Oil’s Well That Ends in Court: Panel Lets Twinza’s Creditors’ Scheme Flow

Ahead of the Deal - Australian M&A Briefing

Background

WM Clough, a 27% ordinary shareholder in Twinza Oil Limited (Receivers and Managers Appointed), made an application seeking a declaration of unacceptable circumstances in relation to a proposed creditors’ scheme of arrangement in relation to Twinza. Under the scheme, certain secured creditors of Twinza would acquire voting power of 85% in Twinza by way of a debt for equity swap, and the voting power of the ordinary and preference shareholders of Twinza would be diluted to 5% and 10% respectively. Approximately 92% of the secured debt of Twinza is owed to funds managed by Tor Investment Management (Hong Kong) Limited.

WM Clough submitted that the proposed issue of shares to the secured creditors under the scheme was contrary to the purposes set out in section 602 of the Corporations Act because it provided control of Twinza to its secured creditors without ordinary shareholders of Twinza being given any opportunity either to participate in the transaction or vote as to whether the transaction should be approved. WM Clough sought an order requiring Twinza to obtain shareholder approval pursuant to item 7 of section 611 of the Corporations Act for the proposed issue of shares to the secured creditors under the scheme.

Role of Panel in creditors schemes of arrangement

While the power of the Panel to make a declaration of unacceptable circumstances is not limited to takeover bids and extends to other control transactions, including schemes of arrangement, the Panel has historically been reluctant to conduct proceedings once the Court has commenced its scrutiny of a scheme of arrangement. That is because the Court has the power to deal with all aspects of schemes of arrangement and the Panel's view that the breadth of the discretion conferred on the Court by subsection 411(17) of the Corporations Act evidences a legislative intention that the Courts be the forum for the resolution of issues relating to schemes. WM Clough had made its application to the Panel after the first Court hearing for the creditors scheme. The Panel said that in this case, the Court's involvement weighed against conducting proceedings.

The Panel noted that additional considerations must also be taken into account when deciding whether to conduct proceedings on an application relating to a creditors' scheme of arrangement. Specifically, where no equity value remains in the company, the purposes of Chapter 6 of the Corporations Act may have limited relevance. The Panel stated that it saw little benefit in conducting proceedings in this case if no equity value remained in the shares of Twinza. This is consistent with previous Panel decisions in relation to companies that were in receivership or administration (see for example, Quantum Graphite Limited (subject to Deed of Company Arrangement)).

Equity value

The independent expert engaged by Twinza to provide an independent expert report in relation to the creditors' scheme (the Independent Expert) had concluded that if the creditors' scheme did not proceed, the total debts owed to the lenders exceeded the value of Twinza's assets by between US$55 million and US$128 million. WM Clough raised some concerns with the valuation in the Independent Expert's report. The Panel applies a high threshold to question the correctness of an expert’s report. In the Panel's view, the Independent Expert's report provided a basis for the conclusion reached by the Independent Expert, while recognising that different experts may form different views in relation to key judgments (including risk adjustments) and accordingly reach a different conclusion. The Panel also noted that in any event they considered in this case the Court was the more appropriate forum in which this issue should be considered.

WM Clough also raised concerns that the dilution of ordinary shareholders and the proposed lack of shareholder approval for the scheme were contrary to the section 602 principles. The Panel stated that if there is no equity value remaining in Twinza's shares the purposes of Chapter 6 may have limited relevance. The Panel also noted that the issue of potential classes for existing shareholders was explicitly identified at the first Court hearing for the scheme and would be decided on a final basis at the second Court hearing.

Decision of the Panel

The Panel declined to conduct proceedings on the basis that it considered that the Court was the more appropriate forum to decide the issues raised by WM Clough for the reasons above including that Twinza was in receivership and the independent expert had concluded that if the scheme did not proceed there would likely be no equity value in the company.

Post script

WM Clough is now left to make its arguments at what looks like will be a highly contested second Court hearing for the scheme. Since the Panel decision, a total of 15 affidavits have been lodged with the Court by Twinza, WM Clough and other interested persons who have lodged appearances for the second Court hearing. The second Court hearing for the creditors scheme was originally listed for 23 September 2025 but has been adjourned to 17 October 2025 to allow the parties further time to file additional affidavits and submissions to address valuation issues and certain other matters. Watch this space…

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