Hurricane Energy: a failed cram down of a debt for equity swap
The refusal by the High Court to sanction the Hurricane Energy Part 26A restructuring plan requires reflection. The key thing to understand is the court's finding that the relevant alternative was not immediate or near-term insolvency - but that the company would continue to trade profitably for at least a year (and this was common ground between the parties). In this sense, it was unlike other recent plans. The court's decision not to sanction flowed from that finding, as it ultimately made it harder for the company to persuade the court that shareholders would be no worse-off under the plan than had they been left with 100% equity in a company trading profitably. It also formed the foundation for why the court would not, in any event, have been prepared to exercise its discretion to sanction.
In short, the plan sought to wipe out the equity at a time when it was far from clear that the equity had no value. The evidence around projected revenue streams and the ability to repay the bonds in July 2022 was inherently uncertain given the company’s continued trading prospects and the realistic options available to it to bridge any shortfall on maturity.
We think there are some key lessons for stakeholders to consider. You can read our alert and thoughts on the decision by clicking on "Read more" below and if you would like to discuss further, please get in touch with your usual Linklaters contact.