The background to the plan was to address a liquidity crisis faced by a German property management company – a number of loan notes were repayable on 27 April 2023 and the group did not have funds to repay those and so faced the prospect of immediate liquidation. What was unusual is that the plan provided for, essentially, an orderly winding down and sale of assets rather than a rescue and a group of note holders objected to the plan. Issues of both German and Luxembourg law fell to be considered and the entire matter dealt with an on expedited basis.
The principle factual issue in dispute was whether the dissenting note holders would be no worse off under the plan than under the relevant alternative. The court had to be satisfied of this in order to sanction the plan but assessing this involved resolving substantial disagreements over value - the company asserted that on a liquidation, the dissenting creditors would only recover 63% of the sums due to them whereas the dissenting creditors argued they would be worse off, not least because on a liquidation, they would rank equally with all other note holders but under the plan, note holders with earlier maturity dates would be paid in full. Both parties produced a substantial amount of evidence to support their assertions.
Stripping matters to the core, Mr Justice Leech’s view was that he had to decide whether the plan creditors were likely to receive more than they would if the plan was not sanctioned - even if those creditors were not likely to be paid in full. The relevant issue here was one of likelihood and he considered this was made out on the evidence.
Mr Justice Leech also addressed the complaint that the plan disturbed the pari passu principle by potentially allowing earlier note holders to be paid in full but leaving later note holders at risk of non-payment. He accepted that the role of the court was not to consider if the plan was the best plan or the only fair scheme available, but to assure itself that it was one approved by the requisite majority of properly informed and consulted creditors. It had a wide discretion and that might in some cases involve approving a plan even if that reversed or advanced priority of creditors.
This decision is of particular interest because it is the first time a restructuring plan has been substantially contested by a group of dissenting creditors, and so the first time many of the issues that fall to be considered on a sanctioning been argued out and a full reasoned judgment provided. It also showcases the English court’s ability to address and grapple with issues of foreign law to a tight timetable.
AGPS Bondco Plc [2023] EWHC 916 (Sanction hearing)
AGPS Bondco Plc [2023] EWHC 415 (Directions hearing)
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