Another restructuring plan first: UK High Court orders security for costs

Quick read

The English High Court has, for the first time, ordered that security for costs be provided by the plan company in favour of a creditor.

Background

Consort was a contractor under a Private Finance Initiative (PFI) for the development of new hospital facilities for an NHS Trust. It proposed a restructuring plan, primarily directed at compromising its liabilities under the PFI project agreement.

The other plan creditors' costs were being funded by Consort's sponsor, and the NHS Trust applied for security for its costs of opposing the restructuring plan at an upcoming sanction hearing, given that Consort expected to be cash flow insolvent absent the restructuring plan.

Decision

In awarding security for costs, the Court considered the following in exercising its discretion:

The parties accepted that the Court had jurisdiction to award security for costs in restructuring plans, the differences to ordinary litigation were not so "fundamentally different" (as argued by Consort) but were "relatively slender" in these specific circumstances, given the history of contractual disputes between the parties.
Notwithstanding Consort's accepted "financial difficulties" (previously accepted at the convening hearing), Consort's sponsors could reasonably be expected to put up security for costs in the circumstances, so Consort was not completely without access to funds.
There is a balancing exercise in not stifling the restructuring plan, and there would be a "tipping point" where funders would prefer to lose amounts already contributed rather than provide more funding, but on the facts it "would not be exceeded by a requirement that the Company provide reasonable and proportionate security for costs", and ordered 50% of the amount sought by the NHS Trust.