Madagascar Oil - Case Update

The High Court has sanctioned the Part 26A restructuring plan of Madagascar Oil over the objections of junior creditor Outrider Master Fund, finding that the plan represents a fair allocation of the restructuring surplus between the plan creditors, and rejecting Outrider’s late-breaking “subject to contract” offer as a viable alternative.

Madagascar Oil is a Mauritius company and the 99.8% shareholder of Madagascar Oil S.A. (MOSA). Madagascar Oil’s principal assets comprise its shares in MOSA and the amounts due to it from MOSA under certain intercompany loans.

In late April, the High Court ordered that two separate meetings be convened to vote on the restructuring plan despite there being only two creditors—(1) BMK Resources, Madagascar Oil’s parent and principal funder, and (2) Outrider, a distressed debt investor currently in voluntary liquidation.

Key plan terms included (i) BMK providing new money—US$7.5m committed and US$12.5m uncommitted facilities—while compromising its own group claims; and (ii) Outrider receiving either an upfront US$200,000 payment or a revenue‑share right capped at US$1.45 million, plus a 19% “anti‑embarrassment” share on any change of control within three years.

BMK voted for the plan, while Outrider voted against, so Madagascar Oil sought cross-class cram down. The Court held that the statutory conditions were met and exercised its discretion to sanction, finding that the meetings were properly conducted, Outrider would be no worse off in the relevant alternative, BMK would actually be “in the money” in that alternative, and the plan was fair in how it allocated the benefits of the restructuring.

On the “relevant alternative”, the Court considered that Madagascar Oil would likely enter liquidation and its shares in MOSA would most likely be sold to BMK, which would pay the liquidation costs, yielding a de minimis dividend to creditors. Outrider’s late‑breaking, “subject to contract” bid (US$700,000 for the MOSA shares) and third‑party funding expressions of interest were treated as inchoate and not the most likely outcome. Having rejected Outrider’s arguments, the Court held that Condition A was satisfied (Outrider would be no worse off than in the relevant alternative) and, because BMK would recover ahead of Outrider in that alternative, Condition B was also met (the plan’s distribution of benefits was fair).

The Court also concluded that there was a reasonable prospect the Mauritian courts would recognise any sanction order both under the UNCITRAL Model Law (as enacted in Mauritius) and via the exequatur procedure. Accordingly, the Court was not acting in vain by sanctioning.

Read the decision HERE.

Professionals involved:

• Mark Phillips KC, Matthew Abraham and Rabin Kok of South Square (instructed by Shoosmiths) for Madagascar Oil

• Matthew Weaver KC and Katie Longstaff of Radcliffe Chambers (instructed by Trowers & Hamlins) for Outrider Master Fund