Introduction
Part26A Restructuring Plans were first introduced into the insolvency regime on 26 June 2020, but in recent months we have seen rapid developments through case law. Adding to this canon was the Judgment handed down on 3 March 2023 in the case of Re Listrac Midco Limited and others [2023] EWHC 460 (Ch).
The case of Re Listrac Midco Limited is of interest to those in the restructuring sector in that it explores:
- the considerations the court has in sanctioning the convening of meetings;
- further instances where the court will be prepared to order a cross class cram down; and
- what constitutes "a meeting of creditors".
The Proposed Restructuring Plan
The proposed restructuring plans ("the RP") related to the rescue of seven companies that were part of the Lifeways Healthcare Group ("the Plan Companies"). The Plan Companies were heavily indebted to a syndicate of secured lenders. The RP's saw certain of those secured creditors acquiring the majority of the Plan Companies and providing additional new lending totalling £15m under a new super senior loan facility, in return as a whole the existing secured debt was written down from £190m to £88m.
In addition to the restructuring of the secured debt the RP's provided that certain other liabilities were modified or compromised (including Landlord claims), but in common with many similar RP's excluded and had no impact on other liabilities (including ordinary trade creditors).
The RP's compromised the claims of the Plan Companies, splitting them into categories (1) leases that were operating but over-rented (in which case, a rent reduction to market rent was applied) (2) leases that were non-operational/of no future use to the Plan Companies (in which case, all liabilities were released and reduced to nil), as well as (3) a wide variety of general unsecured creditors (including claims owed to certain former professional advisers and former members of the Plan Companies senior management).
Under the proposed RP's it was anticipated that creditors would receive 10% more than they would in the relevant alternative (insolvent administration or liquidation).
Convening Meetings
At the convening hearing in January 2023 the Court sanctioned twenty-two plan meetings across the Plan Companies but rejected the arguments of Justin Tydeman, the group's former CEO to include an additional voting class comprising of the current and former members of management who had been granted class B shares in one of the companies, Listrac Midco Limited (“Midco”) on the basis that they were persons affected by the plans within the meaning of CA 2006, s.901C(3).
Trower J decided that based on the fact that those shareholders would continue to hold their shares in Midco following the restructuring transaction, those shareholders would not be “affected” by the RP's and therefore do not need to be summoned to vote on their terms. The judgment detailing the considerations taken into account can be accessed via the following link: Listrac Midco Ltd & Ors, Re [2023] EWHC 78 (Ch.
The Creditor Meetings
On 9 February 2023 for four of the Plan Companies the requisite voting thresholds of 75% in value of those present and voting per class of creditors were met. The results for the other three companies were mixed. While the RP for each of those companies was approved by at least one class with the requisite majority, in each case, one or more classes also voted against the RP. It was of note that in respect of the meetings of those dissenting classes attendance was limited to only one single creditor.
The Sanction Hearing – Cram Down
Because the requisite majority of certain classes of creditors for three of the Plan Companies was not achieved the court had to consider whether to exercise its cross-class cram down powers under s.901G of the CA 2006 at the sanction hearing in late February 2023.
In exercise of the discretion afforded to the court Adam Johnson J considered the impact of low turnout amongst dissenting classes. In Re Altitude Scaffolding [2006] EWHC 1401 (Ch) the court decided a meeting held by a single creditor is not a meeting at all (in the context of a scheme of arrangement). The court thus had to consider if the meetings of the dissenting classes attended by a single creditor even constituted a "meeting".
The court looked at the purpose of s.901G, which it decided was to enable the court to sanction a plan where there had been a failure by one or more classes to agree it by the requisite 75% majority. Provided that the other conditions were met the court was satisfied that it was not relevant that the meeting was well-attended, attended by a sole creditor or indeed whether anyone attended at all.
Adam Johnson J concluded that there was no requirement for qualifying meetings of dissenting classes to have taken place in order to utilise the cross-class cramdown power under s.901G, and therefore sanctioned the RP's accordingly.
Summary
The decision in Re Listrac Midco Ltd and others provides helpful guidance on the use of restructuring plans in both the regulated healthcare sector and more widely. The judge focused on the policy underlying cross-class cram down and raised a persuasive argument that dissenting creditors could otherwise block sanction by refusing to attend creditors meetings.
The court's confirmation that a restructuring plan cannot be defeated by classes of creditors who, through apathy or other reasons, refuse to vote or attend the plan meetings to which they have been summoned under s.901C of the CA 2006 will be welcomed.
Click here to access a copy of the full sanction hearing judgment.
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