Case No. CR-2016-000129

This is an application by Metinvest BV (“the Scheme Company”) for sanction of a scheme of arrangement referred to as the Second Moratorium Scheme pursuant to Part 26 of the Companies Act 2006.

It is important to note at the outset that the Second Moratorium Scheme is in very similar terms to a previous scheme sanctioned by this court on 29 January 2016, referred to as the First Moratorium Scheme. As their names imply, both schemes involve moratoria of debts of the Scheme Company. The debts in question are those under three series of Eurobonds issued by the Scheme Company, those falling into three classes referred to as the 2016 Notes, the 2017 Notes and the 2018 Notes. The Scheme Company is already in default in respect of each of those classes of Notes. In particular, it has defaulted on the 2016 Notes and that has triggered cross-defaults on the 2017 Notes and the 2018 Notes.

In addition to its indebtedness under the Notes, which was the subject of the First Moratorium Scheme and is proposed to be the subject of the Second Moratorium Scheme, the Scheme Company also has indebtedness under pre-export financing facilities, referred to as the PXF Facilities, with four syndicates of international commercial banks. Again, the Scheme Company is in default of its obligations under the PXF Facilities.

However, the PXF Facilities stand in a different position to the indebtedness under the Notes. The reason being that, in relation to the PXF facilities, the Scheme Company was able to enter into a contractual standstill arrangement until 1 December 2015, and then there was a further extension of the standstill until 27 May 2016. At present, the Scheme Company is seeking a further extension to the standstill agreement and it is anticipated that that will be agreed.

Accordingly, neither the First Moratorium Scheme nor the Second Moratorium Scheme dealt with the position under the PXF Facilities.

The moratorium under the First Moratorium Scheme provided for a moratorium on enforcement action by the holders of the Notes until 27 May 2016 in order to maintain the stability of the Scheme Company and its subsidiaries while the Scheme Company negotiated a restructuring proposal with an ad hoc committee of noteholders referred to as the Noteholder Committee.

Shortly before the expiry of the First Moratorium, non-binding heads of terms for a restructuring of both the Notes and the PXF Facilities was agreed.

Against that background, the purpose of the Second Moratorium Scheme is to continue the moratorium on enforcement action by noteholders until 30 September 2016, subject to extension to 30 November 2016 in certain circumstances or to early termination in other circumstances. Again, the purpose of the Second Moratorium is to maintain the stability of the group during the period in which the parties agree the documentation for and implementing the restructuring proposal set out in the non-binding heads of terms. Accordingly, all that the Second Moratorium Scheme seeks to do is to delay enforcement action by noteholders in order to enable a consensual restructuring of the indebtedness of the Scheme Company in accordance with the non-binding heads of terms.

It will be appreciated from what I have said before that the First Moratorium Scheme was considered by and sanctioned by this court. In the usual way, the First Moratorium Scheme was considered by the court in two stages.

First, there was an application for an order convening a meeting of creditors. That came before Proudman J on the 13 January 2016. On that occasion there had been written objections from some holders of the 2016 Notes. As a result, Proudman J gave detailed consideration to two issues in particular.

The first was whether it was appropriate for there to be a single class of creditors meeting in a single meeting in order to consider whether to approve the First Moratorium Scheme. She concluded, for the reasons that she gave in her judgment, that the appropriate comparator was insolvency and that the rights of the scheme creditors would be materially the same, or at least not sufficiently different to make it difficult for them to form a single class both before and after the scheme.

The second issue that Proudman J considered was the jurisdiction of this court to give sanction to the scheme of arrangement, the Scheme Company being a company registered in the Netherlands. She concluded, for the reasons that she gave, that the court did indeed have jurisdiction to sanction the scheme.

The reasoning and conclusion of Mrs. Justice Proudman on both points was followed by Asplin J when sanctioning the First Moratorium Scheme on 29 January 2016.

Likewise, so far as the present application is concerned, an application was made before Newey J for the convening of a meeting of creditors on 8 June 2016. Newey J followed the reasoning and decision of Proudman and Asplin JJ with regard to the First Moratorium Scheme, holding that there was no material difference with regard to the Second Moratorium Scheme either with regard to whether there should be a single class or with regard to the question of jurisdiction.

Pursuant to Newey J’s order, a scheme meeting was held of the scheme creditors on 28 June 2016. The Second Moratorium Scheme was approved by 100% both by number and value of the scheme creditors voting at the meeting either in person or by proxy. Furthermore, those voting represented approximately 85% by value of those entitled to vote. Yet further there has been no objection raised by any scheme creditor to the Second Moratorium Scheme.

Against that background I can turn without further ado to consider the matters of which the court needs to be satisfied if it is to sanction the scheme.

The first is whether there has been compliance with the statutory requirements. I am satisfied that there has indeed been compliance. First, the requisite statutory majorities were obtained by a substantial margin at the scheme meeting. Secondly, that there has been compliance with the terms of the convening order. Thirdly, as regards whether the classes in respect of the Second Moratorium Scheme were properly constituted, I see no reason to differ from the view taken by Newey J at the convening hearing following, as he did, the reasoning of Proudman J on the occasion of the meeting for the First Moratorium Scheme.

Turning to the second requirement, which is whether the class was fairly represented and a majority acted in a bona fide manner, it seems to me that there can really be only one answer. As I have already noted, the outcome of the vote was entirely unanimous. Furthermore, the turnout was very high at approaching 85%.

As regards the question of whether the scheme is one which it is appropriate for the court to sanction, again it seems to me that the position is very clear. As I have already stated, this is a case where the scheme has been unanimously approved by the scheme creditors who voted and the turnout was a very high one.

The court is, of course, not bound by the outcome of the meetings; but, in those circumstances, the court would require a good reason before concluding that the scheme was not one which an intelligent and honest person, who was a member of the current standing acting in respect of their own interest, would wish to approve.

Moreover, there are clear objective reasons why the majority voted as they did. In the first place, given that the appropriate comparator is insolvency, the evidence before the court is that, even on an orderly realisation of the assets of the Scheme Company and those in its group, the noteholders would be likely to recover no more than 46 cents in the dollar.

However, it is at least possible and indeed in my view not unlikely, that an orderly realisation would not in fact be possible. The bulk of the group’s assets are in Ukraine and, in particular, Eastern Ukraine. The Scheme Company and those in its group have encountered financial difficulties for two reasons. First, because of the unfortunate political situation in Eastern Ukraine in recent years. Secondly, because of the state of the world’s steel market, the group being engaged in the steel business. Having regard, in particular to the first of those factors, there must be a very real concern that an orderly realisation of assets would not in fact be possible, in which case the likelihood is that creditors would get even less than 46 cents in the dollar.

By contrast, what is proposed under the non-binding heads of terms that have been agreed, is a restructuring of the group’s indebtedness which will involve full repayment of the principal amounts, albeit at a delayed maturity.

In those circumstances, I am fully satisfied that this is a scheme which should be sanctioned by the court, bearing in mind as I have already pointed out, that the only effect of the Second Moratorium Scheme is to impose a standstill with regard to the enforcement action by noteholders. It will be for, as I understand it, a further application for a scheme to consider the sanctioning of any final agreement that will be entered into pursuant to the non-binding heads of terms.

Also, I would observe that the court has already sanctioned one moratorium. This is simply a further extension of that moratorium in effect.

Finally, I turn to what is in fact probably logically the first question, which is that of jurisdiction. As I have already pointed out, Newey J was satisfied that the court had jurisdiction. In doing so he followed the decision of Proudman J who had considered the matter in detail in her judgment. I see no reason at all to differ from the view taken by Proudman and Newey JJ on that point. I am satisfied that the court does have jurisdiction.

For all of those reasons, I will sanction the Second Moratorium Scheme and I will make an order in the form proposed.