Court of Appeal Overturns Sanction of Adler Restructuring Plan

The plan was proposed by AGPS BondCo PLC, a finance company within the Adler property group, to creditors holding six classes of senior unsecured notes. The appellants held about 34% by value of the notes due in 2029, a class that did not approve the plan by the required 75% majority and voted against it.

What the court decided

Under section 901G of the 2006 Act, the court may sanction a restructuring plan even though one or more classes have not approved it, provided the statutory conditions are met. The Court of Appeal held that the High Court had erred in the exercise of that discretion. In its conclusion, the court said that by adhering to a sequential payment of the different series of notes, the plan departed in a material respect, and without justification, from the pari passu distribution of the group's assets to noteholders that would have applied in the relevant alternative.

The judgment explains that, because the appeal was allowed, the alterations to the terms of the notes made under the plan would be ineffective so far as English law is concerned, and the parties would have to consider their positions in light of the decision.

Why it matters

Restructuring plans have become a widely used tool since their introduction, largely because cross-class cram down allows a plan to bind dissenting classes. The judgment gives the first appellate guidance on how that discretion should be exercised. It indicates that a plan which treats dissenting creditors less favourably than they would be treated in the relevant alternative, relative to other creditors of equal rank, will need a proper justification.

What happens next

Companies and creditor groups designing plans will need to examine how value and benefits are allocated between classes, and to explain any departure from the ranking that would apply in an insolvency or other relevant alternative. Dissenting creditors gain a clearer basis to challenge plans that favour other groups without justification. Practitioners will also watch how first-instance courts apply the guidance in pending cases.

Sources

• The National Archives: Strategic Value Capital Solutions Master Fund LP and others v AGPS BondCo PLC [2024] EWCA Civ 24
• The National Archives: Re AGPS BondCo PLC [2023] EWHC 916 (Ch)