Strategic Value Capital Solutions Master Fund LP and Others v Agps Bondco Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Snowden,Sir Nicholas Patten,Lord Justice Nugee |
| Judgment Date | 23 January 2024 |
| Neutral Citation | [2024] EWCA Civ 24 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2023-000914 |
In the Matter of AGPS Bondco Plc
[2024] EWCA Civ 24
Lord Justice Nugee
Lord Justice Snowden
and
Sir Nicholas Patten
Case No: CA-2023-000914
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
Mr. Justice Leech
Royal Courts of Justice
Strand, London, WC2A 2LL
Tom Smith KC and Adam Al-Attar (instructed by Akin Gump LLP) for the Appellants
Daniel Bayfield KC, Ryan Perkins and Annabelle Wang (instructed by White & Case LLP) for the Respondent
Hearing dates: 23–25 October 2023
Approved Judgment
This judgment was handed down remotely at 10 a.m. on Tuesday 23 January 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
This is an appeal against the order of Leech J (the “Judge”) dated 12 April 2023 sanctioning a restructuring plan (the “Plan”) pursuant to Part 26A of the Companies Act 2006 (“Part 26A” and the “2006 Act”). The Plan was between the Respondent company (the “Plan Company”) and its creditors (the “Plan Creditors” or the “Noteholders”) under six classes of senior unsecured notes (the “SUNs” or the “Notes”). The Judge's reasons for sanctioning the Plan were set out in a detailed judgment of 21 April 2023: see [2023] EWHC 916 (Ch) (the “Judgment”).
This is the first appeal to this Court in relation to a restructuring plan under Part 26A. It raises some important questions concerning the approach which the court should take to the exercise of its discretion to sanction a restructuring plan notwithstanding that not all of the classes of plan creditors have approved the plan. The exercise of that power is generally referred to as a “cross-class cram down”. The Appellants each hold Notes in the relevant class of Noteholders that did not vote by the required 75% majority to approve the Plan, they voted against the Plan, and they contend that the exercise of discretion by the Judge to impose the Plan upon them was vitiated by a number of errors of law and approach.
Parts 26 and 26A of the 2006 Act in outline
Part 26A was inserted into the 2006 Act during the COVID-19 pandemic by Schedule 9 to the Corporate Insolvency and Governance Act 2020. Part 26A was intended to provide a new restructuring tool to supplement the existing regimes for schemes of arrangement under Part 26 of the 2006 Act.
There are very considerable similarities between a scheme of arrangement under Part 26 and a restructuring plan under Part 26A. Both types of procedure apply where a “compromise or arrangement” is proposed between a company and its creditors (or any class of them) or its members (or any class of them): see sections 895(1) and 901A(3) of the 2006 Act.
Both procedures also involve a three-stage process consisting of, (i) a convening hearing at which the court considers (among other things) the appropriate composition of the classes of creditors that are to be invited to meetings to vote on the proposed scheme or plan and to receive a statement explaining its effect; (ii) the holding of those class meetings; and (iii) a sanction hearing at which the court has a discretion whether to sanction the scheme or plan: see sections 896 – 899 and 901C–901F of the 2006 Act.
There are, however, a number of important differences in the express provisions of Part 26 and Part 26A.
First, a company that wishes to propose a restructuring plan under Part 26A must satisfy two threshold conditions in section 901A which restrict the use of Part 26A plans to companies which have encountered or are likely to encounter financial difficulties affecting their ability to carry on business as a going concern. There is no such requirement in Part 26, which can also be used by solvent companies to promote schemes of arrangement to implement takeovers and other changes to their capital structures.
Secondly, unlike Part 26, under which all members or creditors whose rights against the company are to be affected by a scheme of arrangement must be summoned to a meeting or class meeting to vote upon the scheme, section 901C(4) in Part 26A gives the court power to exclude any class of plan creditors or members from being summoned to a meeting if the court is satisfied that none of the creditors or members in that class has a genuine economic interest in the company.
Thirdly, the court may sanction a restructuring plan under section 901F(1) in Part 26A if it is approved by 75% in value of those present and voting (either in person or by proxy) at the class meeting or meetings. Unlike schemes of arrangement under section 899(1) in Part 26, there is no additional requirement to obtain a majority in number of those present and voting at each class meeting.
Fourthly, and most significantly for present purposes, 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 required majorities at their respective class meetings. That gives any class a potential right of veto over the scheme. By virtue of section 901G in Part 26A, however, the court's discretion to sanction a restructuring plan under section 901F may be exercisable notwithstanding that the plan has not received the requisite approval of one or more classes of creditors or members.
Section 901G provides,
“901G Sanction for compromise or arrangement where one or more classes dissent
(1) This section applies if the compromise or arrangement is not agreed by a number representing at least 75% in value of a class of creditors or (as the case may be) of members of the company (“the dissenting class”), present and voting either in person or by proxy at the meeting summoned under section 901C.
(2) If conditions A and B are met, the fact that the dissenting class has not agreed the compromise or arrangement does not prevent the court from sanctioning it under section 901F.
(3) Condition A is that the court is satisfied that, if the compromise or arrangement were to be sanctioned under section 901F, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative (see subsection (4)).
(4) For the purposes of this section “the relevant alternative” is whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned under section 901F.
(5) Condition B is that the compromise or arrangement has been agreed by a number representing 75% in value of a class of creditors or (as the case may be) of members, present and voting either in person or by proxy at the meeting summoned under section 901C, who would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative.”
It can be seen that section 901G specifies that before the cross-class cram down power can be exercised, two pre-conditions must be satisfied. The first (“Condition A”) is that if the plan were to be sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative. This is colloquially referred to as the “no worse off” test. The second (“Condition B”) is that the compromise or arrangement has been approved at a class meeting by a class who would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative. It will thus be appreciated that “the relevant alternative”, as defined in section 901(G)(4), is a central statutory concept in relation to the exercise of the cross-class cram down power.
The Facts in outline
The Judgment contains a full account of the factual background to the Plan and its contents. For present purposes a shorter summary drawn from the Judgment and supplemented by an agreed chronology provided by the parties will suffice.
Adler Group SA (the “Parent Company”) is a company incorporated in Luxembourg. The Parent Company and its subsidiaries (including Adler Real Estate AG (“Adler Re”) form the “Group”. The Group's business consists of the purchase, management and development of income-producing, multi-family residential real estate in Germany. It is likely that the centre of main interests (COMI) of the companies in the Group is in Germany and hence that any formal insolvency proceedings in relation to the Group companies would take place there.
Prior to the Plan, the external debt of the Group amounted to approximately €6.1 billion. Included within that debt were the Notes with a combined principal value of €3.2 billion. The six series of Notes had different maturity dates and interest rates. The first series was payable on 26 July 2024 (the “2024 Notes”) and had a face value of €400 million. The second series was payable in August 2025 (the “2025 Notes”) and also had a face value of €400 million. The third, fourth and fifth series of notes were payable in early and late 2026 and 2027 and had a combined face value of €1.6 billion. The final series of notes was payable on 14 January 2029 (the “2029 Notes”) and had the largest single face value of any of the series of €800 million.
It was common ground between the parties, and is a central feature of this case that, absent the Plan, in the event of a formal insolvency of the issuer, the obligations under the Notes would all rank equally as unsecured debts.
The external debt of the Group also included €165 million of convertible notes issued by the Parent Company which were due on 23 November 2023; €500 million of unsecured notes issued by Adler Re which were due on 27 April 2023 (the “2023 Adler Re notes”); and €300...
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