Petrofac - Case Update

Petrofac has secured Court approval of its Part 26A restructuring plans despite opposition from dissenting creditors Saipem and Samsung, but the company is not out of the woods yet, now facing appeals by the same creditors.

We last wrote about Petrofac in late March, when the oilfield services provider’s proposed creditor class composition was approved by the High Court. Saipem and Samsung had argued that there should not be single meetings of Senior Secured Funded Creditors, and that the members of the Ad Hoc Group should be extracted. The Court declined to fracture these classes, and the meetings were convened accordingly. Saipem and Samsung were initially refused permission to appeal in the reasons given in the convening order, but the Court of Appeal ultimately granted permission. The appeal has not yet been heard.

The vast majority of creditor classes voted overwhelmingly in favour of the plans, with a small number dissenting—most notably Saipem and Samsung, joint venture partners and unsecured creditors with significant exposure from a loss-making project. The dissenting creditors opposed the plans, arguing that the "relevant alternative" to the plans was not insolvency but a better restructuring proposal—or “Plan B”— a variant of the plans which would result in a better outcome for Saipem and Samsung. They also argued that the plans were unfair in their distribution of benefits, and that they would be worse off under the plans than an insolvency.

The High Court rejected these arguments, finding that Plan B was too speculative and unlikely to materialise given creditor fatigue, market risk, and a lack of support from new money investors. Therefore, liquidation was deemed the relevant alternative, and there was no evidence that Saipem and Samsung would be better off in a liquidation than under the proposed restructuring plans. Although Saipem and Samsung might gain competitive advantage from Petrofac’s collapse, the Court ruled that such “indirect economic benefits” were too remote to be considered under the statutory “no worse off” test. Finally, on fairness, the Court accepted that while the plans favoured secured creditors and new investors, this was justified by risk exposure and contribution to the restructuring, especially the injection of over US$226 million in new funds.

Ultimately, the Court concluded that the statutory conditions for cross-class cram-down were met and that the plans were fair and reasonable. Sanctioning the plans avoided an otherwise inevitable and value-destructive insolvency of the Petrofac Group.

The Court of Appeal has reserved 2 to 4 June for the appeal of the convening order, with any appeal of the sanction order expected to be heard at the same time.

Read the decision HERE.

Professionals involved:

• David Allison, KC, Henry Phillips, Ryan Perkins and Stefanie Wilkins of South Square (instructed by Linklaters) for Petrofac

• Daniel Bayfield, KC, and Dr Riz Mokal of South Square (instructed by Weil, Gotshal & Manges) for the Ad Hoc Group

• Andrew Thornton, KC of Erskine Chambers and Jon Colclough of South Square (instructed by Mayer Brown) for Saipem and Samsung

• Daniel Petrides of Wilberforce Chambers for the Retailer Investor Advocate