Balancing urgency with the rights of creditors in a Part 26A plan

AGPS Bondco Plc, Re [2023] EWHC 415 (Ch)

How does a court balance the need for urgency under the Part 26A regime with an opposing creditor's rights to obtain and present its evidence?

Overview

This case addresses how a court will resolve the tension between the need for urgency under the part 26A regime and an opposing creditor's right to have sufficient time to obtain and present its evidence. The Court here adopted the shorter timeline proposed by the company, acknowledging that it would be very hard work for the opposing creditor to meet this timeline, but ultimately found that the timeline was necessary in the circumstances.

Background

The German Adler group, a substantial property group with a portfolio said to be worth €8bn, is facing a liquidity crisis caused by a combination of various factors including the Covid epidemic, the invasion of Ukraine, a downturn in the property market and an adverse short seller report published in October 2021. Its indebtedness includes various unsecured notes with maturity dates from 2024–2029.

One of those notes, which was given by one of the companies in the group known as Adler Re, has a maturity date of 27 April 2023. The group does not have available cash to repay that note. A failure to repay will trigger a default, which is capable of triggering cross-defaults across the group with the effect that various companies in the group would become insolvent in their local law terms. That in turn would generate an obligation on the part of the directors to put those companies into insolvency proceedings at the risk of being found criminally liable if they do not, likely leading to the collapse of the group.

A restructuring plan has been proposed which requires the variation of the terms of all of the notes to allow the group to raise the sum of €937.5m in order partly to repay the Adler Re loan and partly for liquidity purposes. It is also proposed that the new moneys would postpone interest under the notes. Following negotiations with a steering committee of the holders of the notes, the parent company and others entered into a lock-up agreement pursuant to which the parties agreed that they would seek to pursue the implementation of the amendments to the notes under German law by way of a voting procedure known as a Consent Solicitation. This process attained the requisite majority in all of the classes of the notes apart from the notes with a 2029 maturity. For those notes, an Ad Hoc Group (the "AHG") voted against the scheme, while 54% of the 2029 noteholders voted in favour, which was not sufficient.

The group therefore turned to alternative methods of implementing the overall plan, resorting to an English Part 26A scheme (rather than a traditional CVA), and the Plan Company (AGPS Bondco plc) sought directions for the calling of a plan meeting under the Companies Act 2006.

The Court's Decision

The Court gave the company permission to convene a meeting of creditors on 16 March. The most contentious aspect of the hearing was what directions should be given in order to ensure an orderly hearing of the sanction application thereafter. In order to avoid a default on the Adler Re debt on 27 April, the moneys need to be in the group's bank account the day before, and the steps necessary to make the new money available will have to have been taken, requiring a further 9 days. That makes Tuesday 12 April the last possible date for the pronouncement of the Court's sanction. That is the Tuesday immediately after the Easter weekend and is not a date on which the Court could sensibly start a complicated sanction hearing. As a result, the sanction hearing has to take place before Easter, with a decision pronounced at some point between then and 12 April. In practical terms, the hearing (which is estimated to take three days) has to start on Thursday 30 March or Friday 31 March.

Evidence from the AHG will have to deal with some very substantial issues - expert evidence of German and Luxembourg law and evidence challenging the assumptions on which a report from Boston Consultancy Group (which supports the conclusion that the scheme will produce a better result than the relevant alternative of insolvency) is based. This last point could give rise to some complex evidence.

The AHG had initially proposed to deliver its evidence on 18 April (but had recognised this was not possible in light of the required timing for the sanction hearing), while the companies had proposed 16 March with seven days thereafter for evidence in reply. The companies acknowledged that this was a very tight timeline for the AHG, but argued that it was fair considering that the AHG have known about the scheme for many weeks even if they only received some of the details when the company delivered its evidence no more than two working days before this hearing.

The Court stated that this debate reflects the sort of tensions that will often arise in cases under the new Part 26A regime. On the one hand, there will usually be an applicant presenting a case of urgency. Delay may frustrate the purpose of the scheme, so it has to progress relatively quickly. On the other hand, opposition to the scheme will require the presentation and consideration of evidence which can be quite complex, and this case is certainly a manifestation of that. The complexity is magnified where (as here) matters normally dealt with at a convening application are put off to be dealt with, along with a catalogue of other matters, at the sanction hearing. In these circumstances the court has to strike a balance between the urgency of the company's case and fairness to the opposing creditors in the presentation of theirs. There will often have to be a tight timetable, but it must not be so tight as to operate unfairly as against those who oppose the scheme, particularly bearing in mind the complexity of the evidence with which they might have to deal. Opposing creditors have a legitimate interest in not being required to advance their case with unfair speed.

Here, the Court acknowledged that it will be very hard work for the AHG to meet the evidence of the companies within just under three weeks from the date of this decision. On the other hand, the Court did not believe the case could be properly presented and considered if the AHG’s longer timescale were adopted.

That means the Court had to fall back on the timetable of the companies. The Court found that the difficulties for the AHG are somewhat ameliorated by the fact that they have known of the nature of the scheme for weeks, and much of what is said in the evidence is not going to come as a surprise to them. It was apparent from submissions that they have already taken German legal advice on the validity of one aspect of the proposed restructuring, so they will not be proceeding from a standing start in relation to at least that part of the expert evidence. The AHG have a well-resourced and highly experienced professional team in place and can fairly be expected to present their case within that timeframe. As a result, balancing all factors, the Court considered that the companies’ tighter timetable was the appropriate one and so ordered.

Judge: Sir Anthony Mann

Counsel: David Allison KC, Ryan Perkins and Annabelle Wang of South Square (instructed by White & Case LLP) for the Company; Tom Smith KC and Adam Al-Attar of South Square (instructed by Akin Gump) for an Ad Hoc Group of Opposing Creditors; Felicity Toube KC and Henry Phillips of South Square (instructed by Millbank LLP) for a Steering Committee of Creditors