, sets out in detail the

background to the Proposed Transactions, the iterative process by which its several elements

were developed and the benefits and risks of what is proposed. The fundamental driver is

the Group’s position that it is at present unable to refinance the Group’s indebtedness and

that, absent the Schemes, it will be unlikely to be able to refinance its indebtedness in full by

[17] While a common method of refinancing for a company in the Group’s sector would

be reserve based lending (“RBL”) facility (a form of lending against existing and anticipated

yields of oil- and gas-producing assets), coupled with a subordinated public debts

instrument, the Group would currently be able to obtain an RBL facility for only part of its

debt. (This basis for this view is a report from PWC (“the PWC Report”).) ARCM challenge

the assumptions in the PWC Report and also criticise the lack of a further or independent

report to support this view. Furthermore, it is the view of the directors that the Group is

unlikely to be able to obtain sufficient subordinated debt to repay the balance of the Scheme

Debt Facilities. The directors do not believe that a partial refinancing is feasible.

[18] The Schemes seek to enable a complex transaction (“the Proposed Transaction”) to be

carried out for the purposes inter alia of extending the maturity date of the Group’s debt

(“the Credit Facilities Extension”) from 31 May 2021 (ie, the Scheme Maturity Date) to

30 November 2023, and to improve the ability of the petitioners to fund ongoing activities.

The Schemes are not seen as achieving the resolution of the Group’s financial challenges (in

the sense of deleveraging the balance sheet), but are intended to improve the Group’s

financial position and to enhance the ability of the Group to execute a future refinancing of

the Scheme Debt Facilities. In part, this is sought to be achieved by adding to the Group’s

debt capacity under RBL. The Schemes are also intended to avoid hitting the debt wall; that

is, to avoid what the directors of the Group regard as a very substantial risk that the Group

will not otherwise be able to refinance the Scheme Debt Facilities before the Scheme

[19] In outline, the essential elements of the Proposed Transaction, include:

1) The Acquisitions: The proposed acquisition (putting it simply) of one or more

of three proposed material acquisitions of oil- or gas-producing assets (the

“Andrew” and “Shearwater” acquisitions), or of a part-interest in such an

asset (the “Tolmount” acquisition) (collectively, “the Acquisitions”). The sale

and purchase agreements relative to the Acquisitions are in escrow and will

only be released and take effect subject to completion of other elements of the

Schemes. It should be noted that the Schemes will not themselves give effect

to the Acquisitions. The Acquisitions essentially involve a transaction

between PO and the relevant vendors (to purchase the assets comprising the

Acquisitions), and a transaction between PO and its shareholders and other

investors (to raise new equity capital to finance the purchase price). The

Schemes simply provide the necessary consents by the Scheme Creditors in

respect of any contractual restriction (eg in the 2017 Override Agreement)

2) The equity raise: The Acquisitions are funded by, and therefore conditional on,

the Placing and Rights Issue to raise US $500 million (net of expenses) (“the

Placing and Rights Issue”), which is at present fully underwritten; and

3) Extension of the Scheme Maturity Date: The extension of the Scheme Maturity

Date is dependent on the equity raise and on either the Andrew or Tolmount

There will also be ancillary amendments to the 2017 Override Agreement and other

documentation associated with the 2017 Refinancing. The Group’s directors believe that the

Acquisitions and related funding arrangements are in the best interests of the Group and the

Scheme Creditors. It should be noted that the Scheme Creditors are not being required to

advance any new money to finance the Acquisitions. The burden of financing the

Acquisitions will be borne by PO’s shareholders and the new equity capital provided by the

new investors (subject to completion of the Placing and Rights Issue).

[20] If granted, the Schemes will authorise PO as an attorney (on behalf of the Scheme

Creditors) to sign a number of deeds, including one described as “the Implementation

Deed”. Among the matters the Implementation Deed provides for are (i) the extension of

the Scheme Credit Facilities, (ii) conditional consent to the Acquisitions and related

financing arrangements (including the Placing and Rights Issue and the Acquisition Bridge

Facility), (iii) a waiver of all breaches of the finance documents which may occur consequent

[21] As will be seen, ARCM challenges the mechanism of constituting PO an attorney to

execute certain documentation on behalf of the Scheme Creditors (“the power of attorney

[22] The petitioners stress the urgency of sanction of the Schemes. They cite several

(1) The consequence of the Scheme Debt Facilities becoming current liabilities: First, the

Scheme Debt Facilities will become current in June 2020. In other words, if

the Scheme Debt Facilities are not refinanced before 30 June 2020, they would

require to be reclassified as current liabilities under International Accounting

Standard 1 in the Group’s half-yearly statements for the 30 June 2020

reporting period. By reason of the magnitude of the Group’s indebtedness,

coupled with the fact that these facilities all fall due on the same date (the

“Scheme Maturity Date”), and that (in the absence of the Schemes or at least

in the absence of an amendment and extension (“A&E”) of the Scheme

Maturity Date) there is no prospect of repayment in full as at the Scheme

Maturity Date, it can reasonably be anticipated that the Group’s auditors will

interrogate these circumstances, and which may lead to an adverse market

(2) The escrow purchase agreements for the Acquisitions: The Acquisitions are also

Acquisitions, these are in escrow. There is a longstop date of 30 June 2020.

There is no guarantee that the vendors will permit a prolonged period of

(3) The underwriting of the equity raise: The equity raise is at present fully

underwritten, though only to 6 May 2020. Again, there is no certainty that

beyond that date, particularly given the current market uncertainty. The

equity raise is necessary, as the means to fund the Acquisitions.

ARCM’s undeclared accumulation of shares in the Group (“the hedge issue”)

[23] One of the unusual features of these applications was the issue of ARCM’s hedge or

short position of the Group’s stock. From materials produced by the first respondent, the

Group is said to have “one of the most shorted stocks in the UK with 18.7% of the total

equity shorted” (para 2.2.8 of the Boyle Report (as after defined)). In the petition, the figure

ARCM is understood to hold is 16.85% of the shares of PO as at 6 January 2020 (see

statement 41.3.1). The petitioners’ understanding is set out in section 7 of Part A of the

Explanatory Statement. (ARCM dispute this narrative.) In brief, the petitioners understand

that ARCM first acquired a publically disclosable net short position (being .5% of the

ordinary shares in PO and each increment of .1% thereafter) in February 2017. ARCM failed

at that time to disclose this on the website of the Financial Conduct Authority (“the FCA”),

in breach of the EU Short Selling Regulation (Regulation (EU) No 236/2012 (“the Short

Selling Regulation”)). Over the intervening 33 or so months, ARCM continued to

accumulate a short position but it failed on each disclosable acquisition (which the

petitioners suggest were 80 in number) to publicise this, in breach of the Short Selling

Regulation. It did not disclose the accumulated short position until 9 December 2019.

[24] Several matters flow from this. First, it is ARCM’s position that it was thereafter

frozen out of the discussions between the Group and the other Scheme Creditors and unable

to influence the final form of the schemes to be promoted. This is not accepted by the

petitioners, who point to extensive interactions with ARCM. Paragraphs 7.3 to 7.9 of Part A

of the Explanatory Statement also detail the Group’s consideration of the alternative

proposals favoured by ARCM and the reasons these alternatives were not in the end

adopted. The petitioners also contend that this argument is irrelevant.

[25] Secondly, this gave rise to a dispute between ARCM and the petitioners as to

whether this is a “short” (as the petitioners contend) or a “hedge” (as ARCM contend) (my

reference to this as “the hedge issue” is for ease of reference only, and does not mean I have

determined this matter). The first respondent lodged a report to support its position that

this was a hedge. The petitioners lodged an affidavit from Mr Charles Worsnip to support

their position that this was a short and, in any event, they argue that the characterisation as a

hedge or a short is irrelevant. Their positon is that, as ARCM would benefit from the

hedge/short from every drop in the price of PO’s shares (the greater the drop in share price,

the greater the profit it would make), the effect of this meant that ARCM has a different

economic incentive to that of the general body of Scheme Creditors (who, collectively,

would benefit from a rise in the share price). Putting it crudely, the more the share price

falls, the more ARCM will benefit; the more the share price rises, the more ARCM could

lose. And while in the former scenario, ARCM’s potential profit would be capped by the fall

in share price (ie, the price cannot fall below zero), in the latter scenario, ARCM’s potential

losses would be uncapped (as there was theoretically no limit on the amount the share price

[26] The petitioners did not directly address the relevance of ARCM’s pre-Schemes

comments (quoted four paragraphs above), or of ARCM’s breaches of their obligations of

disclosure as they accumulated their position on the hedge. In response to a question from

the court, the petitioners’ Senior Counsel expressly eschewed invoking against ARCM or the

first respondent any doctrine of coming to court with clean hands. Their position was that

the hedge placed ARCM in a conflict of interest vis à vis the other creditors. They referred to

the Reporter’s conclusion (at para 4.78 of his Report) that by reason of the hedge, ARCM’s

complaints about the unfairness of the Scheme should be discounted. I turn now to outline

[27] The meetings of the Scheme Creditors in the two Scheme Meetings were held on

20 February 2020. The Minutes of those meetings, which were chaired by the Group’s

Finance Director, Mr Rose, were lodged. ARCM did not attend the Scheme Meetings,

though they arranged for legal representation. They made no challenge at the Scheme

Meetings to the composition of the classes. The two classes of creditors, comprising the

Super Senior Creditors as one group and all other creditors (ie the Senior Creditors and the

Retail Bond holders), voted overwhelmingly in favour of the Schemes. In their Note on

Class (at para 27) the petitioners set out the votes cast by debt instruments. In each of the

following classes ARCM were the only opposing creditors (their % of the vote against is

stated in parentheses), whereas all other creditors in that class voted in favour:

(1) Super Senior (ie secured) Creditors holding RCFs and LC facilities (13%),

In summary, 87% of the Super Senior Creditors voted in favour of the Schemes (ARCM’s

total against was 13%) and 84 % of the Senior Creditors and Retail Bondholders voted in

favour (ARCM comprised 15.5% of the 16% opposed). In practical terms, had the creditor

classes been comprised of debt instruments, which is ARCM’s position, ARCM would have

had a blocking vote only of the Term Loan Facilities creditors and the Converted Facilities

[28] The Buckley test, as reformulated by Snowden J in Re Noble Group Ltd (No 2) [2019] 2

BCLC 548 at paragraph 17 (set out under the heading “The Part 26 Jurisdiction”, at para

[41] , below) is a helpful framework in which to situate ARCM’s challenges. The first stage of

the Buckley test (whether the provisions of the statute have been complied with) are often

referred to as ”jurisdictional” challenges. However, ARCM also advanced further, anterior

jurisdictional challenges on grounds not readily encompassed within the Buckley test. (For

convenience of reference, ARCM’s grounds of challenge are numbered sequentially,

notwithstanding the different subheadings in the following paragraphs.) ARCM’s

overriding submission in relation to their anterior challenges was that the Schemes go

beyond what is permitted as a “compromise or arrangement” between a company and its

1) Novelty of forced Acquisitions: The Acquisitions result in a fundamental change

to the risk profile of the Group; in seeking sanction to acquire significant

assets the Schemes are novel and not within the permissible scope of the

2) The Schemes take but do not give: A “compromise or arrangement” involves

“give and take”. In compelling the Scheme Creditors to vote in favour of the

Acquisitions, the Schemes permanently alter their voting rights (the de facto

effect of which would be to deprive ARCM of their blocking vote in one or

two of the creditor classes (defined in terms of debt instruments)); this

involved “taking” something from the creditors without “giving” them

3) Purported changes to non-pecuniary rights: A scheme can only compromise

“pecuniary” rights of a creditor of a company. Neither the “forced” approval

of the proposed Acquisitions nor the proposed “confiscation” of the voting

rights, are “pecuniary” or creditor rights that fell within the jurisdiction of

The Buckley stage 1 challenges: compliance with the statute, jurisdiction and the adequacy

[29] One of ARCM’s (or more properly, the first respondent’s) principal challenges was

the not uncommon jurisdictional one on class composition. (This is because, if classes of

creditors are not correctly constituted, the court ultimately has no jurisdiction to sanction the

scheme (per Re Hawk Insurance Co Ltd [2001] EWCA Civ 241 (“Hawk”).) The first respondent

advanced several discrete challenges in respect of class composition as follows:

4) Incorrect class composition: The first respondent’s principal contention was that

the petitioners’ division of the Scheme Creditors into two classes, namely the

Super Senior Creditors as one class and the other class comprised of all other

Scheme Creditors (regardless of debt instrument and including the Retail

Bondholders), was incorrect. Its final position as to the appropriate classes of

creditors, as revealed in its written submissions lodged shortly in advance of

the Sanctions Hearing, was that there should be a separate class of creditor

for each debt instrument, reflecting the classification recorded in the 2017

5) The wrong comparator: Closely allied to class composition issue was the

question of the proper comparator. The first respondent contends that the

Group is not insolvent (when assessed against the statutory grounds of

insolvency found in the Insolvency Act 1986 (“IA 1986”)); that the Group and

Mr Rose (the Group’s Finance Director) made conflicting statements as to the

risks the Group faced as the Scheme Maturity Date approached (“the

insolvency issue”); that the Group had a significant Enterprise Value and that

6) Inadequate Explanatory Statement: ARCM contend that the Explanatory

Statement was inadequate to such an extent that none of the creditors who

voted in favour of the Schemes could have made a properly informed

The Buckley stage 2 challenges: were the classes fairly represented at the Scheme Meetings?

[30] The first respondent contends that the interests of the classes of creditors were not

fairly represented at the meeting, or that their interests were so diverse as to make it

7) Fees or “special interests”: The first respondent referred variously to fees or

“special interests”. It queried whether there were undisclosed fees payable to

some of the creditors and which improperly influenced the creditors who

voted for the Schemes. It also contended that there were “special interests”,

in the form of payments, which meant there was a materially greater benefit

of the Schemes to some creditors when compared to others. When analysed,

the changes to interest rates, coupled with a variety of fees paid, disclosed

such a variance of change that these creditors could not sensibly form one

creditor class. Also encompassed within the characterisation of “special

interests” was the constitution of a new majority of 66.66% of creditors to

make any amendments (which meant, in effect, the Supporting Creditors),

and that creditors in some debt instrument groups will be able to trade out of

8) Mr Rose’s unfair comments about ARCM: Whether the comments made at the

outset of each the Creditor Meetings by the petitioners’ chair, Mr Rose,

disclosed bias and/or improperly influenced the creditors who voted for the

9) The ARCM hedge or short: The relevance, if any, of ARCM’s (only lately

disclosed) accumulation of shares in the Group, and described variously as a

[31] The first respondent contends that the Schemes involve overriding unfairness. To

some extent this involved a reference to criticisms already advanced: the Explanatory

Statement omitted important information, contained false statements and as a whole did not

put creditors in a position to make a reasonable judgement as to whether the Schemes were

in their commercial interest; the classes were not fairly represented at the meetings because

of the special interests granted in favour of some Scheme Creditors but not others; the

Schemes are not ones the Scheme Creditors could reasonably approve as there was no

justification for confiscation of voting rights and the proposed Acquisitions made no sense;

and there were blots on the Schemes (these are detailed below). In addition, it was

10) that the effect of the decline in oil and gas prices have resulted in so profound

a change that the Acquisitions are no longer economically viable, such that

the Schemes the Scheme Creditors approved are no longer reasonably

capable of implementation. The lock up arrangements preclude the Scheme

11) Further, the Reporter misapplied the law in his Report and uncritically

accepted the facts and assumptions presented by the petitioners without any

The first respondent maintained that all these matters involve disputes of fact for which a

proof was required. For these reasons, the first respondent moved the Court to refuse to

The Buckley stage 4 challenges: there are “blots” on the Schemes

[32] The first respondent also contends that there are “blots” on the Schemes. In

12) The conditionality of the Schemes: The Schemes are conditional. As the

conditions are under the control of third parties, and not the Court, this is

13) The Schemes are self-amending: The Implementation Deed can be amended to

alter the Schemes in any way by a 66.66% majority, again without the consent

of the Court. This was another impermissible exclusion of the Court’s

14) The unfair exclusion of ARCM from the prior negotiations: The first respondent

contends that negotiations of the Schemes were conducted in a manifestly

unfair manner, which involved the exclusion of ARCM from the discussions

and the mischaracterisation of ARCM’s hedge position. ARCM’s position is

that two unfair consequences flowed from their voluntary, albeit late,

disclosure: first, that they were unfairly excluded from the final discussions

amongst the creditors and the Group and therefore could not influence the

Schemes; and secondly, the comments of the petitioners’ chairman at the class

meetings were so unfair as to constitute bias and to have influenced the other

15) The power of attorney issue: The Schemes purport to grant a power of attorney

to PO. This is a matter governed by English law. However, the court’s

interlocutor does not constitute a “deed” for this purpose, and this is

accordingly incompetent. The petitioners and the first respondent each

lodged affidavits from Senior Counsel qualified in English law to support

their respective positions. This was a further matter that the first respondent

contended that the Court could not resolve without hearing evidence.

[33] The following undertakings were proffered at the sanctions hearing:

1) The petitioners and first respondents agreed, in effect, to a reduce period of 7

days within which to reclaim (or appeal) the Court’s order. Toward the end

of the sanctions hearing, the petitioners offered an undertaking to resolve the

criticised self-amending blot (ground of challenge (13), above). This was

accepted by the first respondent and this ground of challenge was not

[34] In Scottish procedure, a party seeking sanction for a scheme under Part 26 does so by

presenting a petition to the Court. The operative orders sought are contained in the

“prayer” of the petition and, if granted, will be brought into effect by the Court’s

interlocutor (ie the court order). At the first hearing of such a petition, the first orders the

Court will typically grant include the appointment of a reporter, and the timetable for

notification and holding of the meetings of the scheme creditors, for any answers to be

lodged in due course and for the lodging of the reporter’s report. The Court maintains a list

of approved reporters for this purpose who are solicitors with expertise in schemes under

Part 26. In anticipation of bringing forward a petition, the petitioner’s agents will first

contact the Court for the name of the solicitor next on the list (as was done in this case, when

Lord Doherty identified John Stirling as the next reporter to serve by rotation). Thereafter

the petitioner’s agents will make informal inquiries of the reporter to ascertain his or her

availability and to confirm there is no conflict of interest. The reporter, who has been

described as the “eyes and ears of the court”, is independent of the parties. In Scottish

practice, the reporter enquires into the petitioner’s proposed scheme; s/he reviews the

documentation relative to it; and s/he comments on the conduct of the Scheme Meetings and

on any answers lodged in the court process. The reporter in this case had also assisted the

[35] The final stage is the sanctions hearing. In contrast to what I understand is the usual

practice in England, the sanctions hearing in Scotland is generally not an evidential hearing.

In Scottish practice, the court has the benefit of the reporter’s report and it considers this,

together with the petition, any answers, the petitioner’s (and any other party’s) written

submission (the practice being to lodge detailed submissions in advance of the sanctions

hearing), the productions and the relative caselaw. On the rare occasions when there is a

question about class composition, this is dealt with at the sanctions hearing and not (as I

understand may be the practice in England) at a separate hearing for this purpose, prior to

[36] On the eve of the first hearing in these petitions, the first respondent sought to

interdict ad interim the grant of first orders. The petitioners appeared and opposed that

motion. The Supporting Creditors instructed Senior Counsel to attend on a watching brief.

After hearing extensive argument, I refused that motion and the first hearings in these

applications were held and the usual first orders granted. I indicated to the parties’ senior

counsel, that if there was to be a challenge to class composition (prefigured in some of the

submission at the interim interdict hearing), the court would arrange for that issue to be

considered in advance of the sanctions hearing. That offer was not taken up.

[37] A one-day sanctions hearing was fixed for 17 March 2020. However, I fixed a By

Order hearing for 6 March 2020 (“the By Order”) to deal with any interlocutory matters that

might arise prior to the sanctions hearing. On 3 and 4 March, the first respondent lodged all

its productions (detailed below), which comprised 178 productions totalling approximately

6,000 pages. Both parties also lodged supporting affidavits. A variety of motions were

enrolled shortly before the By Order hearing. The Court dealt with these at the By Order

hearing on 6 March and it also made certain orders in respect of further procedure. One of

the matters raised was the form of the sanctions hearing. The petitioners moved for a

hearing on affidavits and the documents; they were supported in that motion by the

Supporting Creditors. The first respondent moved for an 8-day proof. Given the volume of

materials just produced, it was not appropriate to determine the first respondent’s motion

for a proof at the By Order hearing, and the emerging Covid-19 virus emergency would

likely preclude a hearing of that length in early course (this proved correct, as the UK

lockdown commenced on 23 March, the Monday following conclusion of the sanctions

hearing). To facilitate participation of parties’ legal representatives from other jurisdictions,

I granted permission for a live-note transcription of the sanctions hearing, and further

authorised the use of mobile phones in court if immediate instructions were required from

[38] While I reserved the first respondent’s motion for proof, I directed that the Sanctions

Hearing proceed in the usual way on affidavits, the documents and submissions. If it

transpired during that hearing that evidence was required on certain issues, this could be

the focus of any further hearing thereafter. In response to court orders (directed to making

the most efficient use of the Sanctions Hearing), the parties each lodged written submissions

(of no more than 50 pages in length) (and which I will refer to as the named party’s

“Submissions”) , a joint bundle of authorities (which amounted to 7 folders totalling

120 items), reading lists of their own productions and of key passages in the authorities, and

lists of essential topics for cross examination of other parties’ witnesses. (The latter was to

assist the Court in further consideration of the first respondent’s continued motion that there

[39] I am grateful to the parties and their legal representatives for their considerable

efforts in complying with these orders in the timescale provided. I have considered these

materials. I do not propose to rehearse those matters in detail in this Opinion. I have, of

course, also considered the parties’ four Notes on Class Composition (ARCM submitted a

Supplementary Note on Class) submitted to the Reporter, the Reporter’s Report (“the

[40] The Reporter produced his report on 11 March. In his Report, the Reporter details the

background to and issues arising in the Schemes and the procedures followed (prior to the

promulgation of the Schemes, in the identification of the creditor classes, compliance with

the Court’s first orders convening the Scheme Meetings and the procedure at those

meetings). He provides his views on the jurisdiction of the Court, on ARCM’s arguments

and any facts said to be disputed, and on the central question of whether the Court should

in its discretion sanction the Schemes. Having considered matters, the Reporter’s view is

favourable to the Schemes; he does not accept any of ARCM’s challenges to them; and he

identifies no procedural, technical or other matter that would preclude the Court from

sanctioning the Schemes. I do not propose to set out the Reporter’s’ views in any more

detail at this stage, though I do note his views on certain issues in the course of my

[41] The 4-day hearing on the sanction of the Schemes (conducted in three days, in light

of the impending impact of the Coronavirus) proceeded by way of affidavits and oral and

written submissions, and was concluded on 19 March. The petitioners and the Supporting

Creditors moved, inter alia, for sanction of the Schemes. The first respondent opposed this

and maintained its position that an evidential hearing was required.

[42] As will be seen, the battle lines between the parties were drawn on many fronts,

including on the formulation of some of the applicable legal tests. There was, at least, no

dispute as to the broad outlines of the jurisdiction of the Court under Part 26 and the four

stages for consideration of a scheme (“the Buckley test”), recently restated by Snowden J in

Re Noble Group Limited (No.2) [2019] BCC 349 (“Noble (No 2)”)at para 17. The four stages are

(1) Stage 1: The Court “must consider whether the provisions of the statute have

been complied with. This will include questions of class composition, whether

the statutory majorities were obtained, and whether an adequate explanatory

(2) Stage 2: The Court “must consider whether the class was fairly represented by the

meeting, and whether the majority were coercing the minority in order to

promote the interests adverse to the class whom they purported to represent”;

(3) Stage 3: The Court “must consider whether the scheme is a fair scheme which a

creditor could reasonably approve. Importantly it must be appreciated that the

Court is not concerned to decide whether the scheme is the only fair scheme or

(4) Stage 4: The Court “must consider whether there is any “blot” or defect in the

scheme that would, for example, make it unlawful or in any other way

[43] I set out below parties’ submissions on the law applicable to class composition.

Before setting out the first respondent’s grounds of challenge to the Schemes, I describe the

[44] The first respondent lodged a significant amount of materials a few days before the

By Order hearing fixed for 6 March. The bulk of these materials (c 6,000 pages lodged)

comprised the appendices to four reports. The four reports were from Mr Ed Boyle of

KMPG (“the Boyle Report”), Ms Lyuda Sokolova of KPMG (“the Sokolova Report”),

Mr Jonathan Fuller of Xodous (“the Xodus Report”) and Dr Chudozie Okongwu of NERA

(“the NERA Report”) (these reports are collectively referred to as “the ARCM Reports”). It

also lodged affidavits from two of its officers, a Mr Alp Ercil (“Ercil 1” and “Ercil 2”) and

[45] While I have considered the ARCM Reports and affidavits in detail, I need only

[46] Mr Boyle is an insolvency practitioner with expertise in financial services insolvency.

He accepts (at para 1.2.4) that he has little experience in the oil and gas sector, the sector in

which the Group operates, and that he is not an expert in capital markets (para 2.5.10). The

(1) As the Group has net assets of $1,100 million as at 30 June 2019, the Group is

not balance sheet insolvent within the meaning of section 123 of IA 1986 (see

(2) As at the Group’s year end of 31 December 2019, it was currently able to pay

its debts as they fell due (para 2.3.9) and so is not cashflow insolvent within

(3) He concluded that the Group appeared solvent and that an insolvency

scenario is “unlikely (albeit not impossible) in the near term”, even if the

Proposed Transactions failed, however he did not factor in market volatility

into this assessment (para 2.3.9); he also acknowledged a limitation on his

analysis in the absence of more detailed non-public information that would

(4) There was sufficient time before the Scheme Maturity Date for the Group

directors “to consider a range of restructuring options and negotiate with

stakeholders to implement an agreed restructuring solution” (para 2.3.8);

(5) In respect of the Group’s short-term forecast liquidity to the Scheme Maturity

Date (considered in detail in section 5), on any of the scenarios Mr Boyle

considered there is insufficient liquidity to repay the Group’s debt facilities at

the Scheme Maturity Date (paras 2.3.7, 5.5.5 and 5.6.3). Accordingly, a

solution would be required “in order for the Group to continue to trade and

to avoid a payment default” (para 5.6.3), although Mr Boyle regarded this as

(6) In respect of medium-term forecast liquidity to 3 December 2025 (considered

in section 6), Mr Boyle concluded that the Group could continue to trade and

to deleverage, even absent any new monies, so long as the creditors granted

(7) He considered (in section 7) a number of alternative options (to those

comprised in the Schemes). Having considered the PWC Report set out in the

Explanatory Statement, Mr Boyle agreed with its commentary that it would

not be possible to put in place an RBL facility and to achieve an issue of High

Yield Bonds (“HYB”) of the amount required to refinance by April 2020

(para 7.4.8). He thereafter proceeded to consider other financing options,

such as partial refinancing (which “may be possible” if the creditors would

agree to it) (he accepts that full refinancing prior to the Scheme Maturity Date

is not viable (para 7.4.8)), a voluntary or involuntary extend and amend

(which is “simple to implement” and is “credible”, though he accepts that

negotiations can be “complex” (para 7.3.19)), disposal of non-core assets

(though none are identified), an equity raise (which he accepts is not a

standalone solution (at para 7.7.15)), a debt for equity swap (which is

dismissed as “unlikely to occur as it would be a very complex transaction”

(para 7.8.12), and a sale (via a merger &acquisition (“M&A”)) of the Group as

a whole (which he does not have the expertise to comment upon, but relies on

the view of a colleague to dismiss this as untenable) (para 7.6.2);

(8) In the absence of any of these solvent alternatives, he accepted that the Group

(9) At best, he concludes that these are “the most likely areas that could feasibly

be explored by the Group” (para 2.5.6), and that one or more of the options he

identified “could be explored in combination … [with] a disposal of assets

combined with a voluntary or involuntary [amend and extend] of facilities”.

(10) He concluded that, given the 14 months to the Scheme Maturity Date, which

he asserts is “highly likely to be sufficient time to explore, and if a consensus

is found, to execute any of the alternatives” (paras 7.15.4; 2.5.6). He

considered that the “key determinant” is the ability of the Group, the Scheme

creditors and the potentially the shareholders, to “reach a consensus on the

way forward” (para 7.15.4). There appeared to be a stable platform to

(11) An administration or insolvency scenario would “likely result in a

significantly worse financial outcome for the creditors as a whole”

[47] The purpose of the NERA report was to consider the economics of the Acquisitions,

their associated benefits and risks, their attendant decommissioning liabilities and to

consider how this was presented in the Explanatory Statement. It considered the change in

the Group’s relative exposure to the UK gas and oil markets and it examined certain

assumptions (eg price assumptions underpinning the proposed benefits and risks of the

Acquisitions, the assumed production volumes) and the ability of the Group to refinance the

Scheme Debt Facilities on the hypothesis that the Acquisitions are implemented. In general,

having identified that the effect of the Acquisitions will mean that gas will comprise about

74% of the Group’s output in future, the author of the NERA Report believes that the

assumptions supportive of the benefits (including the estimated value of the reserves) are

over optimistic and those underpinning the risks are understated (eg of decommissioning).

In relation to the RBL capacity, which is the principle driver for the Acquisitions, the NERA

Report concludes that there is “a substantial risk” that this strategy is unsuccessful (para 120

[48] The Fuller Report was instructed to assess the technical and commercial aspects of

the Acquisitions, any associated risks (including decommissioning liabilities) and benefits,

and the presentation of these matters in the Explanatory Statement. It contained an

exhaustive analysis of historical decommissioning costs in the North Sea, which typically

involved cost overruns, and it seeks to apply this to the Acquisitions. The author of the

Fuller Report disagreed with some of the assumptions as to future events (eg oil and gas

prices). Mr Fuller does not criticise the disclosures in the Explanatory Statement anent

[49] Mr Prest’s principal affidavit (“Prest 1”) details a large number of criticisms (see

[50] Mr Prest also advances the criticism that the PWC Report was lacking in

independence, because it applied the Group’s working assumptions.

[51] Mr Ercil is also critical of what he says are mischaracterisations in the Explanatory

Statement of ARCM and its dealings with the Group (see Ercil 1 at para 184).

[52] The Sukolova Report was instructed to address the enterprise value (“EV”) of the

Group, which she identified as substantial, and also to review the Group’s own model.

[53] One of the first respondent’s challenges is to the comparator used for identifying the

appropriate creditor classes. The first respondent submits that, as the Group is not insolvent

on either of a balance sheet or cashflow basis, the Group was wrong to use insolvency as the

counterfactual. In support of its position, the first respondent has produced the ARCM

Reports noted above. The first respondent also submits that the petitioners and Mr Rose

have been inconsistent in their pronouncements as to the Group’s financial prospects and,

accordingly, a proof is required to challenge Mr Rose’ credibility and reliability. The

petitioners and the Supporting Creditors submit that this is to apply too narrow a definition

to insolvency. I consider the parties’ competing submissions on the solvency issue, below. I

next set out the statements made on the Group’s financial prospects.

[54] The Explanatory Statement set out the Group’s prospects as follows:

(1) The refinancing risk: That “although the Group has taken steps to deleverage

its balance sheet since the 2017 Refinancing, the Directors’ view (based on

current assumptions as to the future of oil and gas prices) is that there is a

very substantial risk that the Scheme Debt Facilities will not be capable of

being refinanced through new debt facilities either by the end of June 2020

when the Scheme Debt Facilities would have to be classified as ‘current

liabilities’ (for accounting purposes) or by their existing maturities in May

2021” (Part A, para 2.23). This statement is expanded upon (at para 18.7), as

follows: “and that, in the absence such refinancing, [the Group] would be

unable to pay their liabilities under the Scheme Debt Facilities at their

existing maturity date. (See section 18, under rubric “What Happens if the

(2) Risks of the Scheme Debt becoming current: After noting that the Scheme Debt

Facilities make up the vast majority of the Group’s total liabilities, it is stated:

“Unless the Group is able to demonstrate that it has a plan to refinance or

extend the maturity of the Scheme Debt Facilities that is capable of

implementation in the time available and has the requisite creditor support,

disclosing such indebtedness as current liabilities… could have a number of

significant negative consequences when the Group’s financial statements are

made publicly available, which is currently scheduled to occur in August

2020.” The risk was that the Group’s commercial counterparties would likely

interpret this change in the financial statements….as a sign that the Group

has lost the confidence of its creditors. And that suppliers might infer that the

“Group is suffering, or is about to encounter, serious liquidity problems…”.

(3) The risk of insolvency: The statement in Part A of the Explanatory Statement

addressed the risk of insolvency. It stated that if an extension to the

maturities of the Scheme Debt Facilities was sought against a backdrop of

imminent debt maturity and a potential liquidity shortfall, and specially

following a failed scheme, the process would be less controlled and with a

greater risk of “significant value destruction”. The conclusion was stated (at

para 18.13): “Ultimately, there is a very substantial risk (based on current

assumptions as to future oil and gas prices) that it would not be possible to

refinance or agree an extension of the maturity date, which would make

insolvency of [the Group] a real possibility in 2021 (if not before).” An

insolvency would be “highly destructive to the returns of Scheme Creditors”.

[55] The Group’s Finance Director, Mr Rose, produced three affidavits for the sanctions

(1) His principal affidavit (“Rose 1”), dated 12 February 2020 and extending to

85 pages (with a lever arch file of appendices), dealt comprehensively with

the Group’s position, the general background to debt and equity financing for

companies in the Group’s sector and to the Group and to the 2017

Refinancing, the steps taken by the Group since the 2017 Refinancing with a

view to facilitating a full refinancing of the Scheme Debt Facilities, and the

risks of the Group entering into insolvency proceedings in the near to

(2) His first supplementary affidavit (“Rose 2”), dated 12 March 2020 and

extending to 38 pages, addressed the substantial volumes of materials

produced by the first respondent on 3 and 4 March (including two witness

statements, four reports and multiple volumes of appendices, and a second

inventory of productions). Rose 2 responded to the first respondent’s

criticisms of the adequacy of the Explanatory Statement and its contention

that there were alternatives to the Schemes. He also addressed in more detail

the likelihood of the Group entering into insolvency proceedings in May 2021

(3) Mr Rose’s third affidavit (“Rose 3”), dated 12 March 2020, responded to the

second affidavit of Mr Ercil (“Ercil 2”) and the recent market developments,

including the recent drop in oil prices, and its impact on the Schemes.

Mr Rose’s statements of the Group’s risk of near to medium term insolvency

[56] The issue of the Group’s risk of insolvency in the near to medium term was dealt

with most comprehensively in Rose 1 (at paras 172 to 177). After referencing

paragraphs 18.12 and 18.13 of Part A of the Explanatory Statement, Mr Rose noted ARCM’s

(1) that the phrase “very substantial risk” meant that it was more likely than not

that the Group would be able to refinance absent the Schemes, and

(2) that a “real possibility” of insolvency meant that it was more likely than not

Mr Rose categorically rejected those contentions. In relation to (1), the risk of insolvency, he

explained that it had not been necessary to quantify in percentage terms “the very

substantial risk of the Group not being able to refinance absent the Schemes”. He continued:

“for the avoidance of doubt, my view, which is shared by my fellow Directors, is

that, absent the Schemes, it is more likely than not that it would not be possible to

conclude a successful refinancing before June 2020 (when the Scheme Debt Facilities

become current) or ahead of the 2021 Maturity. This risk is increasing day by day. If

the Group was not able to refinance the Scheme Debt Facilities, the Group would

likely attempt an alternative restructuring. However, for the reasons I explain in this

affidavit, I do not have a sufficient basis to conclude that any such restructuring

would be successful. It follows that the consequence of not being able to refinance is

that the relevant Group Companies would more likely than not enter into

insolvency proceedings in May 2021 (if not before)”. (Emphasis added.)

While ARCM appeared to consider the Group to be solvent on a balance sheet basis, that

was not determinative and it did not mean that creditors would recover in full on their

outstanding debt claims (see paras 174, 176). Mr Rose explained that it was necessary to

consider the question of insolvency risk from the perspective of cashflow insolvency. It was

“the risk of being unable to refinance the Scheme Debt Facilities (with the

consequence of the relevant Group companies entering into insolvency proceedings)

has increased, and continues to increase. Without such a refinancing, and assuming

the 2021 Maturity is not extended (and there is insufficient basis to conclude that it is

likely that it would be), it is plain that the Group would not be able to repay the

Scheme Debt Facilities on the 2021 Maturity”. (Emphasis added.)

[57] Mr Rose confirms these views in Rose 2 (eg see paras 13, 19 and 30 to 45) and in

Rose 3 (at para 29). He stressed that the Schemes present the best way forward and the only

means identified by the Group which has the support of sufficient Scheme Creditors to be

implemented in the time available. He responded at length to the Boyle Report (which had

concluded that the Group was not balance sheet insolvent), and which had not changed his

views. He explained that in considering the Group’s financial prospects, the appropriate

focus was on cashflow, not balance sheet insolvency. He remained of the view that, absent

the Schemes, it was more likely than not that it would not be possible for the Group

successfully to conclude a refinancing before June 2020 (when the Scheme Debt Facilities

become current) or ahead of the 2021 Maturity. He also responded to ARCM’s criticisms

that the Group’s statement of 5 March 2020 (“the March Release”) relative to the release of

the Group’s annual accounts to the year ended 31 December 2019 (“the 2019 Accounts”)

were more positive about its financial prospects and was therefore inconsistent with the

Group’s position in the Explanatory Statement or other statements by Mr Rose.

[58] Mr Rose explained that the observations of the Group as a “going concern” in the

March Release related to the period covered by the 2019 Accounts, consistent with

applicable accounting standards, and did not have to address the question of the ability of

the Group to repay the Scheme Debt Facilities at maturity in May 2021 (which the

Explanatory Statement addressed), because that was outwith the term covered by the 2019

Accounts. Accordingly, there was no inconsistency between the March Release and the

ARCM’s views on the risk facing the Group prior to the promotion of the Schemes

[59] The petitioners refer to certain statements by ARCM made prior to the presentation

of these Schemes consistent with the petitioners’ assessment of the Group’s financial

prospects. I need only quote one example, which is ARCM’s letter of 18 December 2019 to

the Group. This referred to the Group “facing a debt maturity wall in under 18 months a

highly leveraged structure and no possibility of a full refinancing of the 2021 maturity” and

that “considering that the May 2021 debt becomes current in less than six months, we

[60] One of the first respondent’s principal challenges was to the Group’s division of the

Scheme Creditors into only two classes for the purposes of voting on the Schemes at the

Scheme Meetings. ARCM’s ancillary criticisms include the issue of the correct comparator

[61] The correct class composition is critical; if the classes of creditors are not correctly

constituted, the court ultimately has no jurisdiction to sanction the scheme: Hawk, cit supra,

at para 22. However, there is no statutory test for class composition under Part 26 of the

[62] With a view to using the Sanctions Hearing to focus on areas of dispute and to have

parties agree uncontroversial matters, I directed parties to produce a joint statement of

agreed legal principles on class composition. Somewhat surprisingly, given the abundance

of the case law (or perhaps because of it), parties were unable to agree what might be

considered settled law in England, especially on the issue of class composition. I summarise

parties’ principal submissions, noting their points of difference.

[63] The essential differences between the first respondent and the other parties was

whether “arrangements” should be narrowly or broadly construed; whether essentially the

test focuses on dissimilarity (as ARCM does, but which the petitioners argue is to ignore

stage 1 of the Buckley test and the assessment of similarity); the meaning of insolvency

(whether this is equated to the statutory definitions in the IA 1986 or attracts a broader

definition); and the assessment of interests derived from legal rights.

The two-stage test derived from two English Court of Appeal decisions

[64] In England, the Court of Appeal set out the legal test in Sovereign Life Assurance Co v

Dodd [1892] 2 QB 573 (“Sovereign Life”). This has been confirmed by the Court of Appeal in

England more recently in the case of Hawk. It involves a two-stage test (per Sovereign Life; Re

Apcoa Parking Holdings GmbH [2015] BCC 142 (“Apcoa” at para 52)), namely:

“(1) At the first stage, the court considers the legal rights of the relevant creditors.

There are two sets of rights that are relevant in this context (Re Hawk Insurance

Co Ltd [2001] BCLC 480, at para 30; Re UDL Holdings Ltd [2002] 1 HKC 172 at

(i) the existing rights against the company, which are to be released or

(ii) the new rights (if any) which the scheme gives to those whose rights

If there is no material difference between the legal rights of the relevant

creditors, they will form a single class, and there is no need to proceed to

If there are material differences between the legal rights of the relevant

creditors, at the second stage the court needs to assess the relevance of

A class must be confined to those persons whose rights are not so

dissimilar as to make it impossible for them to consult together with a view

to their common interest in order to avoid the unnecessary proliferation of

[65] The first respondent did not explicitly acknowledge the two-stage test the

petitioner identified, although its own reliance on para 30 of Hawk, which is the source of

the petitioner’s analysis, would suggest the two-stage test is not disputed as wrong in law.

The first respondent’s approach was to condense the test into its latter part, ie focusing on

dissimilarity. The first respondent submitted that the legal test is whether the rights of

creditors are so dissimilar as to make it impossible for them to consult together with a

view to their common interest. In support of this approach, the first respondent cited the

(1) Lord Justice Bowen in Sovereign Life (at p.583), where he said:

“The word ‘class’ is vague, and to find out what is meant by it we must look

at the scope of the section, which is a section enabling the Court to order a

meeting of a class of creditors to be called. It seems plain that we must give

such meaning to the term ‘class’ as will prevent the section being so worked

as to result in confiscation and injustice, and that it must be confined to those

persons whose rights are not so dissimilar as to make it impossible for them

“’a class’ must be confined to those persons whose rights are not so dissimilar

as to make it impossible for them to consult together with a view to their

“When applying Bowen LJ’s test to the question ‘are the rights of those who

are to be affected by the scheme proposed such that the scheme can be seen as

a single arrangement; or ought it to be regarded, on a true analysis, as a

number of linked arrangements’ it is necessary to ensure not only that those

whose rights really are so dissimilar that they cannot consult together with a

view to a common interest should be treated as parties to distinct

arrangements – so that they should have their own separate meetings – but

also that those whose rights are sufficiently similar to the rights of others that

they can properly consult together should be required to do so; lest by

ordering separate meetings the court gives a veto to a minority group. The

safeguard against majority oppression is that the court is not bound by the

decision of the meeting. It is important Bowen LJ’s test should not be applied

in such a way that it becomes an instrument of oppression by a minority.”

(3) Lord Millett (a Law Lord who was in the House of Lords prior to that court

becoming the United Kingdom Supreme Court) in Re UDL Holdings Ltd

[2002] 1 HKC 172, at p.184 F to I (“UDL”), who summarised the class test as follows:

“(2) Persons whose rights are so dissimilar that they cannot sensibly

consult together with a view to their common interest must be given

separate meetings. Persons whose rights are sufficiently similar that they

can consult together with a view to their common interest should be

(3) The test is based on similarity or dissimilarity of legal rights

against the company, not on similarity or dissimilarity of interests not

derived from such legal rights. The fact that individuals may hold

divergent views based on their private interests not derived from their

legal rights against the company is not a ground for calling separate

(4) The question is whether the rights which are to be released or

varied under the scheme or the new rights which the scheme gives in their

place are so different that the scheme must be treated as a compromise or

Sovereign/Hawk test is reformulated or elaborated. So, for example, the petitioners

also submitted that the cases indicate that a broad approach to class is taken and

“differences may be material, certainly more than de minimis, without leading to

separate classes” (per Re Metinvest BV [2016] EWHC 79 (Ch) at para 17 (“Metinvest”);

Re Telewest Communications plc [2004] BCC 342 at par 37 (“Telewest”); Re DX Holdings

Ltd [2010] EWHC 1513 (Ch) (“DX Holdings”)at para 5); and that in assessing class

composition, the court should consider whether there is more that unites the scheme

creditors than divides them (Telewest, at para 40; Apcoa, at para 107).

[67] For its part, the first respondent deprecated the tendency in modern cases to

reformulate the test as laid down by the English Court of Appeal, and it cautioned against

this Court relying on dicta in cases where puisne judges sitting at first instance in the

Chancery Division have given their own worded summaries of the Court of Appeal’s

formulation, often without any opposition in schemes of arrangement, or proper argument;

and it cautioned this Court against relying on cases which were not argued by any opposing

party attending in the English Courts (it referred to the petitioners’ citations of Telewest, Re

Primacom [2013] BCC 201, Metinvest , DX Holdings Ltd, Re Hibu Group Ltd [2016] EWHC 1921

(Ch) (“Hibu”), Re Cooperative Bank plc [2017] EWHC 2112 (Ch) (“Co-operative Bank”) and Re

[68] It is important to note that at both stages of the test, the Court is concerned purely

with the legal rights of the relevant creditors as against the scheme company, not their

economic interests (UDL, at para 27; Re Primacom Holding GmbH [2013] BCC 201, paras 44 -

45.) (This is relevant as the petitioners argue that matters founded upon by the first

respondent as a relevant difference, eg the de facto blocking vote enjoyed by the first

respondent, are precisely such “interests” and not a matter of legal right.) The petitioners

note by way of illustration that the courts have assessed creditors’ existing rights in the

alternative counterfactual to the scheme in determining whether matters such as different

interest rates or maturity dates attaching to debt in fact give rise to a difference in rights or a

material difference in rights. (Re McCarthy & Stone plc [2009] EWHC 712 (Ch) (“McCarthy &

Stone”), at para 7; Re Primacom Holding, at paras 52 - 53; Co-operative Bank, at paras 9 - 14, 17.)

The first respondent submitted that the decision of Lord Millett in UDL makes clear (at

point (3)) that the relevant legal test relates to similarity or dissimilarity of legal rights, “not

on similarity or dissimilarity of interests not derived from such legal rights”. The first

respondent submitted that this means there is an outstanding question in English law to the

extent of interests that are derived from the relevant legal rights that would be relevant to

the class question. The first respondent submitted that the answer to that question is found

[69] Parties were agreed that the foregoing analysis entails consideration of the

comparator to the scheme, or the counterfactual of what will be the alternative if the

proposed scheme does not proceed. As was noted by one jurist eminent in this field,

Hildyard J, in Re Stronghold Insurance Co Ltd [2019] BCLC 11 (“Stronghold”) (at paras 48 to 51,

“... only by identifying the comparator can the likely practical effect of what is

proposed be assessed and the likelihood of sensible discussion between the holders

of rights so affected and between them and others with different rights be weighed

[70] Accordingly, the legal significance of the comparator is two-fold as it informs the

question of class composition. First, the comparator is relevant to ascertaining the nature

and substance of the creditors’ rights in the absence of the scheme. Thus, if the comparator

is an immediate liquidation (eg where the company has an urgent cash flow crisis), then

creditors’ rights must be assessed by reference to their rights in such a liquidation. (See, eg

David Richards J (as he then was) in Re T&N Ltd (No. 4) [2007] Bus LR 1411 (“T&N (No 4)”)

at 87 “In considering the rights of creditors which are to be affected by the scheme, it is

essential to identify the correct comparator.”) In the case of rights against an insolvent

company, where the scheme is proposed as an alternative to an insolvent liquidation, it is

their rights as creditors in an insolvent liquidation of the company: see Hawk. Secondly, the

comparator is relevant to assessing whether creditors with different rights can consult

together in their common interest. Parties were agreed that, in the event of insolvency, this

will affect the assessment as to whether the creditors’ rights are sufficiently similar that they

can vote in a single class. As Hildyard J said in Apcoa at paragraph 52, the Court should

“postulate, by reference to the alternative if the scheme were to fail, whether objectively

there would be more to unite than divide the creditors in the proposed class”. In this

context, the first respondent stressed the observations of Hildyard J in In Re Lehman Brothers

[2018] EWHC 1980 (Ch) (“Lehman (2018)”), (at paragraph 105) that:

“... the ‘comparator’ is always very important at both the second and the third

stage, as was recognised as long ago as the decision in Re English, Scottish and

Australian Chartered Bank [1893] 3 Ch 385 at 415, though it should not be used as ‘a

solvent for all class differences’ even in a context where the alternative is insolvent

winding-up or its real likelihood (which will destroy value and negate any real

[71] What divided the parties was the definition or prospect of insolvency. As noted

above, the first respondent equated that with the statutory tests for insolvency in section 123

of the IA 1986. The petitioners contended for a more flexible approach. They argued that

there are a range of possibilities which lie between the two extremes of immediate

insolvency and profitable and successful trading as a going concern for the foreseeable

future. By way of example they cited Hildyard J’s use of “the possibility or real likelihood of

insolvency” as the comparator in Co-operative Bank (at paras 11 to 14). Hildyard J stated that

the comparator was a “possibility”, “real risk” or “real likelihood” of insolvency. In Lecta,

Zacaroli J followed Hildyard’s approach in Co-operative Bank (see para 13) and he used the

formulation that the company was subject to a “very real risk” of insolvency as the

comparator. The high point of this approach, from the petitioners’ perspective, is the

formulation in Hibu. In that case (as here), schemes of arrangement were proposed in order

to deal with certain legacy issues arising out of a prior restructuring in 2014. In describing

the comparators to the schemes (at paras 22 to 28), Warren J pointed out that “there is no

immediate prospect that the Group will enter into insolvency proceedings”, but that the

company would likely be unable to repay certain facilities (called PIK facilities) at their

“… The 2014 restructuring achieved its primary purpose of restoring the Group to

Nevertheless, whilst there is no immediate prospect that the Group will enter into

formal insolvency proceedings, the 2014 restructuring created three legacy issues

... First, the PIK debt is too high. The company considers it unlikely that it will be

able to repay the PIK Facilities by 2024 in accordance with its obligations. There is no

immediate problem, but the issue does need to be addressed and it is considered best

to do so now in conditions of financial stability from the Group’s perspective.”

The fourth cases the petitioners cited in support of their approach to the assessment of

insolvency was Scottish Lion Insurance Co Ltd v Goodrich Corp 2010 SC 349 at 364 (“Scottish

Lion (2010)”), in which the First Division stated (at para 44):

“The occasion for the presentation of an application for sanction may be where there is a

‘problem’ — in the sense of an adverse situation facing both the company and its creditors, or

a class of them, which requires to be resolved. The existence of such a problem may be a factor

in favour of the granting of sanction. But it is not, in our view, a precondition to the

[72] The petitioners submitted that these authorities illustrate the range of the possible

comparators to a scheme. In each case, they argued, it is necessary to determine what the

likely factual position would be absent the scheme and to assess creditors’ rights against that

context. They submitted that, by contrast, the approach taken by ARCM is simplistic and

confused. ARCM draws a binary “black and white” distinction between “imminent risk of

insolvency” (on the one hand) and a “solvent comparator” (on the other hand). In relation

to the latter scenario, ARCM states: “Solvent companies require [sic] to comply with their

contractual obligations”. The petitioners submitted that such a crude approach has no basis

in law. It is wrong to say that merely because a company would not immediately go into an

insolvency proceeding if the scheme was not approved, it must be treated as solvent, and

the creditors’ rights assessed accordingly. They noted that ARCM’s position appears to be

that companies not at risk of immediate liquidation cannot undertake schemes of

arrangement varying their contractual obligations (as they would be thereby departing from

their contractual obligations) – a proposition that was explicitly rightly rejected by the Court

[73] In the context of the comparator, they submitted that it is necessary to look at the

actual facts and commercial reality. As illustrated by Hibu, a company may be able to

continue performing its contractual obligations for a period of time, but may then be unable

to repay its debts at a particular date in the future. Accordingly, when identifying the

appropriate comparator, the Court obviously can and should consider whether the company

will be able to repay its debts in the future. The Court is not confined to asking whether or

not the company would go immediately into an insolvency proceeding if the scheme was

not approved and applying that single test by placing the comparator into either an

[74] The petitioners’ primary position was that the concept of cash flow insolvency under

section 123(1)(e) has nothing to do with schemes of arrangement under Part 26 of the 2006

Act. The comparator to a scheme is a counterfactual scenario which represents what will (or

may) happen if the scheme is not sanctioned. While proof of insolvency under section 123 is

one of the statutory preconditions for making a winding-up order against a company, the

petitioners submitted that the Court may conclude that the comparator to a scheme involves

a likelihood or a risk of an inability to repay debts in the future, even if the company is not

[75] However, they advanced a fall-back argument to the effect that even if the test of

cashflow insolvency in section 123 applied, the first respondent erred in its understanding

and application of it. The petitioners referred to the first respondent’s citation of BNY

Corporate Trustee Services Ltd v Eurosail-UK-2007-3Bl plc [2013] 1 WLR 1408 (“Eurosail”). This

is the leading Supreme Court case on the definition of cash flow insolvency under

section 123(1)(e) of the Insolvency Act 1986 (“a company is deemed unable to pay its debts if

... it is proved to the satisfaction of the court that the company is unable to pay its debts as

they fall due”). They submitted that the test for cash flow insolvency under section 123(1)(e)

is much broader than ARCM is willing to acknowledge. In Eurosail, Lord Walker stated (at

“The ‘cash-flow’ test is concerned, not simply with the petitioner’s own

presently-due debt, nor only with other presently-due debt owed by the

company, but also with debts falling due from time to time in the reasonably

near future. What is the reasonably near future, for this purpose, will depend

on all the circumstances, but especially on the nature of the company’s

In the present case, it is at least arguable that the Scheme Debt Facilities will fall due in the

“reasonably near future” (namely, May 2021). ARCM’s assertions about cash flow

insolvency are not accepted and were at least arguably based on a misapplication of the test

[76] The petitioners sought to distinguish one of the cases on which ARCM placed

considerable reliance, that of Stronghold, where a solvent insurance company proposed a

scheme of arrangement. In that case, the Practice Statement Letter expressly stated that “in

the event that the scheme is not implemented, the current likely alternative is that the

company will continue in a solvent run-off”: see the judgment at para 60. The company

suggested that it might cease to operate as a going concern at some unknown time in the

future (as a result of an unspecified regulatory intervention), but failed to identify any point

at which this might happen. That being so, Hildyard J concluded (at para 61) that “it is very

difficult to take liquidation as sufficiently imminent and likely to show the best

[77] The petitioners submit that while that decision may well have been correct on its

facts, it provides no assistance in the present case. The facts of Stronghold are not the same as

those of the present case. In this case, the Group faces a specific and concrete maturity

deadline in just over a year. At that stage, the Scheme Debt Facilities (amounting to about

US $2.6 billion in drawn commitments) will become immediately due and payable. Unless

the Schemes are sanctioned, it is more likely than not that the Scheme Companies will be

unable to refinance or otherwise repay their debts at the scheduled maturity. These facts

form the relevant comparator in the present case. Thus, the relevant comparator is one

where, absent the Schemes, the Scheme Companies would continue in business for a period

of time but where they would more likely than not be unable to repay their debts at maturity

and would more likely than not go into insolvency proceedings. The relevant rights of the

creditors for the purposes of the class analysis are their rights in this scenario.

[78] Finally, in this context, the petitioners submitted that whenever there is a dispute as

to the appropriate comparator, the Court will generally defer to the views of the company’s

directors (who are in the best position to assess what will happen if the scheme does not

proceed). They referred to observations by Hildyard J in Apcoa, in support of that

“... there is often little dispute [as to the comparator], except perhaps as to the

imminence of actual insolvency; but as noted previously, there was

considerable dispute in this case. Although FMS [a dissentient creditor] put

in issue the reality of the threat, I concluded that I should accept the detailed

evidence of the Scheme Companies (put in with regret on behalf of the

directors for obvious reasons) that the restructuring which the Schemes

enable and in part effect, and the new finance which Deutsche Bank has

offered conditionally upon the restructuring, is necessary if the Apcoa Group

is to trade solvently and successfully. I see no sufficient reason for doubting

the directors’ evidence that if the Schemes fail they will, under German law,

There was some suggestion in FMS’s evidence that Centerbridge [a creditor

who supported the schemes] had too much to lose to allow this, and would

step into the breach at the last minute; but that implicitly invites a gamble or

an assessment as brinkmanship on the part of the court which I do not think

[79] In this case, the parties dispute whether the proper comparator of the Group is

insolvency; the difference arises from their differing definitions of what constitutes

insolvency. It is in this context that the first respondent contends for the statutory definition

of insolvency from IA 1986. It submits that the comparator in the present case will need to

be determined, first, by application of insolvency law and whether the Group is unable to

pay its debts, or likely to become unable to pay its debts in the senses used in section 23

Insolvency Act 1986 and Schedule B1, para 11 of the Insolvency Act 1986; and, second, by

assessment of the relevant facts of the case. By contrast, the petitioners contend for a

broader spectrum of insolvency. They submit, first, that there is a range of possibilities

between the two extremes of immediate insolvency and profitable and successful trading for

the foreseeable future (Hibu at paras 22 to 28; Lecta at para 13; Co-operative Bank at paras 11 to

14) and, secondly, that where there is a dispute as to the correct comparator, the court will

have due regard for the views of the company's directors (Apcoa, at para 71).

The relevance of fees or other collateral benefits to class composition

[80] One of the points of contention was whether the fees payable (or other collateral

benefits) under the Schemes were relevant to class composition. There is no dispute that the

payment of fees under the scheme or wider restructuring to some but not all scheme

creditors may have impact on the class question. Both parties referred to the observations in

Re Noble Group Ltd [2018] EWHC 2911 (Ch); [2019] BCC 349 (“Noble (no 1)”), at para 111, of

“Any payments to a limited group of creditors in connection with a restructuring

can have a potential impact both upon the class question and upon the question at

the sanction hearing of whether, to the extent that the recipients of such payments

make up the majority voting in favour of the scheme, they are really

representative of the interests of the wider class of creditors as a whole. Of

necessity, therefore, the making of such payments carries with it a requirement for

full and frank disclosure to the Court throughout out the scheme process, together

with absolute transparency and disclosure to all creditors in the Explanatory

The petitioners point out that much will depend on the nature of the fees.

[81] There is a further factor important to the question of class composition, namely the

need to safeguard against both the majority and the minority oppression. This has long

been recognised by the courts. So, for example, in Hawk it was stated:

“When applying Bowen LJ’s test to the question ‘are the rights of those who are to be

affected by the scheme proposed such that the scheme can be seen as a single

arrangement; or ought it to be regarded, on a true analysis, as a number of linked

arrangements’ it is necessary to ensure not only that those whose rights really are so

dissimilar that they cannot consult together with a view to a common interest should

be treated as parties to distinct arrangements – so that they should have their own

separate meetings – but also that those whose rights are sufficiently similar to the

rights of others that they can properly consult together should be required to do so;

lest by ordering separate meetings the court gives a veto to a minority group. The

safeguard against majority oppression is that the court is not bound by the decision

of the meeting. It is important [that] Bowen LJ’s test should not be applied in such a

way that it becomes an instrument of oppression by a minority.”

The petitioners submitted that a holistic approach was required and that the first

respondent’s approach was a form of “salami-slicing” which artificially divided creditors in

many classes, thereby increasing the risk of minority oppression. The first respondent

submitted that the Court should apply the correct test, which was dissimilarity, and must

[82] In considering the many issues in this case, I propose to adopt the Buckley test as

recently reformulated by Snowden J in Re Noble (quoted at para [41], above). As I noted

above, in the Outline of ARCM’s challenges, some of their challenges are anterior

jurisdictional challenges. I propose to start by considering those before addressing their

[83] ARCM’s anterior jurisdictional challenges are that the Schemes go beyond a

compromise of pecuniary rights and so are outwith the Part 26 jurisdiction; that a scheme of

arrangement can do no more than re-arrange debt rights; that the Acquisitions are novel and

nothing similar has been provided for in other Part 26 schemes; that the changes to voting

rights are not ancillary to compromise of a pecuniary liability and that Schemes lack “give

and take”. The first respondent also described the loss of ARCM’s de facto blocking vote as a

“confiscation” (ie because it is “taken” without any “give” in return). It should be noted that

while it was ARCM which produced their Notes on Class to the Reporter, the Answers

opposing the Schemes was submitted by the first respondent (one of the funds under the

control of ARCM). The other parties drew no distinction between ARCM and the first

Preliminary observations on the role of the Court and the approach to be adopted in consideration of a

[84] In considering the role of the court in a Part 26 application, I bear in mind Lord

President Clyde’s observations in Singer Manufacturing Co v Robinow 1971 SC 11, where he

“[t]he Courts have always interpreted [the then applicable statutory provision in the

Companies Act 1948] and its statutory predecessors broadly, so as to enable a wide

The English case law is replete with similar observations, an early and powerful expression

of which is found in the judgment of Fry LJ in Alabama, New Orleans, Texas and Pacific

Junction Railway Company [1891] 1 Ch 213 at LA 14 (“Alabama”) (at 246ff), a case he described

as “fully and earnestly argued”, where he stated that “the jurisdiction conferred by the Act

of 1870, and the words there are of the largest description” (emphasis added). At an earlier

point in the same case, Lindley LJ enjoined an approach that looked at matters “fairly as a

whole and [to] consider what there is in the state of this company which renders a scheme

[85] Fry LJ’s observations in Alabama as to the role of the court in considering sanction of

a scheme are instructive. He began by noting (i) that the legislature has vested the discretion

in the majority of the class who are present at the meeting, and (ii) that it is not for the courts

to introduce restrictions on that, but to respect the power the legislature as conferred on the

majority of those meeting in each class. In relation to the court’s inquiry, he posed the

question (at p 247): “Under what circumstances is the Court to sanction a resolution which

has been passed approving of a compromise or arrangement?”. While he wisely refrained

from an exhaustive list of the relevant factors, he had no doubt “that the Court is bound to

ascertain that all of the conditions required by the statute have been complied with; it is

bound to be satisfied that the proposition was made in good faith; and, further, it must be

satisfied that the proposal was least so far fair and reasonable, as that an intelligent and

honest man, who is a member of that class, and acting alone in respect of his interest as such

[86] From these dicta, it is clear that the Courts have consistently interpreted

“arrangement” broadly to permit a wide variety of arrangements and that the approval of

the scheme proposed is pre-eminently a matter for the commercial judgement of those in

each class voting on it. While of course the Court must ensure that what is proposed falls

within the statutory language of “compromise or arrangement”, it is important to note how

carefully Fry LJ has articulated the Court’s role. It is, in a sense, limited to a consideration of

what is proposed within the parameters Fry LJ stated (an “intelligent and honest man…

might approve”) and premised on the proposal being “made in good faith”. Within those

parameters, the Court respects the commercial judgment of those meeting in the requisite

classes. The Court does not supplant the commercial judgement of the majority within each

class with its own view. This approach accords with the nature of the application to the

Court. What is sought is sanction of the scheme approved by the creditors or members in the

statutory meetings, not an adjudication on wider issues (eg a comparison of the scheme

proposed with possible alternatives and their respective commercial merits) involving

determinations of disputed fact. This understanding is also consistent with the description,

in modern cases, of the court exercising a “discretion” when it considers whether to sanction

a scheme approved by the creditors or members in the statutory meetings. It follows that a

petition for the sanction of schemes under Part 26 is not a forum for the close or detailed

forensic examination de novo of the commercial merits of the proposed scheme, much less to

adjudicate upon alternative arrangements that might have been promoted. It is necessary to

stress this, because a significant amount of the ARCM Reports (and which formed part of

the rationale for the first respondent’s motion for a proof) was directed to just this sort of

[87] As a generality and consistent with the observations of Lindley LJ in Alabama, the

Court considers the proposed arrangement as a whole (“…to look at the thing fairly as a

whole…”). This will inform the assessment of the object of the proposed scheme, against the

background of “what there is in the state of this company which renders a scheme necessary

at all”, and its consideration of whether the requisite “give and take” is present. On this

approach, the Court does not consider each constituent element of a scheme in isolation,

which at times reflected the first respondent’s approach (eg criticising the Acquisitions,

divorced from their function within the Schemes), and which the Supporting Creditors

referred to as “slicing and dicing”. In my view, this holistic approach is consistent with the

language of an “arrangement” (and which encompasses its constituent elements), and it is

also consonant with assessing the intended commercial purpose the proposed arrangement

[88] Furthermore, in respect of complex schemes, such as the Schemes, it is inapt to focus

on the individual elements of an arrangement (in disregard of their function within the

whole) where the constituent elements are expressly interconnected. The different elements

of the Schemes are strongly interdependent: the Acquisitions are predicated on a successful

equity raise; the improved RBL is dependent on the Acquisitions. Only if all three of these

elements are achieved, will the proposed amendments to the voting rights (and other

changes in the Override Agreement) come into effect. In any event, a critique of individual

elements of a proposed arrangement without regard to their contribution to the overall

scheme and its objectives is, in my view, an approach divorced from commercial reality. So,

for example, the stated intention is for the benefit of the Acquisitions to flow through to the

Group’s Creditors: see the Explanatory Statement at para 5.18(A) at p 44. The overriding

purpose of the Schemes, and to which the constituent elements are directed, is to address the

debt wall. The object of the proposed refinancing is to obtain an extension of the debt

maturity. As the directors explain, the Scheme Creditors would not agree an extension of

the Scheme Maturity Date without addressing the debt wall. In its submissions, the first

respondent never fully engaged with the fundamental problem the debt wall poses, even

though this was recognised in some of the materials it produced (see eg the Boyle Report at

[89] I turn to consider ARCM’s anterior jurisdictional challenges.

ARCM’s anterior jurisdictional challenge 1: Do the Schemes go beyond an “arrangement”

[90] While the first respondent’s written submission consistently used the word

“compromise”, which is a narrower concept than “arrangement” (AI Scheme Limited

[2015] EWHC 1233 (Ch) at para 17), in oral submissions Senior Counsel for the first respondent

accepted that in these applications the Court was concerned with “arrangements” not

compromises. In my view, he was right to do so. The outcome of these Schemes, if granted,

do not result in a diminution of the Scheme Debt Facilities or of the interest rates payable, or

in a diminution or alteration of the amount of a secured creditor’s security (which Fry LJ

considered to be likely to be “the most common kind of compromise or arrangement”: see

Alabama at p 246. Indeed, if granted, the Schemes will see all creditors benefit from an

enhanced interest rate (albeit to different degrees). Accordingly, I approach the Schemes on

[91] Section 899 of the 2006 Act confers jurisdiction on the Court to sanction “a

compromise or arrangement”. That form of words is found in section 895(2). However, the

statutory definition of “arrangement” in section 895(2) of the 2006 Act is patently not

comprehensive; it simply “includes” reorganisations of a company’s share capital (as might

arise in an arrangement between a company and its shareholders). The definition otherwise

provides no example or specified form of wording directed to inter alia an arrangement

between a company and its creditors. Further, I agree with the observations of Patten LJ in

Re Lehman Bros (No 2) [2010] Bus LR 489 (“Lehman (No 2)“) (at paras 58 to 61) that

“arrangement” is not considered in isolation, but in the context of the statutory phrase “an

arrangement between a company and its creditors”. In that case Patten LJ noted: “Although

‘arrangement’ is a wide expression, it is given content and meaning by the parties to it”.

Patten LJ concluded (at para 65) that an arrangement between a company and its creditors

must mean an arrangement which deals with their rights inter se as debtor and creditor. He

also concluded that an arrangement can include collateral releases proposed “for the

disposition of the debts and liabilities of the company to its own creditors.”

[92] Notwithstanding the acceptance by Senior Counsel for the first respondent that each

Scheme proposes an “arrangement” and not a compromise (although the first respondent

contends that these Schemes go too far even for an arrangement), the first respondent’s

submissions often conflated “compromise” with “arrangement”. So, for example, the first

respondent argues that “the only subject matter that can be compromised is a debt claim, or

a claim that is parasitic on the debt such as security rights”. The dicta on which this

submission is based are (i) Patten LJ’s observation in Lehman (No 2) (at para 66) that a

“person is the creditor of a company only in respect of debts or similar liabilities due to him

from the company”, (ii) Lord Neuberger’s observations in the same case (at para 78) that if a

person’s claim cannot be said to render him a creditor or a member then the subject matter

of the claim cannot be covered by the arrangement; and (iii) the observations of Zacaroli J (at

paras 18 to 22) in Re Instant Cash Loans Ltd [2019] EWHC 2795 (Ch) (“Instant Cash (Sanctions

Hearing)”) that the arrangement jurisdiction was confined prima facie to the rights of the

company and its creditors inter se. The first respondent emphasised Zacaroli’s observation

(at the end of para 24 of Instant Cash (Sanctions Hearing), that:

“[i]t is within the scope of the scheme jurisdiction to impose such a term [compelling

a landlord to accept the tenant’s surrender of the lease] on a creditor only if it is

ancillary to the compromise of the pecuniary liability or necessary to ensure

The first respondent’s overarching submission was that non-pecuniary rights fell outwith

The first respondent’s challenge based on “pecuniary rights”

[93] One of the principal bases on which the first respondent argues that the Schemes

exceed what is an “arrangement” within the scope of Part 26 of the 2006 Act is that neither

the proposed “confiscation” of Override Agreement voting rights, nor the “forced” approval

of the proposed Acquisitions, are compromises of “pecuniary rights”. Nor are they

“ancillary to the compromise of the pecuniary rights or necessary to ensure the effectiveness

of the compromise” of pecuniary rights (Instant Cash Loans Ltd at paras 18 to 20). (These are

the first respondent’s challenges in [28(1), (2) and (3)], above.) Accordingly, so this

argument runs, the Schemes go beyond the proper jurisdiction conferred under Part 26.

Rights which may be subject to an arrangement between a company and its creditors are the rights

[94] In considering the first respondent’s anterior jurisdictional challenges, I proceed on

the footing that an “arrangement” between a company and its creditors that falls within

Part 26 must mean an arrangement which deals with their rights inter se as debtor and

[95] What are the rights of a creditor? The defining quality of a creditor is an entity to

whom the company owes a debt, an obligation to pay a money sum. The corollary right

vested in the creditor is for that debt to be repaid. A creditor may have ancillary rights

arising from that principal obligation: eg such as receipt of interest or payment by a

specified point in time (ie a maturity date). Equally, the debtor may have granted certain

warranties and covenants, designed to protect against the erosion of the debtor’s financial

position (and thereby diminishing the prospect of the creditor being repaid in full in due

course). Clearly, a debtor’s creditor is entitled to enforce these kinds of provisions and it

will have a claim against the debtor company if they are breached. Under more complex

arrangements, a significant creditor or the creditors as a collective may be entitled to exert

controls over certain decisions or acts of the debtor. These can include restrictions on

significant corporate actions. These obligations are imposed by the creditor on the debtor

(and which confer correlative rights for the creditor) with a view to increasing the prospects

of its debt being repaid. A scheme of arrangement under Part 26 is one form in which such

rights may be formalised and imposed, even on dissentient creditors, so long as the Court

has been satisfied that the statutory test has been met and has sanctioned the scheme. That

is precisely the circumstance that obtains between the Group and the Scheme Creditors

[96] It is helpful therefore to start with the nature and source of the rights which the

The source and substance of the Scheme Creditors’ voting rights

[97] In relation to the source of the Scheme Creditors’ voting rights, those rights were

defined in clause 23 of the 2017 Override Agreement pursuant to the 2017 Scheme

sanctioned by this Court. Prima facie these contractual rights were within the Part 26

jurisdiction. Or, at least, the parties to that arrangement (which included ARCM) accepted

at that time that, for example, contractual provisions defining voting rights fell within the

2017 Scheme. While the fact that the voting rights were conferred in the 2017 Override

Agreement is not determinative that such rights properly fall within the scope of an

“arrangement” under Part 26 (the 2017 Schemes were not opposed, and so there was no

dissentient creditor to take the point), it is nonetheless the case that the voting rights in the

2017 Override Agreement were conferred on the Scheme Creditors qua creditors of the

Group; they did not arise from any other context or relationship. The voting rights are

exercisable in relation to defined matters; in substance, these relate to matters that could

affect the financial position of the Group and, therefore, the prospects for repayment of the

Scheme Debt Facilities. More fundamentally, the voting rights are exercisable by virtue of

the debt instruments the creditors hold. They are weighted according to the quantum of the

Group’s indebtedness to the individual creditor under each debt instrument. Accordingly,

leaving aside the absence of any challenge in the 2017 Schemes to the inclusion of the voting

rights within the 2017 Override Agreement, it is nonetheless the case that the voting rights

in clause 23 of the 2017 Override Agreement were conferred on the Scheme Creditors as

creditors of the Group. In my view, the voting rights, together with other terms of the

Override Agreement, as one of the finance documents, is clearly an incident of the debt

owed to the first respondent qua creditor. Accordingly, the amendments to the voting rights

which the Schemes contemplate are permissible under a Part 26 scheme and I reject this

aspect of the first respondent’s anterior jurisdictional challenge.

[98] I am fortified in this view by other contexts in which creditors are afforded voting

rights qua creditors. In other words, the provisions in the 2017 Override Agreement for the

Scheme Creditors to exercise voting rights qua creditor are not anomalous. In formal

insolvency regimes, there is statutory provision for creditors’ views to be expressed on

certain decisions. This takes the form of their votes (which, for certain purposes, are

assessed by a weighting related to the quantum of the debt owed). Quintessentially, the

creditors enjoy these voting rights by virtue of their status as creditors. Accordingly, voting

rights as an attribute or right of a creditor is well recognised. The first respondent did not

offer a definition of a “pecuniary right”, but the voting rights the Scheme Creditors enjoy by

virtue of the 2017 Override Agreement are clearly incidental or ancillary to the indebtedness

of the Group to the Scheme Creditors. The voting rights arise inter se the Group and the

Scheme Creditors as debtor and creditors, respectively. Accordingly, in my view the

proposed amendments to the 2017 Override Agreement voting rights which may follow

from the sanction of the Schemes is permissibly within an “arrangement” under Part 26.

While, perhaps, more pertinent to the fairness of the Schemes (which I consider below) and

commensurate with a holistic approach, it is convenient here to note that, as explained in

Rose 1 (at paras 117 to118), amendments to the voting rights in the 2017 Override

Agreement was one of the creditors’ conditions of support for the Schemes.

[99] Another aspect of the first respondent’s challenge to the proposed changes to the

voting rights is that it amounts to a confiscation, which I consider below, under the rubric

[100] The first respondent argues that, if granted, the Schemes impermissibly impose new

obligations on the RCF lenders (of which ARCM is one, but not the sole RCF lender) in

respect of the undrawn facility during the period of the debt extension (“forcing presently

undrawn amounts to be available to draw in the future”, per para 60 of the First ARCM

Note), and which will be on new terms (described at para 64 of the First ARCM Note as

“forcible new lending on entirely different and new terms from May 2021 to November

2023…, with a new lending relationship upon wholly different terms to the present

[101] I begin by considering the question, does the extension of the maturity date of the

RCF result in “new lending” in respect of the present undrawn element of the RCF? It may

help to recall that an RCF is, as its name suggests, a credit facility in which, so long as the

credit limit and other conditions are observed, the debtor (here, the Group) may draw down

and repay the facility as it chooses. It is “revolving” because the amount due to be repaid at

any time will vary, and may increase and decrease. It is the functional equivalent of an

overdraft facility on a current account. The corollary of the debtor’s right to drawdown and

repay at its option, is the creditor’s obligation to make funds available (or to honour the

drawdown) up to the permitted limit (again, so long as the other terms of the RCF are

complied with or any breach thereof waived). In respect of any undrawn amount, the

creditor is contingently liable; but it is a creditor nonetheless because the underlying lending

commitments already exist. Here, there is an established relationship of debtor and creditor

between the Group and the RCF Scheme Creditor; the Scheme Creditors holding RCF debt

instruments have a subsisting obligation to lend up to the agreed amount. While the RCF

Scheme Creditors are contingent creditors in respect of any undrawn amount, properly

analysed their obligation to honour or provide the undrawn element of the RCF is an

existing obligation. It is not a “new” one imposed by the Schemes.

[102] Is the liability of the Scheme Creditors under the RCFs on “on entirely different and

new terms”? In my view, there is no substance to this submission. The Scheme Debt

Facilities have not been increased and the principal sums owed to the Scheme Creditors

remain the same. In relation to the extension to the maturity date (if this is contended

separately to constitute a new obligation or “entirely different terms”), in my view this does

not amount to a new obligation or one on wholly new terms. It is a variation of an existing

term – the date by which the Group must repay the Scheme Debt Facilities. It does not

relieve the Group of the obligation of repayment; much less does it diminish the amount to

be repaid (cf a compromise). I am fortified in this view by the case of Apcoa, in which

Hildyard accepted (at para 167) that a debt extension or rollover of an existing RCF did not

constitute a new obligation or new contract. That is what is proposed in the Schemes. The

maturity extension will simply roll over the existing RCF available to the Group (including

any undrawn element) without imposing any new or more extensive obligations on the RCF

Scheme Creditors. I accordingly reject the contention that the first respondent (or ARCM) is

not a creditor in respect of the undrawn element of the RCF or that the undrawn element of

that becomes a “new debt” during the period of the debt extension. It follows that I reject the

first respondent’s submission that the RCF lenders constitute a distinct class for the

purposes of class composition because of the “imposition of new positive obligations in the

form of future advances” (per the first respondent’s Submissions at para 75).

[103] The petitioners note that a similar “new obligations” point arose in the recent

challenge to the Debenhams CVA (creditors voluntary arrangement): see Discovery

(Northampton) Ltd v Debenhams Retail Ltd [2020] BCC 9 (“Debenhams”). While that case

involved a CVA under section 1 of IA 1986, which makes provision for a procedure similar

to that under Part 26, it was accepted in Debenhams (at para 100(a)) that there is no relevant

difference between a CVA and scheme under Part 26. The jurisdiction under Part 26 in

respect of a scheme and under section 1 of IA 1986 are sufficiently close that the court

exercising one jurisdiction can read across cases from the other. Indeed, as will be seen, the

court in Debenhams referred to cases arising under Part 26. The feature of the CVA giving

rise to the “new obligation” challenge was the proposal requiring landlords to accept a

reduced amount of rent for a period of five years. A group of creditors challenged this as

impermissibly imposing a new obligation on landlords, as, it was argued, the landlords

were required to make their premises available to the company on different terms from

those which they had originally agreed. Norris J rejected this argument. He stated (at

“In my judgment the CVA does not impose ‘new obligations’, save in the sense that

it varies existing obligations. But variations of existing obligations are

‘arrangements’ of the company’s affairs which it is the very object of Part 1 of the

Act [ie IA 1986] to enable. The landlord was and is obliged to permit quiet

enjoyment of the demised premises for the duration of the term granted: the

covenants (upon breach of which the landlord can put an end to the term) have been

After citing dicta from Apcoa and Noble (at paras 79 and 80) on the imposition of new

“In my view these observations do not cast any doubt on what is proposed in the

instant case. What is proposed here is a variation of an existing obligation binding

the company and its creditor, not the creation of a new contract requiring the

assumption of fresh liabilities to some new third party.” (Emphasis added.)

That same distinction between the imposition of a new obligation on a creditor and the

variation of an existing obligation owed by the company applies to the Court’s consideration

[104] Applying that analysis to the changes proposed in the Schemes which ARCM

challenge, it reinforces my view that the undrawn element under the RCF does not

constitute a new obligation. The sums ultimately to be paid to the Scheme Creditors under

the Scheme Debt Facilities have not changed. The debt extension simply varies an existing

term. The obligations of the RCF creditors in respect of undrawn funds do not result in an

increase in the quantum of those facilities. The first respondent’s new challenges to these

features of the Schemes as impermissibly imposing new obligations fails.

[105] There is another feature of the Schemes which ARCM argue will result in

impermissible new obligations on the RCF creditors. This relates to the partial re-

designation of certain commitments under the Senior RCF. The proposed amendment to the

Senior RCF will permits the borrowers to re-designate a proportion of the commitments

under the cash facility as an additional commitment under the letter of credit sub-facility.

The context is that under the credit sub-facilities the Group can call upon the creditors to

issue letters of credit in respect of decommissioning liabilities (these relate to the Group’s

North Sea assets). However, the re-designation does not increase the overall lending

commitments of any lender under the Senior RCF: it substitutes some of the re-designated

letter of credit facility for the cash facility. (The petitioners submit that a creditor’s

obligation under a letter of credit, which is a contingent liability to the beneficiary, is less

onerous than the upfront provision of cash under the cash facility.) In my view, ARCM’s

new obligation challenge to the proposal to enable a partial re-designation of an RCF is also

without merit. For completeness, I note that it is also one change which does not affect

them. Mr Rose explains (in Rose 1 at paras 194 to 195) that ARCM’s commitments under the

cash facility will not be susceptible to re-designation as additional letter of credit facilities.

In any event, none of the creditors whose facilities might be subject to partial re-designation

[106] The first respondent is critical of the Acquisitions, which it says are novel in the

context of a Part 26 scheme and that it is not within the Court’s jurisdiction to force the

Acquisitions upon it (and ARCM). Closely allied to this are the first respondent’s criticisms

that the Acquisitions will materially change the balance of the Group’s energy production

(weighting it significantly more toward gas than oil) and bring in its train significant

[107] In relation to the novelty of the Acquisitions (neither the petitioners nor the

Supporting Creditors demurred from that description), novelty itself is not a jurisdictional

bar. I have already noted above the observations of the Courts, English and Scottish, which

decline to set limits ab ante as to what may constitute an “arrangement”. I approach this

issue as a matter of analysing the features and effect of the Acquisitions in light of that case

[108] The terms of the 2017 Override Agreement preclude the Acquisitions, unless the

requisite majorities of the creditor classes entitled to consider this grant a waiver. As the

Group has not been able to secure the waiver, it seeks that as part of the Schemes.

Accordingly, the mechanism adopted is to permit the Group to grant that waiver on behalf

of the Scheme Creditors under powers of attorney (which gives rise to the power of attorney

issue). However, in this context, it is significant that, strictly, none of the Scheme Creditors

will become a party to the agreements by which the Group may acquire the Acquisitions;

none will be constituted owners of these assets. Testing this in the language of Norris J in

Debenhams, the Acquisitions do not require the Creditors to assume “fresh liabilities to some

[109] In relation to the first respondent’s criticisms of the merits of the Acquisitions (for

that is what the critique amounts to), this is quintessentially a question of commercial

judgement. That is a matter for the directors of the Group, and which has been subjected to

scrutiny by the Scheme Creditors in Scheme Meetings. The Group’s views as to the

purposes the Acquisitions are to serve are supported by the PWC Report and also by the

advice from Rothschild. On this matter, the Scheme Creditors have spoken, approving the

Schemes overwhelmingly. Further, the first respondent’s critique fails to have regard to the

role of the Acquisitions in the overall scheme of the Schemes. The Acquisitions are not

pursued as an end in themselves; in the directors’ judgement, the Acquisitions are critical to

unlocking funding or liquidity in the form of RBL. While there are criticisms of the

assumptions on which the amount of funding is predicted (ARCM and the first respondent

deploy the ARCM Reports to contend that these are overly optimistic in respect of reserves

and under estimate the downsides), there is no challenge to the need for increasing liquidity

or to the mechanism of RBL as the means to tap this). For the reasons I have provided

above, disputes about the commercial merits of the Scheme (or an alternative arrangement

preferred by a minority creditor) are not apt in Part 26 proceedings.

ARCM’s anterior jurisdictional challenge 2: Do the Schemes lack “give and take”?

[110] I have already considered ARCM’s challenge that the voting rights are not pecuniary

rights or ones which may permissibly be included within the scope of a Part 26 scheme. A

different facet of ARCM’s attack on the change to the Scheme Creditors voting rights is the

complaint that this amounts to a “confiscation” and the loss of their de facto blocking vote

(“veto”) ARCM (but not the first respondents) enjoy by virtue of the amount of debt ARCM

holds within two of the creditor classes, but for which they receive nothing in return.

[111] As some of the quotations from ARCM’s Note and Supplementary Note on Class

disclose, ARCM characterise what is proposed in language that is, at times, emotive: eg the

“forcible” new lending, the “confiscation” of voting rights. It is necessary to address these

characterisations, as they go to the very nature of the Part 26 jurisdiction. Lest it be

suggested that Norris J’s observations in Debenhams (quoted above) are inapposite (he stated

that “variations of existing obligations are ‘arrangements’ of the company’s affairs which it

is the very object of Part 1 of the Act [ie IA 1986] to enable”), the Inner House make the same

“The respondents, for reasons which are readily understandable, would prefer to

retain their existing contractual rights. But the loss of these contractual rights cannot

be said a priori to be something which would disable the court sanctioning the

scheme. It is of the very nature of the power conferred on the court under s.899

that, provided the statutory majorities are properly obtained and the requisite test

for the granting of sanction satisfied, contractual rights will, notwithstanding

opposition by persons in right to them, be varied or extinguished.” (Emphasis

Those observations, which are binding on me, confirm that, provided the statutory

majorities are properly obtained and the requisite test for the granting of sanction is

satisfied, contractual rights may be varied, notwithstanding the opposition of a creditor

affected by those variations. The element of compulsion (or “confiscation”) ARCM object to

flows from the exercise of the court’s own powers to sanction the scheme. The minority

creditors may regard that as “forcible”, but that is a consequence of the jurisdiction the

Court exercises under Part 26; it is not a basis for challenging the exercise of that power.

Accordingly, a complaint against the Court’s power to sanction schemes under Part 26 in the

face of dissentient creditors is not a legitimate ground of opposition. Were it otherwise, the

Part 26 jurisdiction would be incapable of giving effect to any meaningful variation of

[112] In considering whether there is a want of “give and take”, it is convenient here to

consider whether ARCM have been treated differently than the other creditors in respect of

the proposed amendments to their voting rights under the Schemes, or whether those rights

[113] At times ARCM’s submission amounted to the contention their voting rights are

sacrosanct; that it was illegitimate on the part of the petitioners to resort to the Part 26

jurisdiction when it was not insolvent; or that that constrained the nature of a scheme that

could be promoted or the Court’s role. In my view, the voting rights are simply contractual

rights. They do not acquire some other complexion, making them immutable or beyond the

reach of any future Part 26 scheme, because they resulted from the 2017 Schemes. Another

way ARCM advanced this was to suggest that they had only agreed to the rights as stated in

the 2017 Override Agreement because they were promised that these would be the basis for

the relationship going forward. The Supporting Creditors point out that ARCM have

produced nothing to support such a contention. The petitioners’ response is that even rights

consequent upon a Part 26 scheme (ie the 2017 Schemes) do not render them immutable. In

my view, there is force in these submissions. In any event, any expectation ARCM might

have would founder on the fact that at the time the 2017 Schemes were promoted, it was

well understood that it was an incremental step towards the Group’s improved financial

Are ARCM or the first respondent being treated any differently in the amendments to their voting

[114] I did not understand ARCM to argue that there was a degree of discrimination in

respect of amendments to their voting rights, so much as the loss of their de facto veto they

have because of the size of their holding in two of the creditor classes. (Neither the

petitioners nor the Supporting Creditors took the point that this argument is not, strictly,

open to first respondent to advance in its own right, as their debt holding is too small. In the

discussion of this issue it is obviously the debt holding of ARCM which is under

[115] The creditors’ voting rights put in place by the 2017 Refinancing are complex. These

are described more fully in the petitioners’ Notes on Class at paragraphs 124 to 129. In brief,

amendments and waivers (eg of events of default) are divided into seven categories

(corresponding broadly to debt instruments, and collectively described as the Private

Creditor Groups), each with different consent thresholds. ARCM have a de facto blocking

vote in respect of two of these voting groups (the Converted Group and the Term Loan

Group), because it holds enough to preclude the other creditors within these classes from

achieving the requisite majorities. It should be noted that, as the petitioners observe in their

Note on Class, ARCM are not the only Scheme Creditor with a de facto blocking vote. Lloyds

Bank plc has a blocking vote under the Term Loan Facilities, and in fact all the Private

creditors have a veto in respect of those forms of consent that require unanimity.

[116] I accept as correct the petitioners’ analysis of clause 23 of the 2017 Override

Agreement and its amended form if the Schemes are sanctioned (and the amended form of

clause 23 takes effect), which is that each Private Creditor Group (and each individual

Private Creditor) has materially the same legal rights under either the existing or proposed

voting regimes. So, for example, as matters stand under the current provisions of the 2017

Override Agreement, no Private Creditor Group has a special or unique veto position that

differs from other Private Creditor Groups to veto amendments or waivers under

clause 23.2. Similarly, each Private Creditor (viewed as an individual rather than a group),

has a like right to vote on amendments or waivers under Clause 23.2.

[117] Turning to the amendments to the voting rights proposed under the Schemes, the

proposals include a waiver of any breach of covenant or event of default arising out of the

Acquisitions. The mechanics of this are that each Private Creditor Group (and each

individual Private Creditor) will relinquish their right to block the Acquisitions under

Clause 23.2. Further, the Schemes will amend the voting regime under clause 23.2 by

eliminating the veto position of each Private Creditor Group and allowing certain

amendments to be made by Private Creditors holding two-thirds of their total commitments.

It is this change that removes ARCM’s de facto veto in the Converted Group and Term Loan

creditor classes. The petitioners’ position is that this change will affect each Private Creditor

Group and each individual Private Creditor in the same way. They observe that no one will

be singled out for special treatment: the veto ability of each Private Creditor Group will be

lost, and each dollar of debt held by each individual Private Creditor will continue to carry

the same right to vote. I did not understand ARCM to contest this reading of clause 23 in its

[118] Returning to ARCM’s arguments about the confiscation of voting rights and the lack

of something in return, so far as I understand this argument, it is premised on the contention

that the first respondent’s voting rights will be altered, regardless of the outcome of the

other elements of the Scheme. However, this submission does not accurately reflect the

conditionality and the sequential nature of the different elements of the Schemes. It suffices

to note that the amendment to the voting rights does not take effect immediately, as ARCM

appeared to contend. These provisions (including the change in clause 23 to the voting

rights) will take effect, only if the series of transactions (the equity raise, the Acquisitions

and the additional financing from RBL) complete. More specifically, it is only upon delivery

of the A&E effective notice to the lenders (which brings the extension of the Scheme Debt

Maturity into effect), that the proposed changes to the Override Agreement take effect,

Considering the Schemes as a whole (and assuming their different elements take effect),

there is “give and take” and of which the amendments to the voting rights form part. In any

event, even if the voting rights were amended upon sanction of the Schemes (rather than

consequent of satisfaction of certain elements of it) and fall to be considered in isolation, the

Scheme Creditors’ voting rights in the 2017 Override Agreement are not taken away without

replacement; they are replaced with a different set of voting provisions. Something is given

back, even if it is different in form. Whether the first respondent is content with that is not a

[119] That suffices to resolve ARCM’s jurisdictional challenge predicated on the treatment

of their voting rights. In my view, there is no “take” without “give”; and there is no

difference between ARCM and the other Private Creditors in respect of what is “taken” from

them. There is no wholescale removal of voting rights. There is a variation of these rights,

but, as a matter of legal right, that is applied equally to each of the Private Creditor Groups.

[120] To the extent that ARCM’s challenge that there is no “give and take” may be

predicated on other features of the Schemes, it was not clear if other elements of the Schemes

are subject to ARCM’s anterior jurisdictional challenges. However, I accept the petitioners’

submission that in assessing whether there is the requisite “give and take” it is necessary to

consider the proposed scheme as a whole. For that purpose, it should be noted that apart

from the benefits it is hoped that the Acquisitions will bring in their train, the Scheme

creditors will also receive the enhanced interest or coupon rates. The financial elements of

the Schemes are set out in the Explanatory Statement (at paragraph 5.19 (see p 583)). I will

address the arguments focused on the interest rates for the Scheme Creditors below, but in

this context, it suffices to note that Mr Rose confirms (in Rose 1 at para 182) that all creditors

[121] Accordingly, considering the Schemes as a whole, in my view there is the requisite

give and take. That element of “give” is sufficient to dispose of this argument, as it is not a

requirement of an arrangement that each individual right of a creditor that is altered or

restricted by the arrangement must be counterbalanced by an exactly matching benefit.

[122] I turn now to consider ARCM’s remaining challenges using the four stages of the

Buckley test as a framework to do so (see para [42], above). At stage 1 of Buckley, the Court

considers whether the procedures in the statute have been complied with; whether the

statutory majorities were obtained; and whether an adequate explanatory statement was

provided to the creditors. The challenges falling within stage 1 are ARCM’s challenges to

ARCM’s challenges falling within stage 1 of Buckley: (1) Was the Explanatory Statement

The directors’ duties and the standard required of an explanatory statement

[123] The statutory requirement in section 897(2) of the 2006 Act is that the explanatory

statement “must... explain the effect of the …arrangement”. This is described in the case law

as the Court requiring to be satisfied “as to the adequacy and accuracy” of the explanatory

statement” (per Lehman Brothers [2018] EWHC 1980 Ch (at para 67)). While the parties refer

to different dicta, the directors’ duty in respect of an explanatory statement is to place before

the members or (as here) the creditors “sufficient information for them to make a reasonable

judgment” on whether the proposed scheme is in their commercial interests (per Snowden J

in Re Indah Kiat [2016] EWHC 246 (Ch) (at para 41); which is based on the observations of

Sir David Nicholls VC in Re Heron International NV [1994] 1 BCLC 667 at 672 to 673) ARCM’s

position is that it’s disputes are not complaints about commercial judgment, but that it

disputes that the Explanatory Statement gave the creditors sufficient information to make a

reasonable judgement (see para 105 of the First Respondent’s Submissions).

[124] In addition to the Explanatory Statement’s lack of clarity on class comparator or the

extent of fees being paid, ARCM submit that the Explanatory Statement is deficient in the

1) it fails properly to explain the risks inherent in the proposed Acquisitions

(including “insufficient disclosure” of increased decommissioning liabilities)

and there is a failure to consider the likelihood of early cessation of

2) there is “inappropriate” reliance on oil and gas price forecasts;

3) it is misleading in respect of the pre-tax cash flows that can be expected

(reference is made to “more realistic” assumptions used by Dr Okongwu) and

There was a separate criticism, not related to the merits of the Schemes, that ARCM’s

position had been mischaracterised. Reference is made to the ARCM Materials to support

different assumptions or alternative forecasts and which are essentially said to be more

realistic (eg references to the Fuller and Okongwu Reports for oil and gas forecasts and

prices, for the effect of reliance on the UK gas market and for decommissioning liabilities;

and the early cessation of production from the Acquisitions). The thrust of these criticisms is

to attack the Schemes’ reliance on the Acquisitions to refinance the Scheme Debt facilities

and in respect of which, it is said, the Explanatory Statement so fundamentally understated

the “significant risks” such that the creditors could not have given their informed consent to

[125] The petitioners point out to the numerous caveats, warnings and identification of

risk factors contained in the Explanatory Statement. These included: the caveat in respect of

the uncertainty of forecasts relating inter alia to interest rates, oil and gas prices, foreign

currency fluctuations and business trends (at pages 20 to 21); the large number of risk factors

relevant to the Schemes, and especially the Acquisitions (eg at page 98, “However, these

expected financial benefits [ie from the Acquisitions] may not arise and the other

assumptions upon which [PO] determined the considerations may prove to be incorrect”);

the recognition of the uncertainty in estimating the reserves, production and

decommissioning liabilities inter alia of the Acquisitions (at pages 103 to 105); and the risks

arising from the volatility of energy prices in the market (at page 108).

[126] The petitioners also note that the criticisms ARCM made of the Acquisitions in the

latter part of 2019 were fully narrated and responded to in the Explanatory Statement (see eg

at paras 7.3 and 7.4). They also challenge much of the ARCM Materials: eg, they challenge

Mr Fuller’s ability to comment in any meaningful way on the Explanatory Statement (see the

comments in their Note on Class)) or on his view that his set of forward curve pricing

assumptions are “correct”; they challenge the relevance of Dr Okongwu’s assessment of the

commercial benefits and disadvantages of the Schemes. Rose 2 contains a more sustained

[127] The petitioners also make the point that the Group has operated in the energy sector

since 1934; it has conducted other acquisitions and is familiar with the obligations of due

diligence. In relation to the Acquisitions, which ARCM oppose, the Group has a track

record of operating assets close to the end of their productivity and in deferring their

cessation and maximising their productivity (Rose 2 at para 59(A)). The Group also has

“extensive experience” in preparing decommissioning forecasts. It was noted that Mr Rose

made the further point (at Rose 2, para 60) that the decommissioning liabilities have been

fully discounted from the purchase price and that, given the Group’s experience in

extending the life and recovery from aging North Sea assets, it sees this as an opportunity.

[128] In relation to criticisms of the corporate model, the petitioners note that the Group

prepared the 2017 Explanatory Statement using the same corporate model and which was

not subject to the objections as are now made. The Group had made its corporate model

available to all private creditors. Mr Rose’s response (in Rose 2) to Mr Prest’s criticism that

the PWC Report was lacking in independence is that PWC nonetheless reviewed the

Group’s RBL assumptions, and they confirmed that these were all within a reasonable range

(see PWC Report at p 59). Furthermore, PWC were supported in this view by other expert

analysts, namely Rothschild and DNB. PWC did not consider the assumptions in respect of

the Acquisitions, including the reserve assumptions and decommissioning liabilities, as

these are outwith PWC’s expertise. These were verified by the Group. In relation to

Mr Ercil’s complaint about mischaracterisation, Mr Rose doubts whether the matters

Mr Ercil identifies had any impact on the decision of the Scheme Creditors to vote for the

Scheme. He notes that ARCM set up its own website setting out its own position and posing

certain questions for the Group, though none of these was posed at the Scheme meetings.

No other Scheme Creditor has made any complaint about the inadequacy of the Explanatory

[129] Finally, in relation to the Explanatory Statement, the Supporting Creditors point out

that the Scheme Creditors were a large, multi-party group comprised mainly of

sophisticated financial institutions and investors. The Supporting Creditors submit that the

large majorities voting in favour of the Schemes belie the suggestion that the Explanatory

Statement was inadequate or that the Scheme Creditors had any doubts as to the sufficiency

of the information it provided. They make the further point, more appropriately for them

than the petitioners, that notwithstanding the volume of the ARCM Reports, the Supporting

Creditors continue to support the Schemes. Accordingly, the court could be satisfied that

any alleged deficiencies in the Explanatory Statement would not have made any difference

Consideration of whether the Explanatory Statement was of the requisite standard

[130] In considering the criticisms of the Explanatory Statement it must be borne in mind

that the purpose of the Explanatory Statement is to present the Group directors’

presentation of the benefits, disadvantages and purposes of the scheme proposed as they see

it. Here, the Schemes are complex arrangements. The Explanatory Statement is extremely

detailed. It totals 583 pages (of which 450 are the appendices). Notwithstanding its length,

its presentation of the Schemes is clear and intelligible and the format of the Explanatory

Statement (including its provision of defined terms, contents and its division into discrete

headed sections) is accessible, well-ordered and readily navigable. The amount of

information provided is commensurate with the complexity of the Schemes. It is recognised

that in a case of great complexity not every relevant fact can be stated (per Maugham J in Re

Dorman Long and Co Ltd [1934] Ch 635 at 665 to 666; see also the comments of Neuberger J (as

he then was) in Re RAC Motoring Services Limited [2000] 1 BCLC 307 at 328). The nature of

ARCM’s criticisms is not so much that there are omissions, but that ARCM fundamentally

disagree with the Group directors’ views of the business case for, and benefits of, the

Acquisitions. The ARCM Materials are directed at supporting those criticisms and, to a

large extent, repeat (in this context) the criticisms of the Schemes they have advanced under

[131] In reflecting on the proper approach to these criticisms, I note that the Courts have

long recognised that there is ready scope for arguments that the directors should have

expressed themselves more fully or differently in their explanatory statements. It is in

relation to those sorts of criticisms that Clauson J (sitting in the Court of Appeal) stated in Re

Imperial Chemical Industries Ltd (“Imperial”) (at p 617) that:

“Where the matter is one of difficulty, the Court will always scrutinize such a

circular very carefully; but where, as in this case, there is no suggestion that the

directors were doing otherwise than honestly putting forward to the best of their

skill and ability a fair picture of the company’s position, the question is not whether

the circular might not have been differently framed, but whether there is any

reasonable ground for supposing that such imperfections as may be found in the

circular have had, with or without other circumstances, the result that the majority

(who have approved the proposal placed before them) have done so under some

In relation to the directors’ honesty, Mr Rose confirmed that the Explanatory Statement

contained the directors’ good faith assessment based on the information available at the

[132] The issue here is whether the Explanatory Statement had sufficient information for

the Scheme Creditors to make a reasonable judgment on whether the proposed Schemes are

in their commercial interests. Having regard to ARCM’s criticism, the question might be

posed (paraphrasing Clauson J) thus: have the majority of the Scheme Creditors (who have

approved the Schemes in their respective Scheme Meetings) done so under some serious

[133] The criticisms ARCM make amount to no more than that different experts may come

to different views about matters which are essentially questions of commercial judgement.

It is not said that the Explanatory Statement omits some critical data. The disputed issues

essentially concern predictions, forecasts and assumptions. They do not relate to known fact

circumstance that can be said objectively to be “correct” or which are susceptible to proof of

that fact. There would therefore be little utility in a proof, as ARCM seeks, as its result

would be the Court’s views on which set of predictions, assumptions or forecasts is more

likely. That exercise would be of doubtful utility to the Scheme Creditors, for whose benefit

[134] I have considered the ARCM Reports and the Explanatory Statement. On analysis

ARCM’s criticisms of the Explanatory Statement simply reflect differences of commercial

judgement. Given the size and complexity of the Proposed Transaction and the sector and

market in which it operates, the Group is not surprising that different experts, making

difference judgements about assumptions and forecasts come to different views. The

differences are no more than differences of commercial judgement. There is nothing in the

ARCM Reports that would suggest that the Explanatory Statement was not soundly based

or that the conclusions and views expressed in it are outwith the range of views which

directors of the Group could reasonably form. In this context, it does not suffice to show (as

the ARCM Reports do) that others might have come to different judgements on such

matters. Accordingly, I am not persuaded that the Explanatory Statement suffered from any

deficiency such that it precluded the Scheme Creditors from forming a reasonable judgment

on the Schemes. It is in my view not insignificant, though not determinative, that no other

creditors have made any criticism of the Explanatory Statement. The Scheme Creditors have

exercised their own commercial judgment on the Schemes proffered by the Group’s

directors in good faith. There is no deficiency in the Explanatory Statement as ARCM

suggest which vitiates that judgment. This ground of challenge fails

[135] I turn to consider ARCM’s other jurisdictional challenges falling within stage 1 of the

ARCM’s challenge falling within stage 1 of Buckley: (2) class composition and the

[136] ARCM’s fundamental challenge was to the petitioners’ use of a solvent comparator.

While the comparator is critical to class composition, ARCM other challenges were said to

fracture class and undermine the petitioners’ use of just two classes. In the main, the focus

of these other challenges was to contend that the petitioners had erred in placing all other

creditors (apart from the Super Senior Creditors) into a single class. In particular, the first of

these was the increase and broad harmonisation of interest rates but, it was said, which

produced too wide a variance of the degree of uplift, and was such as to fracture class. In

respect of the comparator, there were several strands to this challenge: what was the

Group’s position as to its financial prospects (it being said that different statements were too

inconsistent)?; what was the meaning of insolvency in this context? And, as an ancillary

issue to that, did ARCM apply too narrow a reading of statutory cash flow insolvency.

Finally, there was a further, free-standing challenge, that the Retail Bondholders should

The objective underpinning the correct composition of creditor classes

[137] The purpose of class meetings is to place the proposed scheme before a company’s

creditors so they may express their collective view on its merits. This is necessary because it

is inherent in the Part 26 jurisdiction that their legal rights may be affected and altered by

the scheme. It is important to note, however, that it is the collective views of the creditors

which is sought; hence the need to identify the appropriate classes of creditors and for each

of the appropriately constituted classes to meet together. While the risk of oppression by the

majority is one of the obvious risks the court must guard against when considering schemes

under Part 26, it has also been recognised that by ordering a multiplicity of separate

meetings the court might give a veto to a minority. For that reason, the courts have sought

to ensure that the test for class composition “should not be applied in such a way that it

becomes an instrument of oppression by a minority” (per Chadwick LJ in Hawk at para 33).

Chadwick LJ’s observations were echoed by Lord Millet in UDL where he stated (at pp 183-

“the risk of empowering the majority to oppress the minority ... is not the only

danger. It must be balanced against the opposite risk of enabling a small minority to

thwart the wishes of the majority. Fragmenting creditors into different classes gives

each class the power to veto the scheme and would deprive a beneficent procedure

To like effect are the comments of Neuberger J (as he then was) in Re Anglo American

Insurance Co Ltd [2001] 1 BCLC 755 at 764, that the Court must guard against being “too

picky about different classes” and ending up “with virtually as many classes as there are

members of a particular group”. (See also Warren J in Hibu (at para 50, citing Hawk),

Hildyard J in Re Noble Group Ltd [2019] 2 BCLC 548 (at paras 86 to 88) and in Re Lehman

Is insolvency a prerequisite of the Court’s jurisdiction under Part 26?

[138] At the Sanctions Hearing the first respondent did not contend that impending

insolvency was a prerequisite of the Court’s jurisdiction under Part 26, notwithstanding

shades of such an argument in earlier iterations of their position. (It was a significant plank

of the first respondent’s submission at the hearing on its interim interdict action that

companies which were not at risk of imminent insolvency cannot undertake schemes of

arrangement which trespass on contractual rights.) In any event, as the observations of the

Inner House in Scottish Lion 2010 make clear, imminent insolvency is not a prerequisite to

the promotion of a scheme under Part 26. As the Inner House in Scottish Lion 2010 makes

clear, an arrangement is appropriately directed at a “problem”; that problem need not be

[139] In respect of the Group, the “problem” is the debt wall; the totality of the Scheme

Debt Facilities fall due on the same date (ie the Scheme Maturity Date) in about 14 months’

time. This, at least, did not appear to be controversial between the parties. For its part, the

first respondent acknowledges that “[a] solution would need to be found ahead of the debt

maturity date...A solvent refinancing solution is the most likely outcome” (see

Answer 53.10.1). The drawn commitments of the Scheme Debt Liabilities stand at

US $2.6 billion. The petitioners do not exaggerate when they described (at para 75(a) in their

Note on Class) any refinancing of that as a “massive undertaking”. Furthermore, the first

respondent’s expert, Mr Boyle, accepts that the Group will be unable to repay the Scheme

Debt Facilities on maturity. He also accepts that (1) a full refinancing would not be possible

before then, and (2) that it would therefore be necessary for there to be an alternative

transaction, most likely involving the amendment and extension of the Scheme Debt

Facilities. This is reflected in the first respondents’ Answers, where it avers, at

“There is a period of at least 14 months, prior to the debt maturity date, in which options

can be explored. There are credible alternatives to the Scheme. Solvent options include: a

voluntary or involuntary amend and extend of the debt (‘A&E’). An A&E is likely

to be at the core of any solution. The A&E could potentially include a partial

refinancing, sale of assets, an equity raise, or a debt for equity swap.” (emphasis

It is therefore undisputed that an extension of the Scheme Maturity Date is required or, as

the Supporting Creditors’ Senior Counsel, Mr Boreland put it, it appears to be common

ground that (absent the Schemes), the Scheme Companies will more likely than not, be

unable to refinance the Scheme Debt Facilities by the existing maturity in May 2021. It is

also common ground that, absent the Schemes or some form of A&E, the Group will not be

able to repay the Scheme Debt Facilities in full when they fall due on the Scheme Maturity

[140] The fact that the first respondent and ARCM disagree with what the Group

proposed as the means to address the debt wall reflects a difference of commercial

judgement. However, disputes as to the merits of one set of commercial arrangements over

another, or whether there are better alternatives, are not properly within the scope of a

The counterfactual: ascertainment of the likely factual position in the absence of the Schemes

[141] The starting point is that the ascertainment of the correct composition of the creditor

classes involves a determination of what the likely factual position would be in the absence

of the scheme proposed (ie the comparator), and to assess the creditors’ rights against that

[142] One of the critical differences between the first respondent and the other parties was

whether the petitioners had been correct to use an insolvent counterfactual as the

[143] The petitioners’ position is that the Group will be unable (or, at least, will very likely

be unable) to repay the Scheme Debt Facilities in full, or fully to refinance the Scheme Debt

Facilities, by the Scheme Maturity Date, and that that supports the use of insolvency as the

relevant comparator. On this basis, the Group determined that two creditor classes sufficed

(the secured creditors and the unsecured creditors). ARCM dispute this.

[144] The arguments ancillary to the issue of the comparator took many forms: What was

the correct understanding of what the Group had said on this issue? Had the Group’s

public pronouncements changed? Did this require a proof to test the credibility and

reliability of the author of these statements, Mr Rose? What is the import of the ARCM

Materials? What weight, if any, should the Court give to the views of the directors on the

[145] The Explanatory Statement sets out the directors’ views which are that there is “a

very substantial risk” that the Scheme Debt Facilities will not be capable of being refinanced

through new debt facilities, either by the end of June 2020 or by the Scheme Maturity Date in

May 2021 and, in the absence of such refinancing, the Group “would be unable to repay

their liabilities under the Scheme Debt Facilities at maturity” (emphasis added) (see Part A,

para 4.4). If ARCM misconstrued this to mean that it is more likely than not that the Group

would be able to refinance the Scheme Debt Facilities (absent the Schemes) (which was their

positon in their Supplementary Note on Class), by the time of the Sanctions Hearing they

can have been in no doubt that this was a misreading of the Explanatory Statement. In their

Note on Class (at para 72), the petitioners reiterated the directors’ view “that a failure to

refinance is more likely than not absent the Schemes” (emphasis added). Accordingly, this

was the directors’ view which informed the petitioners’ approach to the composition of the

[146] In relation to the first respondent’s charge that there is an inconsistency between that

statement and others by Mr Rose (including the March Release), in my view, there is nothing

in this criticism. (These are set out above.) The Explanatory Statement is the core document

setting out the considered views of the directors for the purposes of invoking the Court’s

Part 26 jurisdiction. The statements in the Rose affidavits, fairly read, are not inconsistent

with this; they are commentary on the Group’s position and its response to the positions

advanced by ARCM and the first respondent from time to time. The March Release

prompted a further round of affidavits (Prest 2 and Rose 3). It is important to understand

the purpose of the March Release. It is the public statement commenting on the Group’s

annual accounts on their release. The accounts, and therefore the comments thereon, are

retrospective; by contrast, the consideration of a comparator is necessarily prospective, as it is a

consideration of the counterfactual in the future if the Schemes are not approved. I reject the

first respondent’s contention that a proof is necessary to test the credibility and reliability of

Mr Rose on these matters. The more fundamental point, however, is that a dispute about

what precisely Mr Rose said on several occasions in different contexts is apt to obscure (and,

indeed, are irrelevant to) the core issue, which is: what is the likely position in the absence of

[147] What, then, is the likely factual position absent the Schemes? While there was a

degree of common ground as regards the Group’s likely inability to repay or refinance the

Scheme Debt Facilities by the Scheme Maturity Date, there was a sharp divide as to whether

that instructed an insolvent comparator. There is no doubt that, by reason of the magnitude

of the debt wall and the approach of the Scheme Maturity Date, the Group will not be able to

continue in business as a going concern for the foreseeable future. Rather, within a time

horizon of 14 or months, it is patently the case that (absent an A&E) the Group will be

unable to repay the Scheme Debt Facilities in full. The petitioners characterise this as being

“more likely than not” that the Group will enter some form of insolvency proceedings in or

prior to May 2021. Leaving aside the sparring as to precise formulation of the probability of

insolvency (and whether Mr Rose’s several utterances were entirely consistent with one

[148] To put it another way, there is nothing in the materials produced by ARCM that

provides a cogent basis to challenge, much less to displace, the directors’ view of the

[149] I have set out the parties’ respective positions in detail, above (see paras [69] to [75]).

The first respondent contends that, in this context, the statutory definitions of insolvency in

section 123 IA 1986 (ie a cash flow or balance sheet basis), apply, and necessarily so, to the

exclusion of a broader understanding of insolvency. In essence, ARCM’s position is that in

the absence of imminent insolvency (because the statutory tests for insolvency in section 123

of IA 1986 are not met), a solvent comparator must be used (see, eg ARCM’s First Note on

Class, at paras 29-31). The petitioners contend for consideration of a broader range of

circumstances in the determination of whether an insolvent comparator is appropriate.

[150] I do not accept the first respondent’s submissions on this point. The formalism

inherent in the first respondent’s position finds no support in the statute or the caselaw.

More fundamentally, and in my view fatally for their position, is the first respondent’s

failure to engage with the problem that the debt wall poses. It is artificial to a very high

degree to acknowledge, on the one hand, that the problem of the debt wall looms on the

horizon, but to maintain, on the other, that that immutable fact is nonetheless left wholly out

of account because that circumstance does not fall within the technical definitions of

[151] On this point, I prefer the submissions of the petitioners and the Supporting

Creditors. The fact that the Group may not satisfy the definitions of cashflow or balance

sheet insolvency for the purposes of section 123 of IA 1986 does not preclude the Group’s

use of insolvency as the comparator in identifying the correct class composition. By

contrast, I find the petitioners’ rationale for an insolvent comparator more persuasive: there

is a likelihood or risk of an inability on the part of the Group to repay the Scheme Debt

Facilities in full when they fall due, even if the Group does not as yet satisfy the test for

cashflow insolvency (ie an inability to repay its debts as they fall due), because the Scheme

Debt Facilities are a few months short of being classified as “current” liabilities.

[152] The petitioners also presented a fall-back argument (based on Eurosail) in response to

ARCM’s contention that in order to justify an insolvent comparator it is necessary for one or

other of the statutory definitions of insolvency in section 123 of AI 1986 to be met. In short,

this was that on the basis of Eurosail (see Lord Walker at para 37), the cashflow test was not

confined to presently-due debt, but it applied to “debts falling due from time to time in the

reasonably near future”. Lord Walker continued: “What is the reasonably near future …

will depend on all of the circumstances…”. In this case, there is the debt wall: the very

magnitude of the amount due, coupled with the fact that it all falls due on the same date,

cannot be ignored (as the first respondent’s approach does). In the “reasonably near future”,

as Lord Walker phrases it, the totality of the Scheme Debt Facilities will fall due. Even the

first respondent’s experts, especially Mr Boyle, acknowledge that the Group will be unable

to pay this unless something is done (Mr Boyle figures an A&E coupled with other steps).

[153] For these reasons, I reject ARCM’s challenges to the petitioners’ use of an insolvent

Economic differential affecting class: Do interest rates or the Upfront Fee fracture class?

[154] I turn to consider the other matters that were said to fracture the class.

[155] ARCM identified an economic differential which they argued affected class

composition. The overarching submission was that these created special interests and

[156] There are 15 different interest rates payable in respect of the various debt

instruments held by the Scheme Creditors (see para 19 of the petitioners’ Note on Class).

They range from 4.6% + LIBOR (for Facility A of the Term Loan Facility) to 9.63% (for

[157] If sanctioned, the Schemes will result in a uniform coupon or interest rate of 8.85%

on all cash facilities held by the Senior Creditors (including LIBOR to the extent that it is

payable under the relevant facility). Harmonisation will result in an increase for most

Scheme Creditors, albeit the amount of the difference will depend on the level of the existing

interest rate from which it is increased, and a decrease for some of the USPP Notes creditors.

The weighted average increase was calculated at 1.62%. A further feature of the Schemes is

the payment of a fee (“the Upfront Fee”) to those creditors who will either receive less than

the weighted average increase or who will receive a lower interest rate than they currently

[158] There are two exceptions to this harmonisation of the rate, which the petitioners

1) Letter of credit facilities: the letter of credit facilities (which all at present have

an interest rate of 5%) will be increased to 6.94% (rather than to 8.85%). The

rationale for this is that 6.94% is also the new margin that will be paid in

respect of cash facilities within the Senior RFCs. However, LIBOR is also

payable under the equivalent cash facilities. In that case, the all-in rate (of

LIBOR plus the new margin of 6.94%) is 8.85%. This reflects the fact that

LIBOR is a cost incurred in the provision of a cash facility but which doesn’t

arise under a letter of credit (and in which the lender assumes a contingent

liability, rather than provides a cash advance). If there is a call by the

beneficiary under a letter of credit (meaning that an actual cash advance will

be required), then the interest rate payable to that lender will increase to the

2) The Upfront Fee: An Upfront Free will be payable to those cash creditors who

will receive less than the weighted average increase of 1.62%, or who will

receive a lower rate of interest than they currently receive. The two elements

of the Upfront Fee are (i) an amount to compensate the recipient for the

interest it would have received up to the existing Scheme Maturity Date if the

margin had been increased by the 1.62% average weighted uplift, and (ii) for

those creditors whose interest rate was reduced below their current rate, an

amount to compensate for lost interest until the revised maturity date of

20 November 2023. This equates to the interest the creditor would have

received up to that date if the interest rate had not been reduced.

[159] The petitioners’ submission is that none of this fractures class or makes it impossible

for lenders under the letter of credit facilities to consult together with the lenders under the

cash facilities. In overall effect, the Senior Creditors will receive the same deal. They also

note that lenders under both types of facilities voted overwhelmingly in favour of the

Schemes. ARCM’s submission, even if correct on this point, would not have led to any

[160] ARCM identifies two ways in which the change of interest rates is said to fracture the

Scheme Creditors. First, ARCM focus on the differential increase for those creditors

receiving a higher rate. So, for example, the US 50$m Converted Loan creditors (at present

in receipt of 8.76%) will see a proportionate rise of c 1% (ie the difference between 8.76% and

8.85%). By contrast, ARCM calculate that the £100m Term Loan creditors (at present in

receipt of 5.47%) will see a proportionate rise of 62% (the figures are taken from para 80 of

the first respondent’s Submissions). ARCM describe these differentials as “extreme and are

such to preclude any true community of interest amongst these creditors. Secondly, the

same is said of those creditors taking a modest cut in their coupon (being some of the USPP

Notes creditors), who are said to have no community of interest with the creditors receiving

increases. To the extent that the Upfront Fee seeks to address this, ARCM argue that it fails

to do so as it simply cements the differences and that those not in receipt of an Upfront Fee

cannot consult with those who are. There is a subsidiary criticism of Appendix 9 (“Fee

Comparison Table”) of the Explanatory Statement which is said to be misleading in a variety

of ways and which is said to mask the degree of variance in the uplift of interest rates (as set

out in detail at paras 86 to 87 in the first respondent’s Submissions). This is responded to in

Rose 1 (see paras 181 to 182), where an internal rate of return (“IRR”) is said to produce a

much lesser variance than ARCM’s figures, and which brought out a range of uplift of

[161] The petitioners and Supporting Creditors reject those criticisms. The first point

made is that, given the (insolvent) comparator, there is no basis to suggest that a right to

receive a slightly different rate over a short period of time renders it impossible for the

Senior Creditors to consult together with a view to their common interest when voting on

the Schemes. This is because the difference is insignificant when compared with the key

rights the Senior Creditors enjoy and considered in the context of the comparator, namely,

the amount of principal debt at risk, the pari passu ranking in an insolvency and the common

security package. It was also noted that the intention is to harmonise the new coupon rate at

8.85% for all Senior Creditors. That indicates a clear community of interest between the

relevant Scheme Creditors. Further, rather than further fracturing class, as ARCM suggest,

it is submitted that the effect of the Upfront Fee to any cash Scheme Creditors who will

receive less than the weighted average of 1.62% is to ensure that no Scheme Creditor will

receive a lower return because of the harmonisation of the coupon rate. Accordingly, all

Scheme Creditors will receive a higher return than they would in the absence of the

Schemes. Reference was also made to re McCarthy & Stone plc [2009] EWHC 712 (Ch) at

para 7 and Re Primacom Holdings GmbH [2013] BCC 201 at paragraphs 52 to 53, as examples

where the court rejected similar arguments that different interest rates fractured class.

Indeed, the petitioners observe that in no case has it been held that a difference in interest

[162] On these issues, I prefer the submissions of the petitioners’ and Supporting Creditors

[163] In respect of the differential effect of the Schemes on interest rates, ARCM’s analysis

is partial. ARCM’s analysis focuses only on the interest rate change, whereas the analysis in

the Explanatory Statement looks at the total return the creditors stand to receive (ie

including the Upfront Fee and the interest rate harmonisation). On that analysis, contained

in Appendix 9 to the Explanatory Statement (at p 583), all creditors will receive an increased

return of at least 10%; the average increase is 13% and the highest increase is 19%. I need not

record or resolve the minutiae of the parties’ disputes on the precise figures or how they

were calculated (eg regarding the baseline which formed the calculation of the increase in

the creditor’s return (see ARCM’s Note on Class at para 52ff and the petitioners’ Note on

Class at para 168)). Differences are permissible in the level of benefits a scheme may confer.

The assessment the Court is making is whether those differences (together with other legal

rights) unite or divide the creditors as a class. In considering the common interest of the

Senior Creditors, the fact that they all will benefit is, in my view, a unifying factor and is

likely to outweigh the differential in that uplift. In relation to the Upfront Fee, I accept the

petitioners’ submissions that this is a comparatively minor feature of the Schemes. The

significant point in respect of interest rates (coupled with the equalising effect of the Upfront

fees (where payable)) is that the Schemes will harmonise these. If the Schemes are

sanctioned, the Senior Scheme Creditors will all benefit. No Scheme Creditor will receive a

lower return; all will receive a higher return than they would have received in the absence of

the Schemes, albeit to varying degrees. Their interests are converging, especially given the

existing commonality of the significant economic rights these creditors already share (as

noted above). The different interest rates and the differential in the degree to which the

Scheme Creditors will benefit does not, in my view, render it impossible for them to have

[164] The petitioners grouped the Retail Bondholders in the same class with the Senior

Creditors, on the rationale that they were all unsecured creditors. ARCM contend that the

Retail Bondholders should have constituted a separate class. There is considerable force in

the petitioners’ observations that this is another example of a ground of criticism that is

advanced by ARCM or the first respondent and in which they have no relevant interest.

This is because the ARCM vote against the Schemes falling into this debt instrument is

stated in the petitioners Note on Class (at para 27) as 1%; whereas 97% of the Retail

Bondholders voted in favour. In other words, the argument has no practical relevance and

would not have affected the outcome of a meeting comprised (on this hypothesis) of just the

Retail Bondholders. Putting it another way, even in the absence of the Retail Bondholders

(who, on the hypothesis were voting in their own separate class), the Senior Creditor Class

would also have approved the Schemes by a very large majority without the Retail

[165] Analysed in light of the petitioners’ comparator (which I have accepted), there are no

material differences between the legal rights of the Retail Bondholders and the Private

Creditors. Any differences arising between the Senior Creditors and the Retail Bondholders,

eg arising from the fact that the latter are not party to the Override Agreement, are largely

irrelevant. In the no Schemes scenario, all amounts owing to the Private Creditors and the

Retail Bondholders would become immediately due and payable, and creditors would have

a right to lodge a proof of debt for the entire amount owing to them. The fact that the Retail

Bondholders are not parties to the 2017 Override Agreement does not make it impossible for

them to consult together with the other Senior Creditors with a view to their common

interest. I accept the petitioners’ submission that this is also reflected by the fact that both

[166] As I recorded above (from para [58]ff), the proper approach to the question of class

composition was a matter of dispute between the parties. While on the case law this

involves a consideration of two sets of rights (the creditors’ existing rights against the

company which are to be released or varied and any new rights which the scheme gives to

those creditors (see para [62])), the petitioners focused on the first stage (to the effect that if

there were no material differences the creditors will form a single class) whereas the first

respondent focused on the second stage (which presupposed that there were material

differences and the relevance of which the court needed to assess). The first respondent

emphasised the observation of the test to be applied at this stage, namely, that a class “must

be confined to those persons whose rights are not so dissimilar as to make it impossible for

them to consult together with a view to their common interest” (per Hildyard J in Apcoa,

paraphrasing Sovereign Life at p 583 and Hawk). In considering class composition, I begin

[167] The assessment of class begins with a consideration of the Scheme Creditors’ existing

rights against the Group, which are to be waived or released under the Schemes. In relation

to their existing rights, the principal difference between the Super Senior Creditors and the

other creditors is that the former will rank ahead of the latter. It is that feature that justifies

treating the Super Senior Creditors as a distinct class, and for which the caselaw provides

support. (I did not understand ARCM or the first respondent to demur from the proposition

that the Super Senior Creditors properly form a separate class.) What of the other rights of

those whom the petitioners placed in the second class, the Senior Creditors? The interest

rate or coupon payable to the Group’s creditors also varies according to debt instrument.

The interest rates are detailed in the table at paragraph 19 of the petitioners’ Note on Class

and comprise a mix of fixed rates (of between 5% and 9.63%) and variable (ie varying

between 4.6% and 6.85% above LIBOR). I have already considered whether the different

interest rates would fracture class. Of course, the amounts the Senior Creditors are owed

and the currency in which that indebtedness is expressed are obviously different. Otherwise,

the rights of the Senior Creditors under the 2017 Refinancing are essentially the same:

2) They rank pari passu and without any preference amongst themselves;

3) They have the same maturity date (ie the Scheme Maturity Date); and

4) They share a common set of undertakings, covenants, voting rights and

events of default under the 2017 Override Agreement (other than the Retail

It is patent, in my view, that the key economic rights of the Senior Creditors are similar in

their essentials. In its Submissions, the first respondent referred to an observation of

Hildyard J in Re Lehman Brothers International (Europe) (In Administration) [2018] EWHC 1980

(Ch) at paragraph 106 (citing Re English, Scottish and Australian Charterer Bank [1893] 3 Ch 385

at p 415 and APCOA at para 117), that an insolvent comparator should not be used “as a

solvent for all class differences”. However, one of the striking features in these applications

is the significant commonality of the essential economic and legal rights of the Group’s

creditors. This convergence is in large measure a consequence of the fact that Private

Creditors (ie all but the Retail Bondholders) became party to and are bound by the 2017

Override Agreement. In addition, there is the harmonised Scheme Maturity Date. If the

caveat is that insolvency should not be used to dissolve differences, in this case there are few

significant differences or rights amongst the Senior Creditors on which that solvent could

work. Testing this against the counterfactual (ie in the absence of the Schemes), they will all

be affected by the inability of the Group to refinance the Scheme Debt Facilities in full by the

Scheme Maturity date. Because of the shared maturity date and the pro rata ranking, any

deficiency will bear upon them in the same way. The Senior Creditors (being the unsecured

Private Creditors and the Retail Bondholders) will be, as the petitioners put it, “in the same

Consideration of the rights of the Scheme Creditors under the Schemes

[168] The Schemes preserve the prior ranking of the Super Senior Creditors. In their Note

on Class the petitioners state that the Super Senior Creditors will “almost certainly be repaid

in full” but that the same is not necessarily true for the Senior Creditors.

[169] In relation to the Senior Creditors, they are treated in materially the same way under

the Schemes. The Schemes will uniformly extend the maturity date of the Scheme Debt

Liabilities to the same date of 30 November 2023. This same extension will also apply to the

Super Senior Creditors. Furthermore, they will be waiving the same event(s) of default

which may arise from the Acquisitions. To the extent that the Acquisitions contribute to an

improved liquidity from RBL facilities, the Senior Creditors will all share in like fashion

from these benefits. They also share exposure to the risks of the Acquisitions in the same

way. In respect of these matters, the extension of the Scheme Maturity Date and the impacts

of the Acquisitions, the Scheme Creditors (including the Super Senior Creditors) are all

[170] I return to the question: Can the Senior Creditors consult together as a class? While

the parties differ as to whether the initial focus is on similarity rather than dissimilarity, I am

not persuaded that that difference in approach would alter the outcome in these petitions.

Even if there are “material differences” (and the second stage is reached only if there are

“material differences”), the issue is whether those material differences make it “impossible

for them to consult together with a view to their common interest”. ARCM identify a

number factors which they say fracture class or, in this context, constitute “material

differences”. I have addressed each of those above. Even considering these factors

cumulatively, having regard to the Scheme Creditors’ rights, I am not persuaded that the

factors ARCM invoke make it “impossible” for the Senior Creditors or the Super Senior

Creditors to consult together in their respective classes with a view to their common interest.

The differences of the quantum of indebtedness owed to different creditors (or the currencies

in which that is expressed) are permissible differences. In respect of the different interest

rates payable (and which was not regarded as fracturing class for the purposes of the 2017

Schemes), the Schemes will harmonise interest rates to a very significant degree.

Accordingly, apart from the distinction between those creditors who are secured (ie the

Super Senior Creditors) and the remaining Scheme Creditors (ie the Private Creditors and

the Retail Bondholders), there is a commonality of rights to a very significant degree.

Subject to consideration of ARCM’s submission about interests derived from rights, I find

that ARCM’s challenge on the basis that the petitioners had not convened correctly

[171] In support of their position, the petitioners refer to Re Hibu Group Ltd [2016] EWHC

1921 (Ch). In that case, two linked schemes of arrangement were proposed, one of which

was a members’ scheme relating to a company called Topco. Under Topco’s articles of

association, members holding 5% of Topco’s shares could requisition a meeting to remove a

director. Under the scheme, the articles of association were amended to delete this

provision. Some members held more than 5% of the shares and, in effect, lost their ability to

requisition a meeting. Warren J held that the members could nevertheless vote in a single

“So far as concerns the Topco Scheme, the rights of all shareholders (both before and

after the scheme) will all be identical. It is true that the interests of different groups

of shareholders may differ. For instance, those with more than a 5 per cent

shareholding can require, under the Existing Articles but not the Revised Articles, a

meeting to remove a director to be requisitioned. Nonetheless, all the shares are

identical in that they carry the same rights. To conclude that this potential

divergence of interests should lead to separate classes would lead to precisely the

sort of proliferation of classes which the courts have cautioned against. The time for

considering any alleged unfairness is at the sanction hearing. In my judgment, a

[172] In consideration of class composition, it is clear on the authorities that the Court is

concerned with the legal rights of the creditors as against the scheme company, not their

economic interests (see, eg, UDL at para 27). It is in this context that ARCM’s blocking vote

or veto falls to be considered. ARCM are particularly aggrieved by the loss of their de facto

veto. The petitioners dismiss this as constituting no more than an interest and which falls

outside of the consideration of the legal rights which are considered at this stage. They note

that there is no differentiation in the legal rights associated with creditors’ votes and that in

relation to the collective power of votes, a number of Private Creditors (acting alone or in

concert with other Private Creditors) have a practical ability to block amendments and

waivers under Clause 23.2. In addition, new or existing Private Creditors could build up

additional blocking positions through the acquisition of debt. This is no more than an

interest. ARCM’s veto arises simply as a function of the quantum of the debt that they hold

within each debt instrument. However, the practical ability to block is not itself a legal right

in any meaningful sense. Rather, it is a consequence of exercising the voting rights attached

to the quantum of debt. At the Sanctions Hearing, the first respondent did not develop or

apply the formulation of “interests derived from rights” it had identified in the caselaw. I

am not persuaded that in the context of this case, that formulation would lead to any

different approach in the assessment of the issues. Any veto is derived from the quantum of

debt held; not from the voting rights. Creditors with different levels of voting power may be

able to achieve different results by exercising their rights as a consequence of the amount of

debt which they hold, but that is irrelevant to class composition: the legal rights attached to

[173] Furthermore, the petitioners observe that a recurrent theme in ARCM’s submissions

is that the voting rights of each Private Creditor Group are somehow unique. (See eg

ARCM’s Note on Class at para 76].) The petitioners submit this is wrong. They emphasise

that in the context of a scheme of arrangement, it is necessary to consider the substance of a

legal right – not the identity of the person or group who is able to exercise it. To do

otherwise would result in the unnecessary proliferation of classes. As a matter of substance,

the voting rights conferred on each Private Creditor Group (and on each individual Private

Creditor) are the same. Furthermore, when the comparator to the Schemes is taken into

account, the analysis becomes even more straightforward. In that no-scheme scenario, it is

more likely than not that the Scheme Companies will be unable to refinance their debts in

May 2021 if the Schemes are not implemented. This would be likely to result in the Scheme

Companies entering into formal insolvency proceedings. In that counterfactual scenario, the

contractual voting rights under the Override Agreement would, the petitioners submit, be

completely irrelevant. For these reasons, they submit that the contractual voting regime

under the 2017 Override Agreement and the modification of that regime under the Schemes

[174] The other matters considered at the first stage of the Buckley test are whether the

petitioners have complied with the terms of the convening order and whether the statutory

1) subject to minor deficiencies which should be waived, there has been

compliance with the Court’s convening order (see Report at paras 2.10 to 2.11

2) the statutory majorities were obtained (on which see the Report at paras 2.12

to 2.17 and 5.3, and Rose 1 at paras 167 to 168, and the Chairman’s reports of

The deficiency the Reporter noted in respect of compliance was minor and caused no

prejudice. I am satisfied that the first stage of the Buckley test has been complied with.

[175] The questions for the Court at the second stage of the Buckley test are whether the

class was fairly represented at the Scheme Meetings and whether the majorities were

coercing the minority in order to promote interests adverse to the class whom they

[176] It is in this context that ARCM argue that certain payments (described by the

petitioners as fees and disbursements) constitute collateral benefits or “special interests” and

which mean the Court cannot sanction the Schemes on the basis of the present votes. In

framing their challenges at this stage of the Buckley test, ARCM refer to the observations of

Hildyard J in Re Lehman Brothers International (Europe) (in admin) [2018] EWHC 1980 (Ch),

“The questions at the heart of the matter at this stage are (a) whether the majority creditors

had some “special interest(s)” different from and adverse to the other members of the higher

rate creditor class by which it is shown (b) they were predominantly motivated in voting as

they did; if so, (c) whether their votes are to be (i) disregarded or (ii) discounted, and (d) what

effect that should have in terms of whether or not the court should decline to sanction the

1) Fees: ARCM note that fees for “collateral” services of between approximately

US $1 million and approximately US $12 million are to be paid to certain of

the scheme creditors which, they submit, give rise to an obvious inference

2) The extreme variance in benefit: ARCM revisited the issue of the (on their

calculation) extreme variance in the degree of uplift in interest rate. They

submit that it is an obvious inference that those creditors who receive more

beneficial economic treatment under the Scheme (ranging between 8% and

67%), would be induced to vote in favour, which they say illustrates that the

3) The new majority of 66.66%: ARCM also note that, if the Schemes are

sanctioned, then those creditors who make up the 66.66% (whom they

described as “the new majority”) required to make new amendments (whom

provisions of the Override Agreement or the Implementation Deed have a

“special interest”; it was said that they are voting in favour of the Scheme to

4) Trading out of their positions: ARCM also submit that the Schemes were

designed to induce creditors to support the Scheme so that they might trade

out of their positions. In support of this, they refer to the passage in the

Explanatory Statement (at para 5.20), were the effect of harmonized interest

rates will be to “facilitate a broader and deeper trading market than currently

exists, which in turn should have a positive impact on the price of the debt in

The economic differentials ARCM argue constitute “special interests”

[178] The two economic differentials ARCM identify as relevant to the second stage of the

Buckley test are interest rates and other collateral benefits (fees and disbursements) because

they are said to constitute “special” interests to induce votes in favour of the Schemes. This

is one reason why a “special interest” argument is raised at stage 2 of the Buckley test, even if

the factor relied on could also have been said to fracture class (as would be considered at

stage 1 of the Buckley test). ARCM did not offer a definition of “special”, but I understand

ARCM to mean an interest particular to one or more of the creditors and with the intended

purpose of inducing those with a special interest to support the scheme. As noted above,

ARCM also advanced the interest rate issue as a factor that fractured class, because of the

very wide variance in the percentage of uplift. I refer to, but do not here repeat, the details

relating to the interest rates, the parties’ differing calculations of variance and the Upfront

[179] In presenting its argument at this stage ARCM again focus solely on the proposed

amendment to the interest rate. While this is to be harmonised, at present the interests rates

vary among the debt instruments with the consequence that the degree of improvement will

vary (ARCM’s “variance” point). In my view, a focus on the proposed amendment to

enhance and harmonise the interest rate on its own does not provide a complete basis for

assessing whether it constitutes a special interest. It is incomplete, because the Upfront Fee

was explicitly linked to interest rate harmonisation to ensure that no Scheme Creditor will

receive a lower return as a result of that harmonisation. There is patently no material

difference such as to constitute a special interest, if the interest rate harmonisation is

considered in combination with the Upfront Fee (as the Schemes intend), because all Scheme

Creditors will receive a higher return (in the form of interest) than they would in the absence

[180] Even if ARCM’s calculation of the variance is accepted (and part of the petitioners’

response was to point to the IRR as a different metric) and considered in isolation from the

Upfront Fee, on analysis it is difficult to see how this creates a special interest either among

the creditors benefiting (to a greater or lesser degree) or among those creditors who will see

a decline in their coupon. The vast majority of the Scheme Creditors will benefit from a

harmonised and enhanced interest rate. While a creditor at the higher end of ARCM’s

spectrum of variance, say the creditor getting 67% improvement, may vote for the Schemes

more enthusiastically, its interest is not adverse to the creditor who is also benefiting, albeit

to a lesser degree (eg getting only, say, a 5% improvement on its current interest rate). Both

are benefiting from the Schemes. They have a common interest to vote in favour of the

Schemes, not a special one (ie one particular to them or marking them out from the rest of

this class). What ARCM’s variance argument leaves wholly out of account are the creditors

whose interest rate will be reduced as a consequence of harmonisation.

[181] If the Upfront Fee is left out of account (as it is on ARCM’s approach to this issue),

the Schemes will be detrimental to these creditors in this respect. While this could be said to

give them an interest adverse to the majority who are benefitting, that is the very opposite of

a “special interest” with which we are concerned. It may be for that reason, that ARCM do

not address the position of these creditors in advancing this argument. However, the plain

fact is that the vast majority of creditors in this class voted in favour of the Schemes,

including those whose interest rates will be reduced by harmonisation (if considered

without the effect of the Upfront Fee). In conclusion, in my view, ARCM’s variance

argument founders in the face of the overwhelming support of the Scheme Creditors to

whom the variance argument applied (ie those who will benefit from an enhanced interest

rate). It is difficult to apply the descriptor “special” to a feature (here an interest uplift),

shared by all of the members of the group (ie all of the creditors to whom ARCM’s variance

[182] If the Schemes are sanctioned, some of the Scheme Creditors will receive payment of

fees representing the provision of certain services. So, for example, fees will be payable to

RBC (the Royal Bank of Canada) in relation to underwriting the rights issue. ARCM argue

that this constitutes a “special interest” different from and therefore adverse to the interests

of the rest of the class of creditors. The Petitioners’ position is that the fees are in respect of

services, such as RBC’s provision of those commercial services and assumption of risk being

undertaken, and that the amount of fee payable is in line with market rates in arms’ length

transactions (see Rose 1). The petitioners argue that RBC’s vote could only be discounted if

the fees payable to RBC created an interest which is “adverse to, or clashes with, the interest

of the class as a whole” (per Hildyard J in Lehman Brothers International (Europe) [2018] Bus

LR 1012 (“Lehman (Europe)”)(at para 89)) and that in any event it would be necessary to show

that RBC would not have voted for the Schemes “but for” the opportunity to receive the

underwriting fee (ibid at paras 90 to 103). Finally, the petitioners point out, that even if

RBC’s votes were discounted, this would not have affected the outcome of the Meetings and

[183] A second category of payments ARCM challenge (and which they characterise as a

“collateral economic benefit”) are the disbursements to be paid to a creditor’s financial

advisers for their work in connection with the Schemes. ARCM rely on Noble in which the

court had to consider a work fee of US $36 million. The petitioners’ position is that the

circumstances of that case are readily distinguishable, as the proposed disbursements are of

a wholly different character and order. The petitioners have disclosed to ARCM the

information relating to the disbursements. The disbursements confer no “net” benefit on the

creditor concerned: absent the Schemes, the creditor would not have incurred professional

fees; payment of its reasonable professional fees ensures it is not out of pocket. There is no

[184] In relation to the fees, it is important to note that none of these is a consent fee. As

for the underwriting fees to be paid to RBC or the disbursements to defray the professional

fees of some of the Scheme Creditors, I did not understand ARCM or the first respondent to

challenge the amount of these as out of line with the market, it was just the fact that these

were to be paid. However, I find that the RBC fees are patently in respect of additional

commercial services to be rendered and the risks RBC will assume. Payment to defray the

professional fees some of the Scheme Creditors have incurred in advising on the proposed

Schemes does not actually benefit the creditors concerned. I am also persuaded that there

was no reason or basis to conclude that RBC (or other creditors whose disbursements are

being defrayed) would not have voted for the Schemes “but for” the underwriting fees. It is

not insignificant, in my view, too, that the other Senior Creditors not in receipt of such fees

[185] In my view, these matters do not constitute a “special interest”. I am fortified in this

view, too, by the Reporter’s conclusion that no collateral benefit arose from the payment of

[186] By the time of the Sanctions Hearing, the question of whether there were undisclosed

benefits was implied rather than fully argued. To the extent that this may initially have been

based on a criticism that the Explanatory Statement did not disclose the precise figures to be

paid, eg to RBC, I am not persuaded this was required. In any event, the Rose 1 affidavit has

provided more information about this. When pressed at the Sanctions Hearing, Senior

Counsel for the first respondent was unable to identify any other basis to support this

[187] I have already considered ARCM’s submissions in relation to the amendment of the

voting rights, to the extent it was said that these kinds of rights were not susceptible to the

Part 26 jurisdiction or that the amendments amounted to a confiscation. ARCM advanced a

discrete argument relevant to stage two of the Buckley test, that, if amended, the new (lower)

majorities under the voting rights had the effect of conferring control over the Groups’

affairs in favour of the “new majority” (as ARCM termed it) and that this incentivised those

[188] As noted above, there is nothing unique in ARCM’s ability under the present voting

regime to block certain waivers or amendments. Lloyds also have a blocking vote in the

Term Loan Facilities (one of the two debt instruments in which ARCM have a veto). Other

creditors have sufficient debt to exercise a veto in other debt instruments (eg the USPP debt

instruments), and every private creditor has a veto for certain kinds of waivers or

amendments. Furthermore, the new voting regime proposed results in every dollar of debt

(regardless of the debt instrument under which it is held) having the same voting power

attached to it. The weighting of each vote is the same for every creditor in the defined class.

Accordingly, in my view, there is no sound basis to contend that the voting rights of the first

respondent (or of ARCM) are being treated differently. There is no discrimination in legal

rights or voting power. It may be described as a fair regime. Prima facie the equal treatment

of the legal voting rights militates against a “special interest” argument.

[189] It must be noted, too, that there is a curiously binary quality to ARCM’s argument, as

they necessarily assume that they will be in the minority for every vote and all of the other

creditors necessarily in the majority. There is also self-fulfilling quality to ARCM’s

argument, too, because they attribute a fixity and cohesion to the “new majority” (as they

term it). However, there is no basis for presupposing that (in effect) all other Scheme

Creditors (whether Private or Retail Bondholders) will necessarily or always vote en bloc (or

do so against ARCM), or that ARCM will never form part of that majority for any vote,

regardless of subject matter. There is no basis for assuming the kind of predetermination of

creditor groupings or voting alignments that ARCM presuppose. There is nothing in the

amended provisions of the Override Agreement that prescribes any “new majority” as a

matter of legal right or that consigns ARCM to be in the minority. I am not persuaded that

the proposed amendments to the voting rights create any special interest as ARCM contend.

[190] This argument was based on a passage from the Explanatory Statement, to the effect

that one result of the Schemes will be to “facilitate a broader and deeper trading market than

currently exists, which in turn should have a positive impact on the price of the debt in the

secondary market.” ARCM’s position is that this will be uniquely disadvantageous to them

as the Group’s largest creditor (this argument is not open the first respondent) and that it

will be more difficult for them to trade out (ie sell their debt in the enhanced trading

market), while smaller creditors could (and ARCM surmised, will) trade out. While ARCM

is the Group’s largest creditor, their position is not unique as there are other creditors also

holding very substantial amounts of debt to whom this might also apply. In any event, this

submission is based on speculation as to what other creditors may or may not do. Returning

to the passage from the Explanatory Statement quoted: if it is the case that there will be a

“positive impact” on the price of debt in the secondary market, this will be available to all of

the creditors. Whether or to what extent a creditor takes advantage of that does not

constitute a “special” interest (it cannot be “special” if the effect is universal). In any event, it

is not a feature of the Schemes themselves, in the sense of a right that is conferred or created

ARCM’s complaints anent Mr Rose’s comments at the start of each of the Scheme Meetings

[191] It may be here convenient to address one of ARCM’s other complaints. ARCM take

issue with Mr Rose’s comments at the outset of each of the Scheme Meetings (that the Group

reserved its position in relation to ARCM’s hedge) and suggest that this was an attempt to

sway the vote (see Answer 76.1). On this point, I accept the Supporting Creditors’

submission that ARCM have produced no evidence indicating any possibility that any

Scheme Creditor was swayed. ARCM did not attend, but they had a representative

(Mr Lawford) who was present and spoke before the votes were cast. At the Scheme

Meetings Mr Lawford made the point, on behalf of ARCM, that they had no collateral

reason for voting against the Schemes. In these circumstances, there is no basis for a charge

of procedural or substantive unfairness arising from Mr Rose’s comments. Further, there is

nothing to suggest that the Scheme Creditors were acting in bad faith.

[192] The petitioners identified additional factors that were said to displace the contention

that there was a special interest of one sort or another operating. These include the

1) Turnout: turnout is a relevant consideration at stage two of Buckley (Re The

British Aviation Insurance Co Ltd [2006] BCC 14 at para 116). More than 600

Scheme Creditors, representing 96.82% of the Senior Creditors and 99.81% of

the Super Senior Creditors (in value) were represented (in person or by

proxy) at the Scheme Meetings. The Supporting Creditors’ description of this

2) The range of creditors who voted: The Schemes were supported by some of the

largest banks in the world (eg Deutsche Bank), by other leading institutions

and by entities with considerable financial experience in this section. At the

other end of the spectrum from the Private Creditors are the Retail

Bondholders, 97% of whom voted in favour of the Schemes. The vast majority

of these have not entered into any contractual agreement or Support Letter

3) No consent fees: This was noted above, but no consent fees or other

inducement was paid in consideration of signing a Support Letter or agreeing

4) Support across every debt instrument: There was a broad range of support for

the Schemes across every debt instrument within the Senior and Super Senior

Liabilities. Apart from ARCM, very few other Private Creditors voted against.

These were two lenders in the Converted facility and a handful of Retail

Bondholders who held, respectively, less than .5% and less than .05% (by

The first respondent did not challenge these factors; nor did it suggest that these were

irrelevant to the Court’s consideration. In my view, these factors do displace any inference

of “special interests” operating, such as the first respondent and ARCM contended.

The Reporter’s view and conclusion on the second stage of Buckley

[193] Finally, in this context I note the Reporter’s conclusion that those voting in favour of

the Schemes were acting in good faith and that the classes were fairly represented at the

Scheme Meetings: see paras 5.6 to 5.8 of the Report. Of course, that view informs but does

not bind the Court. However, having considered ARCM’s challenges relevant to this stage,

nothing in them has persuaded me that the classes were not fairly represented at the Scheme

[194] For the foregoing reasons, I find that stage two of the Buckley test has been met.

The third stage of the Buckley test: Are the Schemes fair and which a creditor could

[195] In terms of section 899(1) of the 2006 Act, the Court has a broad discretion when it

considers whether to sanction a scheme: “the court may ... sanction” (emphasis added).

There is a considerable body of caselaw which provides guidance of how that discretion is

exercised. The first and second stages of the Buckley test involve consideration of

procedural, formal and jurisdictional matters. It is at stage 3 that the Court’s discretion is

engaged. At the third stage, the Court must consider whether the arrangement proposed in

a scheme is such that an intelligent and honest person, a member of the class concerned and

acting in respect of his or her interest, might reasonably approve it. (See Lindley LJ’s

formulation of the test in Alabama, above). I reiterate that the Court does not substitute its

own assessment for what is fair and reasonable for the view of the relevant scheme creditors.

The Courts have long recognised that the creditors are better judges of what is in the

commercial interests of the class they represent: see English Scottish and Australian Chartered

Bank [1983] 3 Ch 385 at 409 per Lindley LJ; Apcoa at para 128 per Hildyard J and Noble at

paragraph 17(iii) per Snowdon J. For that reason, the Court is not concerned with whether

the scheme proposed is the only fair scheme or the best scheme. In this context, the

Supporting Creditors cite an observation from Hildyard J in Apcoa (at para 128) to the effect

that the authorities “must give full weight to the decision of the creditors” (the Supporting

Creditors emphasis). This may simply be a different way of making the point already made:

the nature of the Court’s jurisdiction under Part 26, involving a consideration of the sanction

of a scheme of arrangement or compromise which the requisite majority of the creditors

have approved, is a form of review (within certain parameters) of whether it is a fair scheme,

as well as to ensure compliance with the procedural requirements of the statute. It has also

been observed that the Court should be slow to differ with the view of the Scheme Meetings

unless something is brought to the Court’s notice to show that there has been some

“material oversight or miscarriage” (per English, Scottish and Australian Chartered Bank at

[196] It is important, too, to bear in mind the power the Court wields and the care with

which it must be exercised. ARCM stress the “formidable compulsion” (per Bowen LJ in

Sovereign Life, at p 583) which takes place if a scheme is approved, because it is rendered

binding (now by virtue of section 899(3) of the 2006 Act) on all creditors. They also

emphasise the unusual nature of the Court’s power; that it is not an exercise in rubber

stamping, and that the Court should not lightly allow parties “to forcibly change such

obligations with the assistance of the judge”. In support of these submission,s they refer to

observations in Alabama (eg per Bowen LJ at pp 242, 243 (“this is a very remarkable act of

Parliament”; “the object … is not confiscation”). To illustrate these points, they also cite a

number of cases where sanction was refused, including Re British Aviation Insurance Co Ltd

[2005] EWHC 1621 (Ch) (Lewison J), Re Colt Telecom Group plc (No 2) [2002] EWHC 2815

(Ch), [2003] BPIR 324 (Jacob J) and Re Prudential Assurance Company Ltd [2019] EWHC 2245

[197] The petitioners and Supporting Creditor submit that the Schemes satisfy the third

stage of the Buckley test, namely, that they are Schemes which an intelligent and honest

person, as a member of each of the classes concerned and acting in respect of his or her

interest, might reasonably approve. They also point to the votes overwhelmingly in favour

of the Schemes. For completeness, I note that in his Report, the Reporter has concluded that

the Schemes are fair and reasonable (see especially paras 4.78 to 4.92 and 5.5 of the Report).

1) It belies commercial good common sense for the petitioners to make

Acquisitions (for an overall purchase price of about US $870m) while at the

2) It also belies commercial good common sense that the petitioners value the

Acquisitions at c US $1 billion (see Explanatory Statement, pages 47-48,

paragraph 6 (E)), but obtained for a purchase price of about US $870m,

especially as the vendors are highly expert players in the oil industry; that the

assumptions that purport to justify the purchase price are fundamentally

flawed and the RBL capacity that the petitioners expect, does not exist;

3) There remain concerns about the decommissioning liabilities (eg as outlined

4) (reverting to a matter raised under ARCM’s challenge to the adequacy of the

Explanatory Statement), they contend that, as the Xodus and NERA Reports

make clear, there remain very concerning risks that have not been properly

[199] At bottom, these criticisms amount to no more than a disagreement with the

commercial judgement underpinning the Schemes. The first mischaracterises the directors’

more nuanced views on the Group’s prospects (noted above, under the discussion of the

meaning of insolvency for the purposes of the comparator). The first three points above are

all directed at the Acquisitions; the fourth is indirectly related to the Acquisitions, too,

because many of the asserted deficiencies of the Explanatory Statement relate to the (it is

said) inadequate disclosure or analysis of the risks that the Acquisitions will bring (eg

whether those be underestimations of decommissioning liabilities, overestimations of

reserves or the risks of enlarging the Group’s exposure to the gas market). The petitioners

note that a consistent theme of ARCM’s opposition is their preference for their alternative

proposal. The details of this alternative and ARCM’s grounds of opposition are set out in

the Explanatory Statement. A leit motif of ARCM’s position throughout is their determined

opposition to the Acquisitions. As they submit above, certain aspects of the Acquisitions are

said to bely “commercial good common sense” or in respect of which “concerns remain”.

Notwithstanding the use of the passive voice, those are ARCM’s concerns. The fundamental

difficulty for ARCM’s submission is that their opposition to, and concerns about, the

Acquisitions, and their preferred alternative, were all placed before the Scheme Creditors.

The Scheme Creditors (apart from ARCM) voted overwhelmingly in favour of the Schemes

and, by the same token, the majority overwhelmingly rejected ARCM’s proposed

[200] Turning to the ARCM Reports, I did not find these assisted the Court with the

relevant issues it had to determine. As the Reporter has not had the opportunity to

comment on them in his Report, it is appropriate that I comment on them.

[201] There is considerable overlap in the Fuller and NERA Reports, in that each reviews

the Acquisitions, and their assessed benefits and risks, and each expresses disagreement

with assumptions or the commercial assessments underpinning the Schemes. Mr Rose

responds to these Reports in Rose 2 (at paras 28 and 29). He notes that the author of the

NERA Report has no knowledge or experience in the oil and gas sector, in RBL financing, in

restructuring or schemes of arrangement. Mr Rose explains that the Group’s RBL

assumptions had been developed following extensive discussions with lenders experienced

in RBL facilities and that these assumptions were confirmed by PWC in the PWC Report,

and by two recognised experts in the sector, Rothschild and DNB (included as appendices 60

and 61 to Rose 1). Mr Rose’s explanations suffice to demonstrate that there was a reasoned

and tested basis for these features of the Schemes. In relation to Mr Prest’s criticism that the

PWC Report lacked independence, because it applied the Group’s working assumptions, I

have already noted Mr Rose’s comment (in Rose 2) is that PWC nonetheless reviewed the

Group’s RBL assumptions, and they confirmed that these were all within a reasonable range

(see PWC Report at p 59). Furthermore, PWC’s views are supported by other expert

analysts, namely Rothschild and DNB. PWC were also clear that it was outwith their

expertise to consider the reserve assumptions for decommissioning liabilities.

[202] Of the ARCM Reports, the Boyle Report is the one that offers the most

comprehensive consideration of the Schemes as well as suggested alternatives to them. What

is notable is that many aspects of the Boyle Report support the petitioners’ case about the

need to address the impending maturity date of the Scheme Debt Facilities (the circumstance

that was critical to the question of comparator). For example, Mr Boyle agrees:

(1) That the failure of the Schemes and the Scheme Debt Facilities becoming

current in June 2020 will increase market concern about the Group’s financial

(2) That the Group will not have sufficient liquidity to repay the Scheme Debt

Facilities ahead of the Scheme Maturity Date (see paras 5.5.5 and 5.5.10);

(3) That an extension of the Scheme Maturity Date is not feasible prior to the SDF

(4) That a full refinancing ahead of the Scheme Maturity Date in May 2021, is not

a “viable alternative” to the Schemes (para 7.4.8 and 7.12.21);

(5) That, at most the disposal of non-core assets could assist with deleveraging,

but it does it not provide a standalone solution to the Scheme Maturity Date

(6) That a number alternatives he considered are not feasible (such as a full

One of the critical features of Mr Boyle’s report is, in fact, its acknowledgement that the

Group did not have the liquidity to repay the Scheme Debt Facilities before the Scheme

Maturity Date. That is the very problem which the Schemes seek to address.

[203] In respect of his consideration of alternatives to the Schemes, the analysis is

superficial, often generic and, at times, his assertions that these could be achieved in the

necessary timescale borders on glib. The first alternative he considers is that of partial

refinancing, an option which the Group has considered and rejected for the reasons set out

[204] On the prospect of an A&E, in response to the Group’s and the creditors’ concern

about the impact of the Scheme Maturity Date on the Group’s solvency, Mr Boyle blandly

states that an A&E would resolve that concern (at para 7.3.2). He enjoins the directors

(without apparent irony) to consider the “commercial and legal options” to manage the risk

of a hold-out by dissentient creditors (at para 7.3.17). He suggests that an A&E would

“appear to be relatively simple to implement”, although he concedes that ”negotiations

amongst a relatively diverse group of stakeholders can be complex” (at para 7.3.19). At best,

an A&E would provide a stable platform “for the Group to explore more short to medium

terms options to delever or finance in the future “. Implicit in this comment is the

recognition of the continuing need to deleverage the Group’s debt position, and that any

A&E is only an interim measure. In my view, that is utterly destructive to ARCM’s

contention that the true comparator for the purpose of class composition is an A&E (see para

51 of the first respondent’s Submissions). In respect of his consideration of disposal of non-

core assets, most of this section is taken up with recording of prior disposals in the market

by third parties. Mr Boyle acknowledges that disposal of non-core assets on their own “will

not generate sufficient funds to repay the existing debt in full” prior to the Scheme Maturity

Date (para 7.5.13). He couples this with the assertion that this, in conjunction with other

alternatives, such as A&E and partial refinancing “could represent an alternative” to the

Schemes. He does not identify any non-core assets that might be sold and, indeed, does not

have the expertise to know within what timescale such disposals might take place (see

[205] Turning to his consideration of the equity raise element of the Schemes, Mr Boyle is

not an equity market specialist and he is unable to comment with any confidence on the

prospects of a substantial or even a lesser equity raise; both of those options are heavily

qualified (with the phrase “if achievable” (para 7.7.13 and 7.7.15)). The most he can say in

respect of an equity raise is that it is not a standalone solution (he similarly qualifies the

prospects of a more limited raise (“if achievable”)) and he accepts it would need to be

[206] Notwithstanding its length and the multitude of appendices, Mr Boyle’s Report

offers nothing new. The options he explores have been considered by the Group with its

advisers. He identifies no options, or combination of options, that realistically address the

problem of the debt wall in the time before the Scheme Maturity Date.

[207] His conclusions, such as they are, are expressed in the most tentative language. At

best, he concludes that the options he has identified are “the most likely areas that could

feasibly be explored by the Group” (para 2.5.6), and that one or more of the options he

identified “could be explored in combination … [with] a disposal of assets combined with a

voluntary or involuntary [amendment and extension] of facilities”. The alternatives are

discussed in generic terms and, where he lacks expertise, he defers to the view of a colleague

which is provided in the most summary terms. Any application of these to the Group is so

qualified (“may”, “could”, “if”, “if achievable”) as to be wholly unpersuasive.

[208] Mr Rose responded in Rose 2 to inter alia the Boyle Report. I accept the grounds on

which Mr Rose rejects the Boyle Report, and in particular, the detailed reasons he provides

as to why the theoretical alternatives Mr Boyle postulates are not feasible. While an A&E is

clearly essential, Mr Rose explains that it is not itself sufficient to resolve the Group’s

financial difficulties, and that an equity raise would also need to accompany any extension

of debt maturity (see Rose 2, para 24(A)). However, Mr Rose explains (as is perhaps self-

evident) that an equity raise for paying down debt would be challenging, especially after the

Scheme Debt Facilities become current (in May 2020). A partial refinancing is not a viable

solution to the 2021 Maturity. The proceeds from disposal of non-core assets would not

suffice to repay the Group’s indebtedness. There is nothing in the Boyle Report that

undermines Mr Rose’s essential position that the Schemes are the product of “a long period

of work in looking for alternatives” and that the Proposed Transaction “is the only viable

transaction the Group has been able to identify during the time which addresses the 2021

Maturity, paves the way for a full refinancing in the medium term and has the clear support

[209] In my view, there is considerable force in Mr Rose’s observation, that the Boyle

Report is a largely theoretical exercise without the benefit of experience in the sector or of

the Group, and that there are no consequences for Mr Boyle if he gets it wrong. It is not

simply that Mr Boyle does not have to live with the consequences of failure; there is an air of

unreality in Mr Boyle’s speculations about alternatives. This is seemingly considered

without addressing the duties incumbent upon Mr Rose and his fellow directors (and which

they must take cognisance of) in respect of responsible trading in the face of the risk of

insolvency in the short to medium term. Furthermore, the fact that, as Mr Rose explained

(eg see Rose 2 at para 25), it took 17 months to produce the 2017 Scheme belies Mr Boyle’s

bland assumption, and on which his discussion of alternatives is premised, that the

14 months remaining before the Scheme Maturity Date would suffice.

[210] I find that, fundamentally, there is nothing in the Boyle Report (or the other ARCM

Reports) to provide a cogent basis to challenge or undermine the Schemes or the directors’

conclusion that the Schemes are the best way forward for the Group. The majority of the

Scheme Creditors at the Scheme Meetings endorse the directors’ views. There is nothing in

ARCM’s submissions or in the ARCM Materials that persuades me that, in the exercise of

my discretion, I should disregard the views of the majorities voting at the Scheme Meetings

or the collective exercise of their commercial judgement of where their best interests lie. To

the extent that the ARCM Reports are relied on to invite the Court to consider the

commercial merits of some alternative to the Schemes, the petitioners’ and Supporting

Creditors’ submission is in my view well made that this is not relevant to the Court’s

consideration of sanction of the Schemes. It is not the function of the Court in Part 26

proceedings to adjudicate between differences of commercial judgement, which, in

substance, is what ARCM seek to do at a proof. It is indisputable that the Group as a

formidable “problem” (in the Scottish Lion-sense) in the form of the debt wall. Having

considered the Schemes proposed, and the ground of ARCM’s challenges to them with

particular care, I am persuaded that the Schemes are fair in the relevant sense. It remains for

me to consider the impact of ARCM’s remaining grounds of challenge (and which were

presented as free-standing or not readily accommodated within the 4 stages of the Buckley

[211] ARCM complain that they were excluded from the late stages of the discussions

amongst the Group and its creditors. This coincided with ARCM’s disclosure of its hedge

position. The import of this exclusion might, at its highest, amount to a claim that ARCM

could not influence the outcome of the final form of the Schemes. Mr Rose explained the

commercial sensitivity of matters placed in confidence before the creditors and how

ARCM’s disclosure affected that. Be that as it may, I accept the petitioners’ and Supporting

Creditors’ submissions that this complaint is irrelevant. What the Court considers are the

Schemes to be sanctioned, not prior or alternative iterations of the same. In any event, in this

case, it is difficult to see that there was any prejudicial impact. ARCM’s final position was to

oppose the Acquisitions. As these emerged as central features of the Schemes, it was

unlikely that even continued closer involvement by ARCM would have changed that. More

importantly, once the Schemes were in their final form, there was no differential treatment

of ARCM in respect of the information placed before them and the other Scheme Creditors

(all parties had the Explanatory Statement) or in the opportunities for ARCM to express its

views. To the extent that ARCM’s complaint of exclusion was said separately to constitute a

“blot” (per para 5(4) of the first respondent’s Submissions), the foregoing comments also

apply to this argument. Any exclusion of ARCM from the final stages preceding the

petitioners finalising the form of the Schemes is not a blot on, or arising from, the Schemes.

For completeness, I record the Supporting Creditors’ observations that at about this time

ARCM set up a website to promote the options they favoured and to garner opposition to

[212] ARCM advance a separate argument said to go to the overriding unfairness of the

Schemes, which was that the recent market volatility in oil prices undermines the

commercial rationale or viability of the Schemes (and that volatility subsists during the

several weeks that this opinion has been at avizandum). This is one of the many topics on

which ARCM say proof is necessary. Apart from the doubtful utility of a proof on parties’

respective predictions of future oil and gas prices (or the markets’ perception of how these

might affect the Schemes), in my view this matter is best left to be determined by the market

itself. This is appropriate because of how the different elements of the Schemes are

structured. As noted above, if the equity raise does not generate sufficient new capital, the

Acquisitions cannot be funded. The first step is the equity raise. There is no better predictor

of the success of the Schemes in the market than the market itself. Accordingly, the current

market volatility does not lead me to conclude that the Schemes fall to be refused on that

[213] Under reference to Prudential Assurance Co Ltd [2019} EWHC 2245 (Ch), the first

respondent submits that it is always open to the Court to refuse to sanction a scheme that

was inconsistent with an expectation of creditors, even where there was no vested right (see

para 100 of the first respondent’s Submissions). That harks back to its submission (made in

the context of its “confiscation of voting rights” submission) that promises and covenants

that were made by way of the 2017 Schemes were “empty promises” if the Schemes are

sanctioned (see para 22 of its Submissions and references there to paras 21 to 43 of Ercil 1

and to Re Old Silkstone Colliers Ltd [1954] 1 Ch 169 (“Old Silkstone”) at p 189). Having

considered these materials, I am not persuaded that the first respondent has identified a

clear and specific representation or promise by the Group made at the time of the 2017

Schemes, to the effect that the 2017 Override Agreement would be immutable, or that the

first respondent assented to the 2017 Schemes in reliance on such a promise or

representation. In Mr Ercil’s view, the 2017 Override Agreement was final and binding (see

Ercil 1 at para 43). That may have been so, but, as noted above, the 2017 Refinancing was

presented as an incremental step towards better financial health, not itself as the final means

to achieve that end. That apart, and more fundamentally, there is nothing in clause 23 or any

other part of the 2017 Override Agreement, which is the measure of the parties’ rights,

which creates this immutability. In relation to Old Silkstone, in my view, that case provides

no support for this submission. It is readily distinguishable: (i) it rose in a different statutory

context (being a reduction of capital), and therefore there was no requirement for “give and

take” to be considered; (ii) in that case there were specific representations made in the

circulars themselves (ie that the company would proceed in a particular way and would

preserve the possibility of compensation for certain stockholders), but I have concluded that

there are no like representations in this case, much less any contained in a document

equivalent in stature to a circular; and (iii) that the subsequent (third) reduction of capital in

Old Silkstone was promoted on the basis that those retained rights of the stockholders were

worthless and it was that element of unfairness that led the court to refuse the reduction in

capital. In this case, the first respondent has not identified any specific or clear

representation or promise equivalent to that in Old Silkstone. Skilfully and subtly presented

though this argument was, it is in substance a complaint against the proposed amendment

of rights (particularly voting rights) via a scheme under Part 26. I have already addressed

The fourth stage of the Buckley test: Are there blots on the Schemes?

[214] It is at the fourth stage of the Buckley test that the Court considers if there are any

“blots” on the scheme. A 'blot' is a technical or legal defect in a scheme, eg that the terms of

the scheme are inoperable or infringe some mandatory provision of law: see Re The Co-

operative Bank Plc [2017] EWHC 2269 (Ch) (at para 22, per Snowden J).

[215] The first respondent has identified what it says are three “blots” on the Schemes.

1) the Schemes cannot validly appoint an agent or attorney to execute a

particular document (the 'Implementation Deed') and perform various other

actions on behalf of the Scheme Creditors (see Answer 4.1 (this is the “power

2) the Acquisitions are subject to an excessive number of conditions (see

3) the Schemes include powers of amendment which are impermissibly broad in

The petitioners’ undertaking, offered at the Sanctions Hearing (and recorded above) is

sufficient to address blot (3). In respect of blot (2), which in large measure repeats aspects of

ARCM’s voting rights confiscation arguments and those on market volatility (on which, see

below), I am not persuaded that this is a “blot” in the relevant sense. Complex schemes are

bound to have different elements which may be conditional on one another. I would be

reluctant to conclude that that feature of conditionality necessarily constitutes a “blot”, lest

the flexibility inherent in the Part 26 jurisdiction and the concept of what may constitute an

“arrangement” be unduly constrained. As I understand the gravamen of ARCM’s

challenge, it is the uncertainty resulting from that conditionality or that the conditionality

removes the Court’s control (per Re Lombard Medical Technologies Plc [2014] EWHC 2457 (Ch)

at para 26). In my view, there is no substance to this challenge. While elements of the

Schemes are conditional, there is legal certainty as to what will follow if the different

elements of the Schemes take effect. The Court has approved the elements of the Schemes

and the sequence and conditions on which they will take effect. There is no excessive

conditionality such as to remove the Court’s control. If it were the uncertainty which

concerns ARCM, this is simply the context in which the Schemes may take effect. In my

view, that market uncertainty is not a technical or legal defect.

The power of attorney issue: Can the Schemes validly appoint an agent or attorney on behalf of the

[216] The first respondent contends that it is not competent for the Schemes to constitute

PO as an attorney under a power of attorney to execute certain deeds on behalf of the

Scheme Creditors, in the event the Schemes are sanctioned. The petitioners’ position is that

the first respondent’s contention is incorrect. Both have lodged an Opinion of English

[217] Before turning to the first respondent’s argument, I first note the two clauses of the

Schemes on which this challenge is based, namely clauses 4.1 and 4.3. By clause 4.1 of the

Schemes, PO will be appointed as agent and attorney under a power of attorney on behalf of

the Scheme Creditors to execute the Implementation Deed (and to perform certain other

actions in relation to it). The rationale behind this provision (which the petitioners describe

1) In order for the Schemes to become effective, the Implementation Deed must

2) In theory, the Scheme could require the Scheme Creditors themselves to

execute the Implementation Deed (and to comply with any other appropriate

3) However, this approach would suffer from serious practical difficulties.

There is no guarantee that the Scheme Creditors would execute the

Implementation Deed in good time or at all. That is particularly true in

4) In order to avoid these difficulties, Clause 4.1 of the Schemes simply appoints

the Parent Company as agent and attorney on behalf of the Scheme Creditors

to execute the Implementation Deed (and to perform various other actions

“The authority granted under Clause 4.1 above in favour of an Attorney under the

Schemes shall also be treated for all purposes whatsoever and without limitation as

The first respondent’s ground of challenge to the use of these to constitute PO an attorney of the

[218] Under reference to section 1 of the Powers of Attorney Act 1971 (“the 1971 Act”) and

section 47 of the 2006 Act, the first respondent submits that as a matter of English law “a

Scottish company signing an English law deed by Power of Attorney would need an English

law power of attorney to do so” (Answer 4.10). Section 1(1) of the 1971 Act provides “(1) An

instrument creating a power of attorney shall be executed as a deed by the donor of the

“(1) Under the law of England and Wales or Northern Ireland a company may, by

instrument executed as a deed, empower a person, either generally or in respect of

specified matters, as its attorney to execute deeds or other documents on its

[219] The first respondent’s short point is that, unless the Scheme Creditors actually

execute a deed appointing PO as their attorney for the purpose of executing the

Implementation Deed, then PO will not be validly appointed for that purpose. A scheme

with such a clause is not a deed granted by the donor of the power (ie the Scheme

Creditors), as section 1 of the 1971 Act requires. It submits that the issue can only be

resolved with the benefit of expert evidence of English law and it has produced a short

Opinion of David Alexander QC, of South Square Chambers, (“the Alexander Opinion”).

Consistent with his letter of instruction, which simply asked him to identify and recite the

relevant parts of the 1971 Act and the 2006 Act concerning powers of attorney and to

consider the effect of these provisions on the Schemes (and especially clause 4 and the

proposed Implementation Deed), Mr Alexander addresses only these provisions. (He gives

[220] Under reference to section 1(1) of the 1971 Act, Mr Alexander notes that it is a

requirement of English law that an appointment of a power of attorney can only be made by

deed executed by the donor of the power (para 13 of the Alexander Opinion) and that this

requirement extends to a company donor of the power (para 14). He notes that the same is

true if a company wishes to appoint a person as its attorney (per section 47 of the 2006 Act).

He also notes passages from the 10th edition of Bowstead on Agency (namely, article 10 at

page 70 and the comment thereon) and the case of Powell v London & Provincial Bank [1893] 2

Ch 555 which is quoted in the comment, and which are to the effect that an agent authorised

to execute a deed on behalf of his principal under a power of attorney must be given that

[221] From these he concludes that, if the Schemes were governed by English law,

clause 4.1 of the Schemes would “not appear to be a valid appointment” of PO as an

attorney of the Scheme Creditors (para 18). This is because a deed of the granter (ie, here,

each of the Scheme Creditors) is required; the Schemes are not such a deed. He refers to an

observation of Snowden J in Re Van Ganswewinkel Groep BV [2015] EWHC 2151 (Ch) (at

para 64), in which he appeared to accept this as a practical mechanism. However,

Mr Anderson points out (at para 21 of the Anderson Opinion) that this observation was

made without the benefit of argument or without the Court’s attention having been drawn

to the 1971 or 2006 Act provisions noted in the Alexander Opinion and which disallow this

[222] The petitioners invite the Court to reject that submission and they rely on the opinion

they have obtained from Daniel Bayfield QC (“the Bayfield Opinion”), also of South Square

“whether (as a matter of English Law) a Part 26 scheme of arrangement is capable of

granting an English law power of attorney to the scheme company such that the

scheme company may validly sign deeds, agreements and other documents

connected with implementation of the scheme on behalf of the scheme creditors?”

In Mr Bayfield’s opinion, a Part 26 scheme of arrangement can have that effect (although he

acknowledges (at para 14) that there is no binding authority on the point). He observes that

it has become common for schemes of arrangement promulgated before the courts in

England and Wales to include provisions of the type the first respondent challenges in these

applications and, further, that it is implicit that in sanctioning schemes with such clauses,

that the judges of the Chancery Division of the High Court of England and Wales consider

that a scheme of arrangement is capable of granting an effective authority or power of

attorney to the scheme company to enter into ancillary documents on behalf of creditors

bound by the scheme (para 15). He notes, too, that a number of judgments make it clear that

it is commonplace for the operative provisions of schemes proposed within the context of

restructuring an insolvent company to provide a like mechanism for execution of a number

of restructuring documents by an attorney appointed under the scheme to act on behalf of

[223] What leads Mr Bayfield to this conclusion is that a scheme of arrangement is given

effect by a combination of the Court’s order sanctioning the scheme (and which is “binding

on … all creditors”: section 899(3)(a)) and its delivery to the registrar of companies

(section 899(4)). The essential point he makes is that a scheme has binding force not as a

matter of contract, but by virtue of the 2006 Act. In support of that he cites Lord Hoffman’s

observation (in Kempe v Ambassador Insurance Co [1988] 1 WLR 271 at 276D-E)) that it is the

Act “which gives binding force to the scheme”. Upon sanction of a scheme by a court and

the delivery of a copy of the court order to the registrar, the scheme becomes effective

according to its terms. Accordingly, there is no need for compliance with any additional

formalities as would be required under the general law. So, for example, there is no need for

offer or acceptance (as would be required under the general principles of contract law) and,

by a parity of reasoning, there is no need to comply with the section 1 of the 1971 Act.

Accordingly, clause 4.1 is sufficient in its terms (so long as the Schemes are sanctioned and

[224] In relation to clause 4.3, which provides that authority granted under clause 4.1 shall

“be treated for all purposes whatsoever” as having been granted by a deed under English

law, in Mr Bayfield’s view, this is a “belt and braces” provision because clause 4.1 is

sufficient in his view. A clause such as clause 4.3 creates a fiction that the requisite power of

attorney was granted by deed. This, too, is given binding force by the 2006 Act.

[225] For completeness, Mr Bayfield notes, under reference to Phillips v Allan (1828) 108 ER

1120 (per Bayley J at 1121)), that regardless of the legality and effectiveness of clauses 4.1 and

4.3 as a matter of English law, a Scottish scheme sanctioned under the 2006 Act (an Act of

the UK Parliament) “would automatically be recognised in England”.

[226] Turning to the absence of binding precedent in England on the point at issue, he

notes that the point has never been raised by any applicant company, by opposing creditor

or by any judge considering a scheme promulgated before the English High Court, and that

is notwithstanding (i) that there is an obligation to raise issues going to jurisdiction or other

“roadblocks” (as this issue would be); (ii) that a company proposing a scheme has a duty to

make full and frank disclosure of all material facts (which would include this issue); and (iii)

that traditionally the judges themselves will raise such jurisdictional and other issues ex

proprio motu. Mr Bayfield fairly and rightly accepts that this is not determinative, and nor is

the fact that many schemes in England containing a similar clause have been sanctioned.

(He refers to the schedule appended to the Bayfield Opinion identifying 12 schemes

approved in the past two years with such clauses, including the 2017 Schemes approved by

the Court of Session). Nonetheless, Mr Bayfield is fortified in his view that clauses 4.1 and

4.3 are considered to be inoffensive by judges and Senior Counsel eminent in this field, and

he cites observations expressly about power of attorney clauses in four recent cases

determined by extremely experienced and careful judges: T&N Limited [2007] 1 All ER 851

(per David Richards J (as he then was) at para 55); Re Van Gansewinkel Groep Ltd, cit supra, (per

Snowden J at para 16); Re Global Garden Products Italy SpA [2017] BCC 637 ((per Snowden J at

para 11); and Noble cit supra (per Snowden J at para 24). He considered it unlikely that judges

of this eminence, or the skilled Senior Counsel appearing before them in such cases, would

be unaware of the 1971 Act, and “close to inconceivable” that these judges would have all

entirely missed this issue (or “roadblock”). For completeness, he notes that many of the

leading firms in this area of practice (among whom are the first respondent’s London

Agents) have advised and acted for scheme companies which have promulgated schemes

containing clauses similar to clauses 4.1 and 4.3 of the Schemes.

[227] I am not persuaded that the power of attorney issue gives rise to any issue of English

law. The short point is that clause 11.1 of the Schemes provides that they are governed by

Scots law and, furthermore, the interpretation or effect of Part 26 of the 2006 Act, as it bears

on a scheme of arrangement being considered by the Scottish Courts, are matters for the

Scottish Courts. No party suggested that, on the application of Scots law, clauses 4.1 or 4.3

gave rise to any “blot”. Nor was it suggested that there was any provision in Scots law akin

to section 1 of the 1971 Act. By virtue of section 899(3) of the 2006 Act, a scheme of

arrangement binds all the creditors regardless of whether they consent to it (and regardless

of whether they perform any formal act to record their consent). And I have noted above,

Mr Bayfield’s observation that a Scottish scheme sanctioned by this Court would

automatically be recognised in England (a point Mr Anderson did not address). That is

conclusive of this issue. Nonetheless, in the event that English law did properly apply to the

power of attorney issue, it is right that I express my opinion on the two opinions parties

[228] Mr Bayfield and Mr Anderson are both Senior Counsel experienced in this area of

practice. I need not rehearse their credentials. However, on the power of attorney issue I

find the reasoning in the Bayfield Opinion to be wholly persuasive. Schemes of

arrangements under Part 26 are creatures of statute. They are given binding force by virtue of

the 2006 Act. As Lord Hoffman observed, once a scheme becomes effective, its provisions

will be binding on their terms by operation of the 2006 Act. In respect of the power of

attorney issue, upon the Schemes becoming effective, clause 4.1 itself grants the irrevocable

authority. (Absent that clause (and clause 4.3) a separate power of attorney would be

required.) I also accept Mr Bayfield’s position that clause 4.1 alone suffices and that

clause 4.3 is another means by which the same practical result could be effected - it is a “belt

and braces” provision. Accordingly, even as a matter of English law, there is, therefore, no

need for a separate power of attorney or one which must comply with section 1 of the 1971

[229] Consistent with the scope of his instruction, Mr Anderson referred to section 47 of

the 2006 Act. In the present context, this is a red herring. Section 47 concerns the grant of a

power of attorney by a company; by contrast, the power of attorney issue relates to the grant

of powers of attorney to a company (PO). Perhaps mindful that he was only asked to

consider the relevant provisions of inter alia the 2006 Act “concerning formalities of powers

so attorney” and to “consider the effect of these provisions” (emphasis added),

Mr Anderson is tentative in his conclusions (“would not appear to be a valid

appointment.”). However, Mr Anderson did not address himself to the precedents and

practice narrated by Mr Bayfield (see paras 51 to 61 and the table of recent cases sanctioning

schemes (and the text of similar clauses) appended thereto). More importantly,

Mr Anderson did not consider section 899(3) of the 2006 Act, which in my view is

determinative of this issue if English law is relevant. For completeness, I note that

clause 11.1 of the Schemes provides that the Schemes are governed by and are construed in

accordance with the laws of Scotland. The reasoning underpinning Lord Hoffman’s

comments applies with equal force in Scotland. The efficacy of the Court’s order sanctioning

the Schemes is governed by section 899(3) and there is no doubt that the orders of this Court

under Part 26 are recognised in England and Wales. There was no suggestion by Mr

Anderson that, once the order of this court is brought into effect by intimation to the

Registrar of Companies, it would not be given effect to eg on the grounds of repugnancy or

[230] For these reasons, I find that neither the terms of clause 4.1 or of 4.3 constitute a blot

[231] While ARCM maintained that the Reporter has erred in his understanding of the

law, it is not necessary to address this. His approach to the law, and indeed to any issue, is

not binding on the Court. In any event, I have fully and carefully considered all issues and

materials (including those, such as the ARCM Materials, which he did not comment on). I

have also had the benefit of the parties’ written Submissions, the many authorities produced

to me (not all of which I have recorded in this Opinion) and three days of argument at the

[232] The hedge issue generated a considerable amount of heat and, it must be said, ill-

feeling amongst the parties. The petitioners and the Supporting Creditors cast doubt on

ARCM’s good faith and motives and urge me to discount ARCM’s complaints on this basis.

ARCM put in issue whether it is a hedge or a short, another issue they contend cannot be

resolved without proof. I am not persuaded that the hedge has any relevance to the issues

[233] Finally, I consider the first respondent’s motion for a proof, which was made at the

hearing on 8 March and renewed at the end of the Sanctions Hearing. Throughout my

consideration of the many issues, I have also borne in mind the first respondent’s motion for

a proof and its contention that there are areas of disputed fact necessitating this mode of

disposal. It will be apparent that I have not relied on the Report to resolve the issues; the

Reporter’s inability to resolve contested matters was one of the bases on which the first

respondent sought a proof (see para 156 of its Submissions). It will also be apparent from the

foregoing, that I have found that the matters canvassed in the ARCM Reports (and other

ARCM Materials) are not relevant to the issues to be determined by this Court, properly

analysed. Indeed, on none of the issues the first respondent identified (eg in its Note of

Proposals for Further Procedure or in its Submissions) do I find that evidence is either

necessary or would assist the Court in its determination of the issues. In relation to the

power of attorney issue, had I found that this was one which fell to be determined by

English law, I would not have considered a proof necessary to resolve this. While Senior

Counsel suggested that parole evidence was necessary to enable me to assess the credibility

and reliability of Mr Bayfield and Mr Anderson, I very much doubt this would have assisted

the Court: both are experts and it is rare for credibility and reliability to be an issue, much

less to be material, in the consideration of conflicting expert evidence. The critical factor in

preferring the Bayfield Opinion to the Anderson Opinion, is the thoroughness and cogency

of the reasoning of the former. No proof was needed, even on this issue.

[234] It follows that I will sanction the Schemes (as amended by a minor amendment the

petitioners proposed in the course of the Sanctions Hearing (and which no party opposed)).

I will reserve meantime the question of expenses and will further reserve and continue the

other outstanding motions to a by order afterwards to be fixed.

Scottish Court of Session Decisions