High court authorises first mid-market restructuring plan in landmark case

We were appointed as Joint Administrators of a short-term property finance company that continued trading since being placed into Administration. We proposed a restructuring plan at a sanction hearing to prevent the company from filing for company liquidation.

Due to the joint impact of Covid-19 and Brexit having a detrimental impact on the realisations of the property finance company, the Administrators felt that the continuation of the Administration was no longer a financially viable option.

Work Undertaken

The Joint Administrators sought to use Part 26A of the Companies Act 2006 to propose a restructuring plan to provide an exit route from Administration. This would allow the company to continue as a going concern and place creditors in a better position than in the event of company liquidation.

A restructuring plan is a new restructuring tool introduced in June 2020 into Part 26A of the Companies Act 2006 by the Corporate Insolvency and Governance Act 2020 and is similar in nature to the more established Scheme of Arrangement process, whereby stakeholders are divided into categories for both voting purposes and also in regard to their treatment under the proposal.

However, where the restructuring plan differs is in the allowance for dissenting classes of stakeholders to be bound: this is known as “cross-class cramdown”. The restructuring plan negotiated the claims of five separate classes of creditors: expense, senior secured, junior secured, preferential, and unsecured. 

The court was satisfied that secured creditors would be no worse off under the restructuring plan, than in the event of the company liquidation.

Outcome

Despite an attempt to block the proposed restructuring plan by a dissenting creditor, the High Court agreed to cramdown the creditor, ruling in favour of the Administrators.

The restructuring plan for the mid-market company was approved by the High Court in a landmark case undertaken by our Restructuring team and recorded as a defining moment in UK restructuring.