Ambatovy Minerals Société Anonyme and Dynatec Madagascar Société Anonyme - Case Update

The High Court has released its reasons for sanctioning the Part 26A restructuring plans of Madagascan companies Ambatovy Minerals Société Anonyme and Dynatec Madagascar Société Anonyme.

The companies are owned by Japanese company Sumitomo Corporation (54.2%) and Korea Mine Rehabilitation and Mineral Resources Corporation (45.8%) (the “Shareholders”) and operate the Ambatovy nickel and cobalt mine in Madagascar. The companies have faced severe financial difficulties in recent years due to declining nickel and cobalt prices, operational disruptions, and escalating losses. They previously restructured their financial liabilities in 2016, 2019 and 2021, but have continued to incur losses which have accelerated.

The restructuring plans aimed to inject US$140 million in new funds provided by the Shareholders and to discharge most of the "out of the money" financial debt so as to put the companies onto a stable financial footing. Key creditors included:

• the Super Senior Lenders, owed US$71 million. This emergency funding was provided in April 2024 to meet the plan companies' urgent liquidity needs. The opportunity to participate in the Super Senior Debt was extended to all financial creditors, but only the Shareholders were willing to provide the necessary funding. The Shareholders in their capacity as the holders of the Super Senior Debt are the Super Senior Lenders;

• the Senior Lenders, owed US$842 million. This funding was originally advanced in 2007 in the sum of US$2.1 billion but had been partially repaid and restructured down to approximately US$842m as a result of the previous consensual restructurings; and

• the Recovery Financing Lenders, owed US$814 million. The Recovery Financing Debt was former Senior Debt that was reconstituted during the 2021 consensual restructuring.

The restructuring plan proposed repaying Senior Lenders 5.45% of their debt, granting Recovery Financing Lenders only 0.05%, and writing down all prior financial obligations, except those held by the Shareholders. The Shareholders also also agreed to provide the Senior Lenders and the Recovery Financing Lenders a deferred payment mechanism to allow them to benefit if the mine became profitable before 2029.

The only creditor to vote against the plans was The Export-Import Bank of Korea (KEXIM), one of the ten Recovery Financing Lenders. However, because KEXIM’s debts comprised approximately 32.5% in value of the class, the Recovery Financing Lenders were deemed to be a dissenting class, meaning a cross-class cram down would be required to approve the plans.

The Court assessed whether the plans met the conditions under Part 26A, specifically ensuring creditors would not be worse off than in the alternative scenario (liquidation). The Court determined that the restructuring plans were fair, necessary, and the only viable option to prevent insolvency. Although KEXIM opposed the plan, its objections were dismissed because it had no economic interest in the alternative liquidation scenario.

In considering the weight to be given to the arguments of out of money creditors, the Court rejected the view espoused in previous cases that out of money creditors’ arguments are entirely irrelevant, finding that this would negate the overall obligation to consider fairness. However, the Court clarified that it will attribute little weight to these objections. The Court stated: “In the context of assessing overall fairness, the Court is entitled and bound to take account of all discernible objections, though (as already noted) it may ascribe little weight to unparticularised objections of differential treatment impliedly advanced by a particular class, if that class is in effect reliant simply on an abstract suggestion of being cut out of something it could never expect to have. In other words, the fact that an objection is made or attributed to a creditor with no realistic prospect of any share in the relevant alternative detracts in this context from its weight but not its relevance”.

The Court ultimately concluded that the plans were not unfair given KEXIM's reduced legitimate expectations, and the fact that, tested against the relevant alternative of liquidation, the Recovery Financing Lenders will receive a modest cash payment for the release of a worthless debt.

The decision can be accessed here.

Professionals involved:

• Daniel Bayfield KC and Jon Colclough of South Square (instructed by Sullivan & Cromwell) for the plan companies

• Henry Phillips of South Square (instructed by Millbank) for the supporting creditors group