The petitioning creditor, rather than the Company itself, sought the appointment of JPLs for the restructuring. Prior attempts between the petitioner and Company for an out-of-court workout had been unsuccessful.

1. The petition was an abuse of process and should be dismissed since there was no intention by the petitioner to wind up the Company, but rather, the petition was presented so as to pressure the Company to pay the debt.
2. The Company had appointed two non-executive independent directors from a reputable financial consultancy firm and had engaged that firm for a minimum period of three months to conduct a review of the business and operations of the Company and investigate a debt restructuring. The appointment of JPLs was, therefore unnecessary.
3. As the only third-party creditor was the petitioner, the statutory stay of proceedings, one of the main reasons for appointing “light touch” JPLs, was not necessary.
4. With only two substantive creditors (the petitioner and an internal creditor), it was not appropriate to restructure the petitioner’s debt via a scheme of arrangement. Rather, what was required was a compromise of the petitioner’s debt through bilateral negotiations with the Company.
5. The appointment of JPLs may place the Company’s main asset, being a contract to develop and explore oil and gas in Madagascar, in jeopardy.

The Court held that the petition and the application for appointment of JPLs should be adjourned for a period of approximately three months from the engagement by the Company of the independent financial consultancy firm.

• It was commonplace and permissible for a creditor to present a winding up petition for the purpose of leveraging its negotiating position for payment of its debt, recognising that leverage was always in the background in all civil litigation and a winding up petition was no exception; and
• A petitioner was entitled to seek to appoint JPLs to restructure a company’s debts on the understanding that the company will likely be wound up if the restructuring fails.

In relation to the appointment of JPLs, the Court held that not only would such appointment have a potentially devastating effect on the value of the Company’s assets, but a statutory stay was not required, there were financial advisors to assist a restructuring and independent directors to oversee the process, and the parties would know by mid-March whether a restructuring would be successful. These constituted exceptional circumstances with the hearing adjourned to mid-March 2023. During the interim period, the parties were again unable to agree a restructuring of the Company’s debt. At the March hearing, a validation order was made together with the appointment of JPLs without any limitation on their powers. The Court further adjourned the petition until late May, and directed that the JPLs file a report and provide an update on the status of restructuring and prospects of a successful deal being reached.

This case demonstrates the flexibility of the Supreme Court of Bermuda (compared with other offshore jurisdictions like the Cayman Islands) where a restructuring provisional liquidator can be appointed – not only by the company, but also by the creditors.

Harneys appeared for the internal creditor of the Company and the decision shows that the Court will readily take a holistic and pragmatic approach to the given factual scenario in a winding up proceeding.

Harneys is offshore counsel to other distressed energy companies for their restructurings following the impacts of global supply chain crisis and COVID-19.

Copy of the judgment is available here.