Re Deepocean UK Ltd

The court sanctioned a restructuring plan under Part 26A of the Companies Act 2006 (as inserted by Schedule 9 to the Corporate Insolvency and Governance Act 2020), notwithstanding that one convened class (the DSC Other Plan Creditors) did not reach the 75% in value threshold under section 901F. The court held that, because the statutory cross-class cram down provisions in section 901G applied, it could sanction the plan provided conditions A and B in section 901G were satisfied and that the court’s discretionary assessment did not disclose any reason to refuse sanction.

Key legal principles applied were: (i) verification of statutory compliance including jurisdiction and class constitution; (ii) identification of the relevant alternative (the CL&T Group Insolvency Scenario) and application of section 901G condition A (no member of the dissenting class will be worse off than in the relevant alternative) using the entity priority model; (iii) application of section 901G condition B (existence of at least one consenting class with a genuine economic interest in the relevant alternative); and (iv) exercise of the court’s discretion guided by established scheme principles (representation, bona fide conduct, fairness, and absence of a "blot"), but recognising that where section 901G applies the court may more readily depart from the dissenting class’ view. The court found condition A and condition B satisfied, no unfair horizontal inequality or procedural defect was established, and that sanctioning the Restructuring Plan was appropriate.

Background and relief sought. This was a first instance Companies Court application for sanction of a composite restructuring plan for three DeepOcean group companies pursuant to section 901F of the Companies Act 2006 (Part 26A), following the convening judgment ([2020] EWHC 3549 (Ch)). The applicant companies sought an order sanctioning the Restructuring Plan after plan meetings convened under section 901C.

Relevant factual and procedural background.

• The Plan Companies were DO1, DeepOcean Subsea Cables Limited (DSC) and Enshore Subsea Limited (ES).
• Plan meetings were convened and held on 6 January 2021. All relevant meetings reached the 75% in value threshold except the DSC Other Plan Creditors meeting, where the plan was approved by only c.64.6% in value.
• Immediately before the meetings, separate commercial arrangements were reached by non-Plan group entities (notably DeepOcean Norway AS) to pay certain creditor claims of a UK landlord and two UK vessel owners and to secure their votes; notice of these arrangements was given shortly before the meetings.
• The convening judgment and attendant evidence, including a comprehensive entity priority model prepared by the financial adviser A&M, were relied upon at the sanction hearing.

Issues framed by the court.

• Whether the court had jurisdiction and whether the statutory procedures and class constitutions were properly followed.
• Where a dissenting class had not reached the 75% threshold, whether the requirements of section 901G (conditions A and B) were satisfied so as to permit cross-class cram down.
• If section 901G applied, whether the court should nevertheless exercise its discretion to refuse sanction because the plan was not just and equitable or for other discretionary reasons (representation, coercion, fairness, turnout, horizontal comparability, operational defects or 'blots', and effectiveness in other jurisdictions).

Court’s reasoning and conclusions.

• Jurisdiction and procedural compliance: the court was satisfied that the Plan Companies fell within Part 26A, that the convening order and explanatory statement were complied with, and that the meetings were properly conducted.
• Relevant alternative: the court accepted the CL&T Group Insolvency Scenario (rather than a group liquidation) as the relevant alternative likely to occur if the Restructuring Plan were not sanctioned.
• Condition A: the entity priority model showed that DSC Other Plan Creditors would receive no return in the relevant alternative while the Restructuring Plan provided an uplift (approximately 4%); accordingly no member of the dissenting class would be worse off and condition A was satisfied.
• Condition B: the DSC Secured Creditors (a consenting class) had a real prospect of recovery in the insolvency scenario and thus a genuine economic interest in DSC in the relevant alternative; condition B was satisfied.
• Discretionary assessment: the court applied the established scheme-of-arrangement principles (statutory compliance, fair representation, bona fide voting and an arrangement which an intelligent and honest member might reasonably approve) but adapted them to the cross-class cram down context. The court considered turnout, potential coercion, horizontal comparisons of creditor treatment, the source of consideration (group entities other than the Plan Companies), absence of any identified blot or operational defect, and the question of substantial effectiveness abroad. No creditor had put forward a reasoned objection. Overall the court concluded sanction was appropriate.
• Effect in other jurisdictions: because of the pre-meeting agreements with vessel owners, evidence of recognition in the Netherlands was no longer required and there was no suggestion of a need for recognition elsewhere.

Result. The court exercised its discretion to sanction the Restructuring Plan for all three Plan Companies, applying section 901G to bind the dissenting DSC Other Plan Creditors.

The court sanctioned the Restructuring Plan for the three Plan Companies. Although the DSC Other Plan Creditors did not meet the 75% threshold under section 901F, the court held that the cross-class cram down provisions in section 901G applied because (i) condition A was satisfied: the dissenting DSC Other Plan Creditors would not be worse off than in the relevant alternative (the CL&T Group Insolvency Scenario), as demonstrated by the entity priority model; and (ii) condition B was satisfied: the DSC Secured Creditors (a consenting class) had a genuine economic interest in that relevant alternative. The court further exercised its discretion to sanction the plan, finding no procedural defect, no unfair or unjust distribution, no coercion, no blot on the plan, and no obstacle to substantial effectiveness in relevant foreign jurisdictions given the commercial arrangements secured before the meetings.