Hurricane Energy Plc Failed Plan

• Published date: 06 July 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Shareholders
• Law Firm: Moon Beever
• Author: Mr Stephen Baister

A restructuring plan in respect of Hurricane Energy plc under section 901F Companies Act 2006 failed to achieve court sanction in circumstances in which it was supported by 100% of the company's bondholders but rejected by 92% of voting shareholders (Re Hurricane Energy plc [2021] EWHC 175 (Ch)).

The company was formed in 2004 to undertake oil extraction. It had raised US$300 million by an equity placing and US$230 million from the issue of convertible bonds. Difficulties had recently led to a significant reduction in the estimate of available oil reserves such that it was thought that extraction from one well in particular would become uneconomic in the first quarter of 2024.

The restructuring plan prompted by that projection envisaged:

(1) an extension of the maturity date of the bonds to 31 December 2024;

(2) a reduction of US$50 million in the capital amount due under the bonds;

(3) an increase in a cash coupon under the bonds from 7.5% to 9.4% per annum, and the introduction of an additional payment in kind coupon of 5% per annum;

(4) a cash sweep provision, so that if on any interest repayment date there was surplus cash, it would be used to make partial capital repayment of the bonds;

(5) provision of security and guarantees from the Company and two subsidiaries;

(6) the issue of shares to the bondholders, the effect of which would be that the bondholders would hold 95% of the diluted equity, with the existing shareholders retaining only 5% of the diluted equity.

The company would ultimately undertake an extended wind-down with a view to continuing oil production until it reached its economic limit (projected to be in the first quarter of 2024); subject to any possible further investment, all third-party claims would be settled and the company would be put into liquidation.

Certain shareholders opposed the sanctioning of the plan.

Zacaroli J noted the application to a restructuring plan of the matters the court would consider under Part 26 Companies Act as set out by Snowden J in Re Noble Group Ltd [2018] EWHC 3092 (Ch), but then turned his attention to the major difference between a Part 26 scheme and a plan under Part 26A where not all the relevant classes of creditors and/or members had approved the plan, namely the ability of the court to exercise its discretion under s 901G to sanction a plan notwithstanding the fact that one or more of the scheme classes had not approved it by the requisite majority (so-called "cross-class cram-down").

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