Introduction

The case of Premier Oil PLC ("PO") and Premier Oil UK Limited ("POUK") seeking sanction of Schemes of Arrangement, adjudicated by the Scottish Court of Session on April 29, 2020, represents a pivotal moment in corporate restructuring law. The Schemes aimed to address the Group's significant indebtedness by extending debt maturities and facilitating acquisitions, thereby enhancing the company's financial position.

Parties Involved:

• Petitioners: Premier Oil PLC (public company) and Premier Oil UK Limited (private company).
• First Respondent: Fund III Investment 1 (Cayman) Limited, part of the Asia Research and Capital Management Ltd Group ("ARCM"), representing the largest single creditor group opposing the Schemes.
• Second and Third Respondents: Borland QC and Burness Paull LLP, representing the Supporting Creditors.

The key issues revolved around the legality of the Schemes under Part 26 of the Companies Act 2006, the composition and fairness of creditor classes, and the potential impact on various creditor rights and interests.

Summary of the Judgment

The Scottish Court of Session, presided over by Lady Wolffe, meticulously evaluated the petitions using the established Buckley test, a four-stage framework designed to assess the validity and fairness of Schemes of Arrangement.

Main Findings:

• Stage 1: The Court confirmed that the procedural requirements under Part 26 of the Companies Act 2006 were duly met. This included proper class composition, attainment of statutory majorities, and adequacy of the Explanatory Statement provided to creditors.
• Stage 2: The Court found that the classes of creditors were fairly represented at the Scheme Meetings and that there was no coercion or existence of special interests that could undermine the integrity of the Schemes.
• Stage 3: The Schemes were deemed fair and reasonable, aligning with the commercial interests of the majority of creditors, and were not subject to undue influence or disparities that would render them unacceptable to an intelligent and honest creditor.
• Stage 4: No legal or technical blots were identified that would preclude the Court from sanctioning the Schemes.

Consequently, the Court sanctioned the Schemes, allowing Premier Oil PLC and Premier Oil UK Limited to proceed with their corporate restructuring plans.

Analysis

Precedents Cited

The judgment extensively referenced several landmark cases that shaped the Court's approach to handling complex Schemes of Arrangement:

• Re Hawk Insurance - Established the two-stage Buckley test for class composition, emphasizing the similarity of rights among creditors.
• Re Noble Group Ltd (No. 2) - Restated the Buckley test, reinforcing the need for schemes to be fair and to have proper class representation.
• Re Telewest Communications plc - Highlighted the importance of majority agreement in schemes without becoming instruments of oppression.
• Re Cooperative Bank plc - Emphasized a flexible approach to assessing insolvency risks within schemes.
• Re McCarthy & Stone plc - Clarified that variations in contractual terms do not inherently fracture creditor classes.

Legal Reasoning

The Court's legal reasoning was anchored in the generous discretion afforded under Part 26 of the Companies Act 2006, allowing for flexible and commercially pragmatic restructuring solutions. Key points include:

• Class Composition: The Court upheld the division of creditors into two primary classes—Super Senior Creditors and Senior Creditors—based on the fundamental similarities in their legal rights and their collective economic interests.
• Fair Representation: High turnout and overwhelming support from both classes at the Scheme Meetings indicated fair representation and genuine consent, mitigating concerns of undue influence or special interests.
• Power of Attorney: The Court dismissed challenges regarding the appointment of PO as an attorney on behalf of Scheme Creditors, recognizing the provisions as compliant with statutory requirements and customary in successful schemes.
• Special Interests: Allegations of special interests, such as differential interest rates and associated fees, were found insufficient to fracture the creditor classes, especially given the harmonization efforts and the overall benefits conferred by the Schemes.

Moreover, the Court underscored the importance of a holistic view, assessing the Schemes in their entirety rather than in isolation, thereby reaffirming the interconnected nature of the Schemes' constituent elements.

Impact

This judgment has significant implications for future corporate restructurings involving Schemes of Arrangement:

• Reaffirmation of Broad Discretion: The Court's decision reinforces the broad discretionary power under Part 26, enabling companies to pursue complex restructuring plans even in the face of significant challenges.
• Flexibility in Class Composition: It sets a precedent for grouping creditors into classes based on the similarity of legal rights and collective economic interests, rather than on narrower or more fragmented criteria.
• Handling of Special Interests: The judgment clarifies that as long as the overall scheme is fair and benefits the majority, variations in specific contractual terms do not necessarily impinge on the scheme's legitimacy.
• Power of Attorney Provisions: It provides clarity on the acceptability of appointing company attorneys within Schemes, streamlining the execution process of complex restructurings.

Overall, the decision paves the way for more nuanced and tailored Schemes of Arrangement, accommodating diverse creditor structures and fostering efficient corporate turnarounds.

Complex Concepts Simplified

Part 26 of the Companies Act 2006

Part 26 provides the legal framework for Schemes of Arrangement, allowing companies to reorganize their debts and operations through a court-sanctioned arrangement with their creditors or members. This facilitates complex restructurings that may involve altering creditor rights, merging creditor groups, or approving significant corporate transactions.

The Buckley Test

The Buckley test is a judicial framework used to assess the validity and fairness of a Scheme of Arrangement. It comprises four stages:

1. Compliance with statutory procedures, including proper class composition and adequate explanatory statements.
2. Fair representation of creditor classes and absence of coercion or special interests.
3. Assessment of the scheme's fairness and reasonableness from the perspective of the creditors.
4. Verification that there are no legal or technical defects (blots) in the scheme.

Class Composition

Class composition refers to the grouping of creditors based on the similarity of their legal rights and economic interests. Proper class composition ensures that Schemes of Arrangement are not exploited to favor particular creditors over others, maintaining fairness and equity in the restructuring process.

Power of Attorney in Schemes

Within a Scheme of Arrangement, the Power of Attorney allows the appointed attorney (in this case, PO) to execute necessary deeds and documents on behalf of the creditors. This streamlines the implementation of the scheme, ensuring that contractual obligations and restructuring plans are carried out efficiently and consistently.

Special Interests vs. Legal Rights

Special interests refer to unique benefits or obligations that affect certain creditors differently within a scheme. In contrast, legal rights are the fundamental entitlements creditors hold based on their contractual agreements. The Court differentiates between these two to assess whether any creditor group is unfairly favored or disadvantaged, ensuring the scheme's integrity.

Conclusion

The ruling by the Scottish Court of Session in the Premier Oil PLC & Premier Oil UK Ltd case stands as a testament to the Court's commitment to facilitating effective and fair corporate restructurings through Schemes of Arrangement. By steadfastly applying the Buckley test and addressing nuanced challenges related to class composition and special interests, the Court has underscored the robustness and flexibility of Part 26 of the Companies Act 2006.

Key Takeaways:

• The Court maintains a balanced approach, ensuring that Schemes of Arrangement are both procedurally sound and substantively fair.
• Proper class composition, based on legal rights and collective economic interests, is paramount in gaining sanction for complex schemes.
• Variations in specific contractual terms, such as interest rates, are permissible provided they do not undermine the scheme's overall fairness and integrity.
• The appointment of power of attorney within schemes is affirmed as a valid and efficient mechanism for executing requisite documents.

As a broader legal implication, this judgment provides a clear blueprint for companies and their legal advisors in navigating the intricacies of corporate restructuring, ensuring that Schemes of Arrangement can be employed as powerful tools for organizational rejuvenation and debt management.