In a seminal judgment of the
The facts
Briefly stated, the proposed restructuring plan (which was sanctioned at the first instance by the
The
It was common ground between the parties that if the Court did not sanction the proposed restructuring plan, key members of the
The proposal of the plan was to implement (amongst other measures) the following:
- An extension of the maturity date for the 2024 SUNs to
July 2025 . No other SUN maturity dates were proposed to be amended. -
The insertion of new covenants into the terms and conditions of the SUNs, including for the
Adler Group to maintain a specified loan to value ratio of its assets. In default, all SUNs would be accelerated and immediately due and payable. -
Cash interest payments were to be suspended for approximately two years on all SUNs, in return for which they would receive an uplift of 2.75% until
31 July 2025 (reverting to their current level thereafter). -
Certain members of the
Adler Group would be permitted to take on new indebtedness, which could be used to refinance existing indebtedness and the ability to create new security over the Group's assets. Adler Group SA and thePlan Company would enter into intercreditor agreements with certain subsidiaries in the group, certain intra-group lenders and others to govern the administration and enforcement of the guarantees and distribution of proceeds between the parties.
The plan was approved by all classes of creditors, apart from those holding the 2029 SUNs.
The law
Section 901G of the Companies Act 2006 empowers the Court to sanction a restructuring plan in circumstances where less than the requisite 75% in value of creditors (or a class of creditors) do not approve the plan.
The three questions for the Court to answer when considering an application under Section 901G, as laid down by the earlier
- If the restructuring plan is sanctioned, would any members of the dissenting class be any worse off than they would be in the event of the relevant alternative? This is often described as the "no worse off" test. This is known as Condition A.
- Has the restructuring plan been approved by 75% of those voting in any class that would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative? This is known as Condition B.
- In all the circumstances, should the Court exercise its discretion to sanction the restructuring plan?
The "relevant alternative" in this context is whatever the Court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned.
Court sanction of a restructuring plan where not all classes of plan creditors have approved it is often referred to as a "cross-class cram down".
The Court of Appeal decision
Lord
Part 26A of the Companies Act 2006 introduced a new set of provisions during the Covid-19 pandemic to provide a restructuring tool to supplement the more traditional scheme of arrangement process under Part 26.
Whilst there are similarities between the two processes, there are also a number of important differences. The most important difference is that a scheme of arrangement under Part 26 can only be sanctioned by the Court if each of the classes of creditors or members have voted in favour of the scheme by the requisite majorities at their class meetings. This creates, in effect, a potential right of veto over the scheme. A restructuring plan under Part 26A allows the Court a discretion to sanction a plan even if the requisite approval of one or more of the classes of creditors or members has not been obtained.
The Court of Appeal confirmed that before the cross-class cram down power can be exercised, the two pre-conditions - listed above as Condition A and Condition B - need to be satisfied.
In setting aside the plan sanctioned by order of the
The plan altered the treatment of the SUN holders' rights by imposing staged maturity dates that (apart from the 2024 SUN holders) reflected the pre-plan maturity. This represented a divergence from the principle of pari passu treatment of all creditors: this was, in summary, because the "relevant alternative" would have been a wind down in a German insolvency process that would have accelerated the plan creditors' SUNs of differing maturity dates such that they would have been immediately due and payable (rather than of staggered maturity). In the absence of sufficient justification for diverging from the principle of pari passu treatment of creditors, the
The Court of Appeal also confirmed the following points:
- The Condition A and Condition B pre-conditions are applicable for both schemes of arrangement under Part 26 and restructuring plans under Part 26A (paragraphs [108] - [113]).
- If no cross-class cram down is proposed, the test to be applied by the Court is the "rationality test" (established in the Telewest case [2004] EWHC 1466 (Ch)) (paragraphs [114] - [116]).
-
If a cross-claim cram down is proposed, there are two elements for the Court to consider (paragraphs [119] and [130 - 133]):
- Within the assenting class(es), the rationality test is applied (which binds the minority within the class(es)).
- Within the dissenting class(es), the Court will consider the "horizontal comparator", which is a comparison of the position of the class in question with the position of other creditors or classes of creditors in the assenting classes, if the restructuring goes ahead.
- In looking at the position of the dissenting class(es), the Court cannot place reliance on or take comfort from the views of creditors in assenting classes; it can do so with regard to the majority in the dissenting class, but this should not undermine the importance of the 75% consent threshold (paragraphs [149] and [156]).
- If the treatment of certain creditors (or classes of creditors) differed from the treatment of others - i.e. a departure from the pari passu principle - there would need to be a good reason, justified on a proper basis, for the departure.
The Jersey law position
Unlike in
The Companies (Jersey) Law 1991 (the Law) is based on the Companies Act 1985 from
Part 18A of the Law permits a Jersey company to enter into a Scheme of Arrangement (Scheme), which is a formal compromise or arrangement with its creditors or members to achieve specified rescue plan. In an analogy with the position in
It remains to be seen whether a foreign law restructuring plan, such as that proposed (but ultimately not sanctioned) in
The
Nonetheless, the sanction order of the
Jersey's Royal Court
The position has yet to be tested by the Royal Court in Jersey and is likely to come down to a case-by-case analysis of whether a foreign law governed restructuring plan will be recognised. We think the better view is that it would be, and that the appropriate route might be common law enforcement of a non-money judgment, pursuant to the discretion the Royal Court held to itself in
There also exists under Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 the ability for the
In practice, a request is made at the instigation of the party, rather than the Court of the "relevant country or territory" of its own volition. Presently, the "relevant countries" are limited to the
Looking in the other direction, it will be interesting to see whether the flexibility of the Restructuring Plan jurisdiction will attract parties to seek to subject Jersey companies with sufficient connection to the
Given the novelty, flexibility and popularity of this new regime in
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Ogier
44 Esplanade
JE4 9WG
JERSEY
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