Madagascar Oil: different treatment of equal creditors deemed fair in English restructuring plan

In one of the first restructuring plan judgments since the Court of Appeal's decision in Petrofac (see our alert here) the claims of two equal creditors were given different treatment under the plan, with one used to cram down the other.

Background

Madagascar Oil Ltd (MOL) is an intermediary holding company with a majority shareholding in Madagascar Oil S.A. (MOSA). The ultimate parent company of the group is BMK Resources Limited (BMK), one of two plan creditors, alongside Outrider Master Fund LLP (Outrider).

The plan was proposed to restructure MOL's debt so that MOSA may restart oil production at a site in Madagascar.

The plan

Under the plan, BMK would provide US$7.5 million of new capital and would retain its equity in MOL and its US$600 million intercompany loan. Outrider's debt would be written off in full and it could choose either an upfront cash payment of US$200,000 or a yearly payment of 1.25% of MOSA's net revenue for 12 years.

Outrider asserted that the plan:

• was unfair
• left it "worse off"
• was a means to avoid the group's liability to Outrider and stifle insolvency proceedings against MOL. 

Decision 

The court held that the relevant alternative to the plan was a liquidation of MOL. BMK was an "in the money" creditor consenting to the plan, and Outrider's suggestion that it would be worse off under the plan was rejected. 

Although the question of fairness was more complex, Outrider's potential revenue being dependent on unpredictable factors, the court was satisfied that BMK intended to improve the position of MOSA and that its forecasts were realistic.

The court sanctioned the plan, using its discretion to cram down the dissenting Outrider class.

Key takeaways

• This judgment highlights the challenges facing dissenting creditors holding out for "a better deal".
• Different treatment of creditors with equal footing can still be seen as fair.
• Unlike in Petrofac, the court did not insist that MOL evidence that the new money was on market terms, but the argument was only raised by Outrider at a late stage.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.

Re Madagascar Oil Limited [2025] EWHC 2129 (Ch)