Another restructuring plan is sanctioned

The court’s reasoning included consideration of the following issues:

• For two of the classes, only one creditor (out of nine creditors and 16 eligible voters respectively) attended the meetings. As such, notwithstanding their vote in favour, there was no “approval” by these classes as there had been no “meeting” of them as required by the applicable legislation. In two classes, no creditor had attended at all. Nonetheless there was no jurisdictional issue in using the cross-class cram down power to cram down all four of these classes
• There had been a relatively low turnout in some of the other assenting classes, but the reason for that was apathy and there was a qualitative difference between creditors not attending because they do not wish to, rather than because they were unable to. There was, therefore, no reason to doubt the votes of the assenting class, such that the judge should perform the usual “rationality” test (ie, was it a plan that an intelligent and honest member of the assenting class could reasonably approve, rather than substituting the court’s own commercial view of the plan?).
• Some of the benefits of the restructuring would go to shareholders as a result of the survival of the company while in the relevant alternative of administration their equity would become valueless. The court held that the benefit to shareholders can only be unfair if there is some fairer means of allocating the equity but, to the extent the point was bound up in analysis of the relevant alternative, this might involve some forcible expropriation of shares. However, such an expropriation would involve a “better plan” rather than an administration, and this was at odds with the court already having found that the relevant alternative was administration.
• With regards to a more general argument that the distribution of the restructuring surplus to the shareholders was more unfair, counsel for the plan company submitted that this should not trouble the court greatly since, applying Virgin Active and Lietzenburger, the unsecured creditors would also be out of the money in the relevant alternative [and so their objection to the division of the restructuring surplus should be given minimal weight]. The court held that it did not need to decide whether there was difference between the views of out of the money creditors counting for little or not counting at all. The simple point being that, no basis had been articulated as to why the shareholders could be said to be obtaining too much benefit from the plan or what a more reasonable return for those shareholders would be.

Accordingly, the court sanctioned the plan.

Project Verona [2024] EWHC 2080 (Ch), Chancery Division