A recent high court case has upheld an important recent precedent for the insolvency industry which could affect creditors in future cases.
On February 27th, the High Court officially sanctioned a restructuring plan under its powers conferred by the Corporate Insolvency and Governance Act 2020. Specifically a provision – widely referred to as the “cross class cram down” or CCCD – that allows a court to impose a restructuring plan on all creditors if certain conditions can be satisfied.
One of the main effects of this is unlike other restructuring schemes that require creditors acquiesce to proceed, the court can bind all creditors to an agreement even if they disagree providing it can be proved that they would be no worse off under the plan compared to the likely alternative – which is usually liquidation.
In the case in question CB&I UK Limited, which is part of the global McDermott construction and engineering group, proposed a restructuring plan. This was opposed by a creditor, Reficar, who were owed over $1 billion and due to receive a nominal amount under the plan.
CB&I contended that Reficar, an unsecured arbitration creditor, would be no worse off under the plan as the most likely alternative would be the break up of the company through worldwide insolvency proceedings which would effectively leave nothing for them and other unsecured creditors.
Reficar argued that an alternative deal could be quickly negotiated between the group, its key stakeholders and Reficar involving the grant of equity in the McDermott group to Reficar before March 27th when the group potentially becomes liable in respect of a $2.2 billion debt.
Negotiations during the trial resulted in aon offer of 10.9% – 19.9% of the shares in the parent of the group to Reficar.
The judge criticised Reficar’s failure to accept the “generous” offer which demonstrated that its relevant alternative of a quickly negotiated deal was not likely and on the balance of probabilities a formal liquidation was more likely.
The conditions for the plan (CCCD) were satisfied and the judge exercised his discretion in favour of the plan, as Reficar had secured itself a “fair” distribution of the group’s equity.
The plan is now dependent on the sanction of two Dutch plans and a recognition of Chapter 15 bankruptcy in the United States.
This is the first English restructuring plan to be approved after a previous Court of Appeal judgement in the case of Adler and follows the guidance of that case.
In Adler, the Court of Appeal overturned the High Court’s original sanction of the Adler Group’s restructuring plan which provides clarity on the court’s discretion to sanction a plan where there are dissenting classes of creditors.
Chris Horner, Insolvency Director with BusinessRescueExpert, said: “Every judgement brings additional clarity and confidence to insolvency practitioners. We all use various strategies and tools that are specifically designed to meet the different and unique circumstances that companies face.
“There has never been a one-size-fits-all approach to insolvency and while procedures such as CVAs or pre-pack administrations are inherently versatile, they aren’t appropriate or desirable for everyone for this reason.
“So the measures contained in Corporate Insolvency and Governance Act such as insolvency moratoriums and court oversight of restructuring plans will be really useful for businesses and their accountants when it comes to building survival plans and getting back to strong financial positions quicker.”
Confronting financial difficulties can be daunting for some businesses, even with their accountants help and guidance so it can sometimes be the best decision to get specialist external help.
This is why we offer a free initial consultation to any director or business owner to discuss their financial issues and help them plan the most appropriate and effective response to them.