Hurricane Energy Refusal Reorganization – Bad Wind for Shareholders?

The Supreme Court For the first time since the law was enacted in June 2020, he has refused to plan for a sub-divisional reorganization under Section 26A of the Companies Act. By Hurricane Energy Plc [2021] EWHC 1759 (Ch), the court rejected the shareholders’ plan of better alternative (that is, “there is no worse situation”). This ruling provides important guidance on how an argumentative party (in this case, the company’s shareholders) can show ‘real hope’ for a better outcome without the plan.

Key picks

  • The burden of proof lies with the party to the plan.
  • If it is possible to prove that there is a “real hope” for a division under the wrong option, then “no worse” is not possible. It is not necessary to prove that it is “the most probable outcome”.
  • When a plan prohibits a significant return on their fixed investment and there is no immediate financial crisis, “special precautions” must be taken in the application of class-level congestion.
  • If shareholders do not have a real economic interest in the company (ie, “they are out of money”), “those in the money” (such as bond shareholders) will be given more weight by the creditors.
  • Determining whether or not the shareholders are out of the money (1) determining whether the ‘worse’ situation is met, and (2) the court’s decision.
  • Under the Companies Act s901G, the court’s jurisdiction over the reorganization plan is fully considered, and in making its decision, the court takes into account a variety of factors, including whether the proposed plan accurately divides the value between the parties. Stakeholders.


Oil and Gas Company listed by Hurricane Energy PLC has announced plans to restructure its $ 230 million bond debt by the end of July 2022. In return for debt consolidation and bonds extension in return to bank shareholders. The plan reduced the current shareholders’ interest in the company to 5% and this would not give any “meaningful return” to shareholders.

Although 100% of the bondholders present at the meeting voted unanimously in favor of the plan, there was strong opposition from the shareholders, with more than 90% of those voting in favor. The court has been asked to approve a plan by Crystal Amber Fund Limited, a key institutional investor.

Rehabilitation plans in accordance with Section 26A of the Companies Act

According to Section 26 of the Companies Act, event planning is a well-established tool for companies that want to reorganize events with lenders or members. If the relevant change (s) introduced in Section 26a is contrary to the Rehabilitation Plan, s901G provides a mechanism for the court to ‘overcrowd’ the court with the appropriate section or sections. In contrast, according to the Section 26 program, each party has an effective Vito. See ours for more information on the Reformation.

Considering the impact of the court’s ‘overcrowding’ powers, two conditions must be met before the court can decide whether to use the decision.

  • Condition a

    If the redevelopment plan is sanctioned, the court must ensure that none of the divided members will be worse off if it is a ‘reasonable option’ (‘no worse’). For these purposes, any “relevant option” that the court considers to have occurred in connection with the company if the redevelopment plan is not in accordance with Article 901F.

  • Condition b
    The restructuring plan must be approved by at least 75% of the “appropriate options” in the presence of at least one lender or member who has a real economic interest in the company.

An ‘Appropriate Option’ Analysis in a Storm Plan

Condition B is clearly satisfied; The bond shareholder has approved the plan and will receive payment accordingly.

To assess whether a condition has been met, the court took 3 steps: 1) Identify what will happen to the company if the plan is not put in place; ii) Determining the consequences for shareholders; And iii) Comparing that effect with the potential effect on shareholders is prohibited.

With respect to Level 1, it is generally accepted that there is no risk of a future sewer crisis. The most likely outcome in the short and medium term was that the company would continue to be profitable for at least a year and that such transactions would benefit all stakeholders.

If the plan is sanctioned in relation to Stage 3, the consequences of the shareholders’ “No meaningful return” are widely accepted.

The debate focused on stage 2. What will happen to shareholders if the plan is not approved?

The court ruled that the company did not offer the “appropriate option” by recovering 76.4 percent of its bond debt (and no recourse to shareholders). Relevant Option In a lucrative business for another year (as opposed to immediate bankruptcy), shareholders (as the company suggests) are not required to identify a strategy for the company that year. The chances of acceptance are high. It is also not necessary for them (as described by the company) to specify a specific value for any future revenue stream. It is sufficient for the shareholders to identify ‘possible course’ action ” that is more financially viable than the outcome of the plan. The burden of the node congestion application is on those who present the plan, and not those who oppose it.

As a result, shareholders have identified a number of potential investment strategies for their potential trading year. Since there is no ‘meaningful return’ according to the plan, it is not surprising that one of the alternative strategies that the court will give to shareholders is to have a realistic and non-compliant situation.

What does this mean for classroom congestion?

One of the key differences between this situation and that Re-Virgin Active Holdings (See our previous article here) The plan was sanctioned, there was no risk of bankruptcy in this situation. In the face of a lucrative trade deal, this could be a major setback for lenders seeking a court order that permanently violates the rights of the opposition. Zakaroli J. emphasized:As such, special care must be taken in the implementation of the narrow-down supply chain, which deprives all members of the opposition except the interest group within the company.‘.

Although the court did not meet the requirements for node congestion, it found that it did not use its license to approve the plan under any circumstances. The reasons for the court’s decision can be summed up in a good way.There is no other reason for the urgency, which means that the bonds must be reorganized now. In particular, [ad hoc committee of bondholders’] The desire to gain control of the company is not a good reason to lose its shareholding in the company, rather than expecting the shareholders’ real performance in the coming months to improve the attitude of the shareholders.

Urgency and the risk of board replacement

The court did not appear to be surprised by the urgency of the application. Despite the fact that the hearing was held and the verdict was expedited, the reason for the trip was not really clear.

One of the reasons the company needed to be sanctioned before the next AGM was because the company’s board was expected to be replaced by Crystal Amber. When board members were replaced, it was acknowledged that the company was more likely to come up with a plan.

The Interim Committee of Bond Shareholders opposed the Board changes proposed by Crystal Amber. He said the new board should consider the need for an independent sewer immediately to protect the interests of lenders if it takes a vote and takes action against the regulatory framework. .

However, Zakaroli J. did not think that the need for a temporary committee to rush the board’s replacement was a matter of urgency. In the absence of a formal bankruptcy process, the court affirmed that shareholders, as unsecured bonds, had the joint right to replace the board at will. Therefore, the desire to replace the board was not a legal basis for urgency.

In addition, the Interim Committee of Zakarolli J. was not embarrassed by the embarrassing controversy, as part of his analysis that could have happened if the plan had not been drafted. Despite their current position, he said, bondholders could be persuaded to delay execution if the shortage was relatively small and the company continued to make a profitable trade. if so…. By next July, the company will be in the interest of securities to generate additional revenue to pay the bond to allow it to continue its business.“.


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