While it may seem as though there has been a flurry of restructuring activity in the news and in the courts over the last few months, in fact there have still only been 30 Part 26 Restructuring Plans sanctioned, since the process became available in 2020 (according to the latest Insolvency Service statistics).
Despite the limited number of sanctioned plans, those that do proceed through the courts provide useful commentary and guidance on the complex legal and practical issues that can arise when implementing a restructuring plan.
In this article we summarise some of the most high-profile plans and court decisions handed down since January 2024, when the Court of Appeal gave its judgment on the Adler Group SA plan. Some of the key issues addressed in the Adler decision included what tests should be satisfied when exercising the cross-class cramdown, key considerations for companies when preparing plan proposals and the need to act quickly when commencing plan proceedings.
The cases this article explores raise a number of interesting points for those working in this space and provide lessons for creditors responding to plan proposals.
February 2024 – McDermott [1]
This was one of the first plans to come before the courts after the decision in Adler.
The restructuring plan was proposed by an English subsidiary of the McDermott Group, which is headquartered in Texas and operates in the Energy, Construction, Technology, Automotive, Transport and Defence sectors.
At the relevant plan meetings the secured creditor classes approved the plan, but the plan was actively opposed by Reficar, an unsecured arbitration creditor, owed over $1.3bn.
Following a six-day hearing, Green J sanctioned the plan, however negotiations with Reficar continued up to the last day of the sanction hearing. The judge criticised the conduct of Reficar and its continued opposition to the plan, even when offered a “generous” settlement by the company. In his judgment, Green J commented: "It is unfortunate that Reficar was unable to agree the deal that would have shortened the trial and would have meant that I was considering an unopposed plan".
McDermott demonstrates that the existence of a viable alternative to a plan (e.g. settlement) can complicate the discussions at the sanction hearing. The Court of Appeal in Adler) in Adler concluded that the court could consider whether "a fairer or improved plan might have been available". In McDermott the dissenting creditor couldn’t legitimately argue unfairness in view of the offered settlement as against the distribution it would receive if the plan was sanctioned. Why should the court not approve a plan which would provide the dissenting creditor with what would on the court’s view be fair.
March 2024 - Aggregate [2]
Aggregate is a German Real Estate group that proposed a plan with a view to restore the group to solvency.
The initial proposals included releasing €245m of subordinated debt for zero consideration. As a direct result of the decision in Adler, the company amended the terms of the plan to offer a "compromise" of €200,000 to the relevant creditors.
The court initially refused to sanction the plan on the basis that it could not approve the unamended version or the amended version of the plan (which had not been voted on by creditors). The court did however grant permission for the company to convene a new plan meeting for the relevant creditors to vote on the updated plan.
After the amended plan was approved by creditors at the second meeting, Richards J sanctioned the plan at the second sanction hearing, even though it had still been opposed by one class of subordinated creditors. The judge was satisfied that the amended plan was sufficient to be regarded as a compromise, as per the decision in Adler.
September 2024 - Consort Healthcare [3]
This plan saw the court making the first ever security for costs order in the context of a scheme of arrangement or a restructuring plan.
Consort was a contractor under a Private Finance Initiative (PFI) for the development of new hospital facilities for an NHS Trust. The proposed restructuring plan primarily sought to compromise its liabilities under the PFI project agreement.
The NHS Trust applied for security for its costs of opposing the restructuring plan at the sanction hearing and the court, for the first time in plan proceedings, awarded the security for costs order (at 50% of the amount sought by the NHS).
The parties accepted that the court had jurisdiction to award security for costs in relation to restructuring plans. When making the order, the court took into account that there was a balancing exercise in not stifling the plan, however it did not consider that that balance would be tipped by the company being ordered to provide reasonable and proportionate security for costs.
September 2024 - Cineworld UK [4]
Mr Justice Miles sanctioned four English plans for Cineworld group companies, rejecting challenges from certain opposing (landlord) creditors. The court gave permission to convene an unusually high number of 32 creditor meetings across the four plan companies at the initial convening hearing.
Two landlord creditors opposed sanction on the basis that their inclusion in the plans breached side letters entered into by some of the plan companies in 2023. The landlords sought an injunction to remove their leases from being included in the plans.
The court dismissed the injunction application and sanctioned the plans, exercising its cross-class cram down powers. In rejecting the injunction application, the court took into account that the landlords had not challenged the plans at the convening hearing. The court was also very critical that the landlords sought an injunction, rather than challenging the relevant alternative or other aspects of the plans. The court determined that ultimately, any exclusion of the dissenting landlords in the RP would have contravened the pari passu principle.
Summary
These cases highlight a number of interesting points in this developing area of case law, including:
- Opposing creditors should proceed with caution and carefully consider any settlement offers made.
- The Court of Appeal decision in Adler remains of key relevance: there must be a compromise or an arrangement for the court to sanction a plan.
- The court has jurisdiction to grant security for costs applications in RP proceedings but will consider whether such an application has the potential to stifle a plan.
- The importance the pari passu principle, which allows all unsecured creditors an equal share of available assets in proportion to the debts owed. While this is a principle of general application, objecting creditors should be mindful of the court's emphasis on it, including in the context of RPs.
As more companies use restructuring plans to address financial challenges, the body of case law will continue to expand, providing further guidance for insolvency professionals as well as business owners looking to explore restructuring options. For further information on corporate restructuring processes or any of the topics discussed in this article please contact Rebecca Stratton (Rebecca.stratton@howardkennedy.com) in our Restructuring & Insolvency team.
[1] Re CB&I UK Ltd [2024] EWHC 398 (Ch)
[2] Re Project Lietzenburger Straβe Holdco S.à r.l. [2024] EWHC 468 (Ch)
[3] (Consort Healthcare (Tameside) plc v Tameside and Glossop Integrated Care NHS Foundation Trust) [2024] EWHC 1702 (Ch)
[4] Cineworld UK Commercial Property Finance Holdings Ltd v Cine-UK Ltd [2024] EWHC 2475 (Ch)
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