Whilst the number of sanctioned Part 26A Restructuring Plans remains relatively small, those that do come before the Court continue to provide helpful guidance to business owners and insolvency professionals who may be involved in future restructuring plans.
In this article, we explore the guidance the High Court provided during the sanction hearing of Chaptre Finance Plc’s second restructuring plan ("the Plan"). This decision highlights the significance of parties observing the Court's evidential and procedural requirements, particularly when a restructuring plan is opposed.
Background
Chaptre Finance Plc ("the Company") was incorporated in 2023 to fund a biomass power plant which initially operated successfully but quickly experienced technical problems. The plant soon ceased to operate, resulting in a serious liquidity problem for the Company. In July 2023 the Company's first restructuring plan was sanctioned and the plant was able to continue generation. However, the plant continued to experience technical problems and the Company (together with the group it was part of) continued incurring considerable liabilities and required additional funding fast to enable it to continue as a going concern.
The Plan was proposed to enable the Company to raise senior financing by altering the group's finance documents. The intention was to bind and rank (in order) the priority creditors, elevated creditors, hedging banks and senior creditors. The Plan was approved by the required majority at a creditors' meetings of the priority creditors, elevated creditors and hedging banks. However, only 23.9% of the senior creditors approved the Plan, falling short of the requisite majority for that class.
What did the Court say?
As a result of the dissenting senior creditor class the Court was required to consider an opposed sanction hearing. At that hearing the Court did ultimately decide to exercise its cross-class cramdown powers and sanction the Plan.
The Plan was initially supported by a valuation report and an alternative analysis report that did not meet the requirements for expert evidence under CPR Part 35. In fact those reports included a disclaimer of any duty to the court. The Company subsequently submitted expert reports that complied with CPR Part 35 requirements. At the sanction hearing the opposing creditors criticised the reports but did not cross-examine the experts or provide their own evidence.
Mr. Justice Miles indicated that without these CPR-compliant expert reports, he might not have sanctioned the Plan. He believed that the original reports, which did not qualify as expert evidence, would not have been a sufficient basis to conclude that the 'no worse off' test required to cram down a dissenting class of creditors had been satisfied.
The Judge also commented that he could not properly engage in a challenge to the expert evidence presented by the Company without cross -examination of the experts, despite the criticism of that evidence raised by the dissenting creditors.
The Judgment provided useful guidance on the use of evidence and procedure in restructuring plan sanction hearings. It highlights the importance of parties treating restructuring plan proceedings as commercial litigation and complying with the CPR accordingly.
Key takeaways from the Judgment
- Parties must identify disputed points early in line with proper case management which is expected in other commercial litigation.
- Expert evidence presented in plan proceedings must comply with CPR 35 (or any other applicable rules).
- If parties wish to challenge expert evidence, they should cross-examine the witness.
Parties should keep in mind that restructuring plan proceedings, while a specialised and technical area of litigation, are still commercial litigation, and judges expect the parties to comply with the same rules and case management obligations as other parties engaging in commercial litigation in the High Court. Failure to comply with those rules may result in plan's not being sanctioned, or, as in this case, dissenting creditors being crammed down.
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