Part 26A scheme rejected

At the convening hearing the company had sought one meeting of the bondholders. The court however ordered a separate meeting of the shareholders to vote on the scheme on the grounds that they were affected by the scheme and the company had not sought at that hearing to argue that the shareholders had no genuine economic interest in the company. The bondholders subsequently voted in favour of the scheme and the shareholders voted against.

At the sanction hearing the court had to decide whether the vote of the shareholders could be “crammed down” under the Part 26A power so to do where the court was satisfied, inter alia, that, none of the members of the dissenting class would be any worse off under the scheme than they would be in the event of the “relevant alternative” (that being defined as whatever would be most likely to occur if the scheme were not sanctioned).

The court held that, had the shareholders had no genuine economic interest, that would have been critical, however, on the facts this was not established.

The court reasoned as follows:

  • This was not a case where the relevant alternative involved an immediate insolvency process.
  • If the relevant alternative was an immediate liquidation then the question would be whether the shareholders could expect some meaningful return in that liquidation. Where, however, the relevant alternative was that the company carry on trading for at least a further year, the shareholders were not required to identify the one strategy (or combinations of strategies) that the company was most likely to adopt as the relative alternative.
  • Rather, the fact that there was a realistic prospect that the company would be able to discharge its obligations to the bondholders (through continued trading, refinancing etc), leaving assets with at least potential for exploitation, was enough to refute the contention that the shareholders would be no better off under the relevant alternative.

The court accordingly rejected to sanction the scheme.

In re Hurricane Energy Plc [2021] EWHC 1759 (Ch)

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