First use of a restructuring plan for a company in administration

1st March 2022

The High Court[1] has sanctioned a Part 26A restructuring plan proposed by the administrators of Amicus Finance plc (in administration) (Amicus) for the company’s solvent exit from administration, enabling the company to be rescued as a going concern (the Restructuring Plan). The Restructuring Plan was the first to be proposed by insolvency officeholders and also involved the exercise of the court’s power to ‘cram down’ a dissenting class of creditors. The case demonstrates that a Part 26A restructuring plan can be used by administrators as a tool for rescuing a company as a going concern following an administration. Amicus is also the first mid-market company to use a Part 26A restructuring plan and so the decision may help pave the way for more mid-market companies to use the process.

Key points of interest

The key takeaways arising from the judgment are:

• Burden of proof for the ‘no worse off test’ – Where the court is asked to exercise its power to cram down a dissenting class, it was for the administrators of Amicus (as proponents of the Restructuring Plan) to satisfy the court that, on the balance of probabilities, no member of the dissenting class would be any worse off under the plan than it would be in the relevant alternative of an immediate liquidation.

• Class composition – The court will be careful to ensure that classes are being composed in the most appropriate manner and will apply real scrutiny. Focus will be on the rights held by the creditors rather the identity of the creditors that held them or that one creditor might vote in more than one class.

• Complaints against insolvency officeholders – Allegations regarding the conduct of the administrators will not influence the exercise of the court’s discretion to sanction the plan.

• Explanatory Statements – Explanatory statements must provide sufficient information to enable creditors to make an informed decision, not “the fullest specific information reasonably obtainable”.

• Court’s role in sanctioning a plan – Compliance with the statutory requirements for a cross-class cram down did not mean that the court was required to sanction the Restructuring Plan, this remains a matter for the court’s discretion. The role of the court is to scrutinise the plan to ensure a fair outcome for creditors within the desired timescale.

• Uncertainty of returns – It was not material that returns under the Restructuring Plan were uncertain, as returns in a liquidation would be even more so due to the lack of immediately available funding.

Background to the case

Amicus Finance plc provided short-term property finance. Administrators were appointed in 2018, but by early 2021 the administration was no longer considered financially viable. The administrators proposed a restructuring plan under Part 26A CA 2006, which they concluded would provide creditors with a better return than would be achieved in a liquidation and enable Amicus to be rescued as a going concern. The purpose of the Restructuring Plan was to compromise the company’s liabilities to allow it to return to solvency and consisted of three key elements:

• the injection of new shareholder and loan funding;

• the making of certain lump sum payments from this funding to ‘expense creditors’ (whose claims would otherwise be treated as an expense of the administration), preferential creditors in full satisfaction of their debts and to secured and unsecured creditors in part satisfaction of their debts;

• a waterfall of payments to secured and unsecured creditors, which would be funded by the repayments (if any) made to Amicus under certain legacy loans during a specified period following sanction of the Restructuring Plan.

However a secured creditor, Crowdstacker (an online peer-to-peer lending platform), opposed the plan. Amicus asked the court to exercise its power of cross-class cram down to sanction the plan despite Crowdstacker’s opposition. In order to sanction the restructuring plan the court needed to be satisfied that the two conditions in section 901A of the Companies Act 2006 had been met. First that Crowdstacker would not be any worse off under the restructuring plan than the ‘relevant alternative’ which in this case was liquidation (Condition A) and second that the plan was a ‘compromise or arrangement’ (Condition B).

The dispute centred around Condition A since all parties agreed that Condition B had been met. The court held that Condition A had been met for two reasons. First, that on the balance of probabilities, Crowdstacker would not be worse off under the plan than it would be if Amicus entered liquidation and second, while clawback claims can be taken into account, a detailed investigation into clawback claims cannot take place in a sanction hearing.

WM Comment

The new restructuring plan introduced by the Corporate Insolvency and Governance Act 2020 appears to be gathering momentum and this case is interesting since it is the first time that the procedure has been used in the mid-market. To discuss any of the issues raised please contact Gawain Moore or your usual contact within the Restructuring team.

[1] Re Amicus Finance plc (in administration) [2021] EWHC 3036 (Ch)