30 janvier 2024
R&I Update - February 2024 – 1 de 6 Publications
On 23 January 2024, the Court of Appeal overturned the High Court's sanction of Adler Group's (Adler) restructuring plan (the Plan) (see our alert). This much anticipated judgment provides clarity on the court's discretion to sanction a plan where there are dissenting classes of creditors.
The Plan envisaged:
An ad hoc group of holders of the 2029 notes (AHG) appealed the sanction of the Plan on grounds that, amongst other things, the Plan violated the pari passu principle.
The Court of Appeal held that by preserving the maturity dates, the Plan, without good reason or justification, did not apply the pari passu principle of distribution which would have applied to the notes in an immediate liquidation (the agreed "relevant alternative" to the Plan) in which all noteholders would rank equally as unsecured creditors, meaning that creditors with later maturity dates bore more risk under the Plan. The security given to the 2024 notes was also in breach of the pari passu principle, but this was justifiable because of the postponement of the maturity date for the 2024 notes.
When considering whether to exercise the court’s discretion to impose a restructuring plan on a dissenting class by cross-class cram down (CCCD), satisfaction of the statutory conditions:
does not create a presumption in favour of CCCD. The court should compare the position of the class in question with the position of other classes of creditors (or members) if the restructuring goes ahead (horizontal comparison). Any differences in treatment of the different classes must be justified on a proper basis.
The parties could have produced a fairer plan that eliminated the different treatment of the different series of notes by agreeing to harmonise the dates. The Judge had wrongly concluded that he did not need to inquire as to whether the Plan could have been fairer or could have been improved. Where CCCD is being proposed, the court is required to consider whether a different allocation of value would have been possible and if an alternative arrangement would have been fairer.
Retention of equity by existing shareholders was not unfair and the principle of pari passu distribution of assets in an insolvency does not require the shareholders of a company to forfeit their shares. Under the relevant alternative of liquidation, there would be no distribution to shareholders until all creditors have been paid which was reflected under the Plan.
The Court of Appeal said that reliance upon the overall level of voting across all classes of creditors should not be considered in deciding whether it is fair or appropriate to cram down a dissenting class. Given that creditors are categorised into classes because they have insufficient commonality of interests to consider the merits of a plan together, by definition the views of the assenting class(es) cannot influence whether a plan is fair to or in the commercial interests of the dissenting class(es).
Consequently, the approach to fairness applied in relation to schemes and/or assenting classes which simply requires an assessment of rationality and the court considering the question of whether it is a scheme that "an intelligent and honest man…. might reasonably approve" does not apply in a CCCD context. Rather the court needs to consider the underlying commercial factors.
The Court of Appeal commented on a number of procedural points:
Adler announced that it considers the "…amendments to the terms and conditions of its bonds remain in full force in accordance with German law". Members of the AHG have brought proceedings in Germany seeking declaratory relief that the issuer substitution carried out to enable the English court to exercise jurisdiction in respect of the Plan was invalid. These proceedings were stayed pending the outcome of the English appeal but may now be pursued.
In the meantime, the implications of the judgment will be felt on future restructuring plans looking to implement CCCD, not least given the revised framework for assessing fairness which differs to that used for schemes or within assenting creditor classes.
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team
30 January 2024
par plusieurs auteurs
6 February 2024
par Anna Englert
6 February 2024
6 February 2024
6 February 2024
par Nick Moser
6 February 2024
par Louise Jennings
par Nick Moser et Louise Jennings
par Louise Jennings et Cole Fowlis
par Anneliese Amoah et Louise Jennings