Schemes of Arrangement and Powers of Attorney - implicit in sanction or a fatal “blot”?
This is part one of a series of four articles addressing points of interest arising from the opinion of Lady Wolffe in the petitions of Premier Oil plc and Premier Oil UK for the sanction of schemes of arrangement under Part 26 of the Companies Act 2006.
You can find the related items listed at the foot of this page.
In one of very few contested petitions in Scotland for sanction of two schemes of arrangement under Part 26 of the Companies Act 2006 (“Part 26”)(the “Schemes”), Lady Wolffe’s opinion in Premier Oil plc and Premier Oil UK limited provides welcome clarity and guidance on the construction, application and interpretation of Part 26.
The Schemes were petitioned for by two Scottish companies. Premier Oil Plc (“PO”), the publicly listed parent company, and Premier Oil UK Limited (“POUK”), the principal operating company of the wider Premier Oil group (the “Group”). The Group focuses on the upstream exploitation of oil and gas assets throughout the world.
In 2017, the two companies had obtained sanction for a schemes of arrangement that, amongst other matters, had put in place a revised capital and debt structure. In terms of that 2017 refinancing, the liabilities under the group debt arrangements had a harmonised maturity date of 31 May 2021.
By late 2019, with the maturity date looming and in excess of $2.5 billion of outstanding debt, it became apparent to the directors of PO and POUK and their creditors that the imminent “debt wall” must be addressed. In the initial discussions with the creditors, it was accepted that, in the absence of a further extension of the maturity date, any potential refinancing of the group’s debt was impossible.
To address the forthcoming maturity date, the directors of the PO and POUK reached the view that the new Schemes would be required. The Schemes were designed to extend the maturity date to 30 November 2023, allow the funding of ongoing activities and improve the Group's financial position to facilitate a future refinancing of the Schemes’ debt facilities.
PO and POUK had the support of the majority of their creditors for the Schemes. The Second and Third Respondents (two separate and substantial groups of creditors by value), appeared at the Sanction Hearing of the Schemes in support of them. The First Respondent (a creditor and part of a group of entitles referred to as Asia Research and Capital Management Ltd Group (“ARCM”)) vigorously opposed the sanctioning of the scheme and submitted answers calling into question a number of the proposals contained in the scheme documents.
The Buckley Test
One of the core challenges to the Petitions by the First Respondent was that there were “blots” on the Schemes and their implementation.
This challenge is based on the fourth of the four stages for consideration of a scheme by the Courts as set out in the “Buckley Test”. The fourth limb of this test provides that the Court must consider if there is any “blot” or defect in the scheme that would make it unlawful or in any other way inoperable. In other words, is there a technical or legal defect in the scheme that would mean the court could not sanction it?
The Power of Attorney Question
On the basis that the Schemes were sanctioned, clause 4.1 of the Schemes were to authorise PO as an attorney (on behalf of the Scheme Creditors) to sign a number of deeds, including the “Implementation Deed” (an English law document) which was to be the principal document implementing the sanctioned proposals.
The rational for granting PO the power of attorney was primarily to ensure the expeditious execution of the Implementation Deed. In absence of such a power of attorney, the scheme would have to require each of the Scheme Creditors to execute the Implementation Deed. Not only would this lead to practical difficulties in co-ordinating this amongst the various creditors, notably, there was no guarantee that the Scheme Creditors would execute the Implementation Deed in good time or at all. Having the Schemes appoint PO as agent and attorney on behalf of the Scheme Creditors to execute the Implementation Deed was intended to avoid these problems.
However, ARCM asserted that the Schemes cannot validly appoint an agent or attorney to execute the Implementation Deed.
This argument was predicated on the position that, in order for a Scottish company to sign an English law deed on behalf of the Scheme Creditors, the Scottish company would require an English law power of attorney. If that position was correct, it was submitted by the First Respondent, that, when read together, section 1 of the Powers of Attorney Act 1971 (an act that extends only to England, Wales and Northern Ireland) and section 47 of the Companies Act 2006 required an instrument executed as a deed by the grantor in order to constitute a valid power of attorney - and that the court-sanctioned scheme would not constitute such an instrument.
So, unless the Scheme Creditors actually each executed a deed appointing PO as their attorney for the purpose of executing the Implementation Deed then PO would not be validly appointed for that purpose and would be unable to execute the Implementation Deed.
The Court’s Opinion
From the view of the court there were two points to address. First, was jurisdictional and whether English law relevant. Second, if English law was relevant, were the submissions by ARCM correct and therefore give rise to a “blot”.
In answer to the first question, Lady Wolffe was not persuaded that English law needed to be considered in order to address the power of attorney question. As the Schemes were governed by Scots Law, the interpretation or effect of Part 26 were matters for the Scottish Courts. Further, as no party had suggested that, on the application of Scots law, clause 4.1 of the Schemes gave rise to any “blot” or argued that that there was any equivalent to section 1 of the 1971 Act there was nothing for her Ladyship to consider. As the Scheme binds all creditors regardless of their consent to it and would automatically be recognised by the courts in England, this was conclusive of the issue.
Although Lady Wolffe had disposed of the question, she took the opportunity in her opinion to address the second question. In the event that English law did apply, the Court was persuaded by the Petitioners’ arguments that, as a matter of English law, a Part 26 scheme was capable of granting an English law power of attorney.
It was recognised that the Courts in England and Wales regularly include such provisions and in sanctioning schemes with these clauses they implicitly consider that a scheme is capable of granting an effective authority or power of attorney to the scheme company to enter into ancillary documents on behalf of scheme creditors.
A scheme is a creature of statute and has binding force not as a matter of contract, or by the signing of any instrument, but by virtue of the 2006 Act. When the scheme is sanctioned by the court, and a copy of the court order delivered to the registrar, the scheme becomes effective according to its terms – including any power of attorney contained in the scheme. Given this, there is no need for compliance with any additional formalities as would be required under the general law such as offer or acceptance or compliance with section 1 of the 1971 Act. Upon the Schemes becoming effective, clause 4.1 would grant Premier Oil Limited the necessary authority.
ARCM’s challenge was extremely novel, having not been raised by Petitioners, Respondents or Judges in any other Part 26 Scheme case in either Scotland or England – although there had been academic discussion around the issue. Nevertheless, Lady Wolffe’s decision brings welcome clarity as to the approach of the Scottish courts to such clauses which are often found in schemes and it is likely her detailed opinion has caused many to breathe a sigh of relief.
Part Two: Premier Oil: Class Composition
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