Not Plain Sailing: Signs of challenge to the Hurtigruten LME

The restructuring, implemented in February 2025 after a failed attempt to obtain near unanimous consent, was effected using the distressed disposal provisions in the intercreditor agreement. The transaction involved splitting the group into two companies, with existing Old Facility B debt transferred and extinguished following enforcement instructions from a majority instructing group, understood to be an ad hoc group holding approximately 75 to 80 percent of the debt.

The allocation of value under the transaction appears to have been materially asymmetric. Lenders saw their debt written off in exchange for a limited equity interest of approximately 2.5 percent in one entity, together with the opportunity to participate in a further 45 percent if they provided new money through Norwegian law bonds or loans. By contrast, 50 percent of that entity, and 100 percent of the other, was allocated to the ad hoc group. Non-consenting lenders were left with minimal recoveries, and those refusing to release claims were excluded entirely. Although the applicants voted against the proposal, it was implemented through the distressed disposal mechanism, with the ad hoc group directing the security trustee to transfer and extinguish the debt.

The applicants allege that this constituted an abuse of majority power. They argue that enforcement rights were exercised not for the benefit of the creditor class as a whole but to favour the ad hoc group, which extracted a disproportionate share of the restructuring value. From the decision is appears that the proposed claim would seek declarations that the enforcement instructions, and therefore the resulting debt transfer and extinguishment, were invalid.

To assess that claim, the applicants sought pre action disclosure of key materials, including the restructuring implementation deed, fairness opinions and documents evidencing the identity and economic interests of participating creditors. They argued that, absent disclosure, they could not determine who comprised the ad hoc group or how value had been allocated. The court agreed, finding the documents directly relevant and ordering disclosure on the basis that it would assist fair resolution and save costs. While declining to comment on the merits, the judge considered the claim legally coherent and one that called for a response.

This decision is significant less for its immediate procedural outcome and more for what it signals. The Hurtigruten restructuring included a number of LME style features, including majority driven enforcement, non pro rata outcomes and the allocation of enhanced recoveries to a controlling creditor group. The willingness of minority creditors to pursue an abuse of majority theory under English law, and the Court's apparent readiness to facilitate that challenge at an early stage, suggests a willingness by courts to scrutinise the legal basis upon which LME transactions are structured and implemented. Alongside other recent creditor challenges, including the developing challenge in the Selecta restructuring, this case underscores the growing litigation risk around European LMEs, particularly where value allocation appears materially skewed or where intercreditor mechanics are deployed in innovative ways.

More broadly, the case highlights two themes likely to be of continuing relevance. First, information asymmetry particularly as to ad hoc group composition, cross holdings and economic outcomes is emerging as a key battleground, with courts willing to intervene to level the playing field. Secondly, the boundaries of majority power under intercreditor agreements, and the extent to which those powers can be used to effect substantial debt for equity or value redistributive outcomes, are likely to come under increasing judicial scrutiny. The emergence of challenges in transactions such as Selecta and Hunkemoller, alongside Hurtigruten, reinforces a broader trend of creditor-on-creditor violence being tested before the courts. Market participants can expect further challenges and should assess carefully how enforcement driven restructurings are structured and justified in anticipation of action from creditors outside the instructing ad hoc group.

Authored by Jonathan Morris.