DeepOcean I UK Ltd & Ors, Re

A restructuring plan may be sanctioned by cross-class cram down where the dissenting class would be no worse off than under the most likely alternative and an approving class would retain a genuine economic interest in that alternative. Satisfaction of those conditions gives the court jurisdiction but does not compel sanction.

The court retains a discretion based on justice and equity. Relevant considerations include representation and turnout, good faith, overall creditor support, the justification for differential treatment, the fair distribution of restructuring benefits, practical defects and likely substantial effectiveness. The court need not show its usual reluctance to differ from a dissenting meeting because Companies Act 2006 section 901G is designed to permit that result.

Three companies in the DeepOcean group sought sanction under Part 26A of the Companies Act 2006 for restructuring plans contained in a composite document. Every class achieved the required majority except the other unsecured creditors of DeepOcean Subsea Cables Ltd, whose approving votes represented 64.6% by value. The companies therefore relied on section 901G to bind that dissenting class.

The court considered the most likely alternative to sanction, whether dissenting creditors would be worse off, whether an approving class retained a genuine economic interest, and how the sanction discretion should operate when cross-class cram down is sought. It also examined turnout, representation, differential treatment, practical effectiveness and overseas recognition.

1. Sanction granted. The court sanctioned each restructuring plan. All statutory majorities had been obtained except for the DeepOcean Subsea Cables Ltd other-plan-creditor class, and sections 901F and 901G of the Companies Act 2006 permitted that class to be bound.
2. The relevant alternative under section 901G(4) was the scenario most likely to occur if sanction were refused. On the evidence, that was the insolvency of the relevant subgroup. The comparison principally concerned likely financial returns, although the statutory expression “any worse off” was broad enough to include every incident of the liability, such as timing and the security of the covenant to pay.
3. Condition A was satisfied. The dissenting creditors would receive nothing in the relevant alternative but approximately 4% under the plan. Condition B was also satisfied because the approving secured creditors would recover from charged assets and therefore retained a genuine economic interest in the company in the relevant alternative.
4. Satisfaction of sections 901F and 901G conferred jurisdiction but did not require sanction. The established Part 26 sanction principles remained the starting point. However, the usual reluctance to differ from a class meeting had less force because section 901G expressly contemplated overriding a dissenting class. All other things being equal, satisfaction of conditions A and B could justify that override.
5. Where dissenting creditors were out of the money and received benefits contributed by third parties, those circumstances strongly favoured sanction. Turnout, fair representation, good faith and the overall voting pattern remained material to the weight given to each meeting. The relatively low trade-creditor turnout did not make the votes unrepresentative because creditors could engage and appeared merely to have chosen not to vote.
6. Cross-class cram down could also require a horizontal comparison of creditor treatment and consideration of whether differences and the distribution of restructuring benefits were justified. The secured creditors’ priority justified their better treatment. The dissenting creditors had no claim to the third-party contribution because they were out of the money in the relevant alternative.
7. There was no practical blot on the plans. Overseas recognition was unnecessary for their substantial effectiveness following agreements with relevant vessel owners. The plans were therefore just and equitable and were sanctioned.

• High Court (convening stage): By [2020] EWHC 3549 (Ch), the court permitted the companies to convene creditor meetings under section 901C of the Companies Act 2006 and determined the preliminary jurisdictional and class-composition issues.
• High Court (sanction stage): By [2021] EWHC 138 (Ch), the court sanctioned the restructuring plans, including by cross-class cram down.