[co-author: Eirene Psomas]*
On August 19, 2021, the English High Court sanctioned a Part 26A restructuring plan proposed by the directors of Amicus Finance plc (under administration) (âAmicusâ) For the company’s solvent exit from administration, allowing the company to be saved as a going concern (theâRestructuring plan“). Sir Alistair Norris has since delivered his judgment,1 Significantly showing that the court will exercise its cross-class enforcement power over a class of dissenting secured creditors when that dissenting creditor cannot convince the court that their situation is worse under the plan than they would be under the plan. relevant alternative.
The Restructuring Plan is the first to be proposed by insolvency administrators, demonstrating its usefulness as a tool for administrators and for rescuing a going concern business following an administration. Amicus is also the first mid-market company to use a restructuring plan and it is likely that this move could help pave the way for further mid-market restructuring plans.
You can read the legal update on Hurricane Energy’s restructuring plan here for a summary of the legal framework for sanctioning a Part 26A restructuring plan.
The main elements to remember from the sanction judgment are as follows:
- Burden of proof for the “no worse off test”: When the court is asked to exercise its power to suppress a dissenting class, the burden of proof falls on the plan sponsor (in this case the Amicus administrators) to convince the court that, at balance of probabilities, no member of a dissenting class would be worse off under the plan than under the relevant alternative (being immediate liquidation in this case).
- Past Transactions (âRecovery Claimsâ): The court will consider any potential claims that the company or its insolvency administrators might have against third parties and the impact of those claims on the “not worse“test. However, the value of any returns arising from these claims must be realistic and, ultimately, the court focuses on” thepossible net recoveriesâWhich will affect returns to creditors. The court will not conduct a mini-trial during the sanction hearing regarding these claims without disclosure or evidence.
- Complaints against insolvency officials: Allegations regarding the conduct of the directors will not influence the exercise of the court’s discretion to sanction the plan, particularly where the proposed plan expressly preserves the right of a compromised creditor to pursue claims against the directors under the paragraphs 74 and 75 of Schedule B1 of the Insolvency Act 1986 for their conduct or fault.
- The role of the court in approving a plan: The role of the court is to review the plan in atight deadlineTo ensure a fair outcome to the creditors of the plan company. In doing so, the court fears that the usefulness of the restructuring plans will be compromised if the court becomes “diverted to tedious scrutiny of detailed disputes without disclosure or oral evidenceâTo the potential detriment of the company (in particular vis-Ã -vis small and medium-sized companies). As such, the court must strike a balance between âcareful examination and an appropriate result within the desired timeframeâ.
- Disclosure in the explanatory memorandum: The company is required to provide sufficient information to enable creditors to make an informed decision, and not “the most complete specific information reasonably availableâ.
- Uncertainty of returns: The court did not consider it material that returns under the restructuring plan are uncertain and noted that returns in the event of immediate liquidation would be even more uncertain.
Amicus is a short-term real estate finance provider that went into administration in December 2018. As of November 2020 the administration had encountered difficulties and in early 2021 the administration of Amicus was no longer financially viable due to , among others, the impacts of Brexit. and the COVID-19 pandemic. The directors did not have sufficient funds to continue administration beyond July 2021 and determined that it would be in the best interests of all creditors to propose the restructuring plan as opposed to an immediate liquidation of the company. the society.
The Restructuring Plan provided for the company’s solvent exit from the administration. Under the restructuring plan, funding of approximately Â£ 4 million would be provided to Amicus by: (i) a minority shareholder, Omni Partner LLP; and (ii) Twentyfour Asset Management LLP under an existing facility. These funds would be used to make certain lump sum payments to meet the creditors ‘claims described below and the balance would be used to continue Amicus’ business and to perform collections on numerous legacy loans and to pursue certain negligence claims against them. Amicus professional advisers. All collections made from these inherited loans and / or negligence claims were to be distributed under a cascade arrangement.
The restructuring plan proposed to compromise the claims of the following categories of creditors:
Crowdstacker was the only dissenting secured creditor (accounting for 49.98%) and represented 417 of 418 individual lenders. An individual lender voted on their claim. There was doubt as to whether Crowdstacker had indeed novated the claims of individual lenders under the terms and conditions of its crowdfunding platform and was the affected creditor or whether the individual lenders behind the crowdstacker platform had. retained their property rights and were the beneficial owners of these claims. and therefore the “real creditors“However, the court took a pragmatic approach to this issue and represented the 417 individual lenders and accepted the approach of the directors to admit the vote of the individual lender with respect to its claim.
The directors argued that if the restructuring plan was not approved, the relevant alternative was an immediate liquidation of Amicus. The relevant alternative has not been contested. In a run-off scenario, it was expected that expenditure creditors would receive 62p / Â£ and all other creditors would receive nothing.
Crowdstacker opposed the restructuring plan on the grounds that it would be better to proceed with an immediate liquidation of Amicus. It argued, among other things, that in estimating the results of a liquidation scenario, Amicus’ estimates for collection were understated and did not take into account certain prior transactions.
Ultimately, the court was satisfied that Crowdstacker was no worse off under the restructuring plan than it would be in an immediate liquidation, given all the relevant circumstances, including the value of any potential prior transaction. Coming to this conclusion, the court confirmed that the word “satisfied“Demanded that the court be convinced by the promoter of the plan on the balance of probabilities that the dissenting creditor would be “not worseâ.
In the absence of everything “taskâOr plan default and after considering all relevant discretionary issues,2 Norris J sanctioned the restructuring plan and in doing so noted the following:
- The restructuring plan was proposed by the directors of Amicus, who had held this position for two years and were required to act in the interests of all creditors. In addition, the pre-insolvency involvement of the directors with the company did not allow âimpossibleâFor them to exercise independent judgment.
- Complaints about the conduct of directors do not affect the exercise of the court’s discretion to sanction a plan, particularly where the plan allows compromised creditors the right to pursue such claims.
- In considering a restructuring plan, the court must strike a balance between âcareful examination and an appropriate result within the desired timeframeâ.
- The restructuring plan received overwhelming support from a majority of creditors, including in the category of senior secured creditors (though minute in value).
- Whether there is any doubt as to whether Crowdstacker represented the views of the individual lenders who hold the economic interest in the loans of the Crowdstacker platform.
- Based on the earnings estimate, Crowdstacker would receive no return in the event of an immediate liquidation and, as such, prevents those with a genuine economic interest in Amicus from restructuring the business for the benefit of the creditors as a whole.
- In presenting the explanatory memorandum to creditors, the company is required to provide sufficient information to enable creditors to make an informed decision, and not “the most complete specific information reasonably availableâ.
- The restructuring plan is a plan that an honest and intelligent creditor might regard as fair.
- Payment of creditors’ fees (including administration costs) before secured creditors does not make the Restructuring Plan “”unfair“; it reflects the statutory scheme of priorities.
- The scheme is not “unfair“because it provides for specific returns for certain creditors and leaves other creditors dependent on returns made under the cascading arrangement in the event that collections are made on inherited loans.
- The fact that the returns under the Restructuring Plan are uncertain is not material and the returns in the event of immediate liquidation would be even more uncertain.