Re Gategroup Guarantee Ltd

The court sanctioned a restructuring plan under Part 26A of the Companies Act 2006 after concluding that statutory requirements were complied with, the classes had been properly constituted and fairly represented, and the Plan was one which a reasonable and honest member of the Bondholders' class could approve. Key matters considered included the court's jurisdiction (internationally and as to class composition), turnout and representativeness of the Bondholder vote, fairness of the Plan (which primarily extended maturity and waived a change‑of‑control default), and whether any "blot" or objectionable artificiality in the co‑obligor structure required refusal of sanction.

The judge also examined international effectiveness, in particular the likely recognition and effect of the Plan in Switzerland (which governs the Bonds) and Luxembourg, and required a modification to the Plan to ensure a practical mechanism for implementing amendments to the Bonds by appointing the Company to take steps to effect the amendments. The Plan was found to be the only viable route to avoid highly value‑destructive insolvency for the group and to deliver a materially better outcome for creditors.

Background and parties: The applicant was Gategroup Guarantee Limited seeking sanction of a restructuring plan (the "Plan") under Part 26A of the Companies Act 2006. Two classes of creditors were convened: Senior Lenders and Bondholders. A Convening Judgment of 17 February 2021 set out the background and reasons for convening the meetings; this judgment gives reasons for sanction.

Nature of application: Application for court sanction of a Part 26A restructuring plan proposed to extend Bond maturities, waive a change of control event of default and enable a wider group restructuring including substantial new equity from shareholders.

Issues framed by the court:

• whether the court had jurisdiction in the international sense and as to the constitution of classes;
• whether statutory provisions had been complied with and class meetings fairly represented the classes;
• whether the Plan was one a creditor could reasonably approve (fairness);
• whether there was any "blot" or defect, in particular whether the artificial co‑obligor structure justified refusal to sanction;
• whether the Plan would be effective in important foreign jurisdictions, notably Switzerland and Luxembourg, including how amendments to bonds would operate against non‑assenting Bondholders.

Evidence and procedure: The statutory majorities were achieved: unanimous Senior Lenders and Bondholders representing 98.41% in number and 99.98% by value of votes cast approved the Plan, though turnout by value among Bondholders was 24.52% (66 bondholders). The Company produced expert opinions on Swiss law (Professor Rodrigo Rodriguez) and Luxembourg law (Philippe Hoss) addressing recognition and classification of the Plan and the conditions for recognition. The Company accepted the co‑obligor had been created to enable use of the English plan jurisdiction.

Court's reasoning: The judge adopted the analysis in the Convening Judgment as to jurisdiction and class constitution. He applied the established criteria for sanctioning (statutory compliance; fair representation of classes; whether a reasonable creditor could approve; and absence of a blot). He concluded that the Plan was fair: the alternative would be insolvency yielding only small recoveries, whereas the Plan preserved capital repayment prospects while extending maturity and maintaining interest. The low turnout was not determinative because of the retail nature of bondholding and extensive notice and engagement efforts.

The judge addressed the objection that the co‑obligor structure was artificially created to access English jurisdiction. He concluded that, although artifice can be fatal in some cases, here the structure was the only practicable means of achieving a value‑preserving restructuring: all other stakeholders had agreed, the Bonds could not feasibly be amended consensually because of quorum constraints, and the Plan conferred minimal adverse effect on Bondholders. The judge characterised this as "good forum shopping" in the sense of seeking the best outcome for stakeholders.

On international effectiveness, the Swiss expert treated the Plan as an insolvency/composition proceeding under Swiss private international law and identified conditions for recognition under SPILA, which the court considered were met or likely to be met (subject to clarity as to whether the Plan would directly amend the Bonds or operate in personam). To address potential uncertainty about the Plan's practical effect against non‑assenting Bondholders in Switzerland, the Company amended clause 4.3 to appoint the Company on behalf of Bondholders to take steps (including under Swiss law) to implement the amendments in Schedule 1. Luxembourg recognition was addressed by evidence showing the Issuer had moved its COMI to England, and that the Luxembourg conditions for recognition were satisfied.

Result: Taking account of statutory requirements, class votes, fairness, international effectiveness (including the COMI move and the amendment to clause 4.3), the judge sanctioned the Plan.

The court sanctioned the restructuring Plan. The judge concluded that statutory requirements were satisfied, the classes had been properly and fairly represented, the Plan was one a reasonable Bondholder could approve, there was no disqualifying blot despite the artificial co‑obligor structure because the structure was necessary and produced a materially better outcome, and steps had been taken (including amendment to clause 4.3 and evidential proof of a COMI move) to secure practical effectiveness in Switzerland and Luxembourg.