Cimolai SpA & Anor, Re

When sanctioning a restructuring plan under Part 26A of the Companies Act 2006, the court must consider statutory compliance, class constitution and voting, the cross-class cramdown conditions, and the overall fairness and utility of the plan.

For the no-worse-off condition, the relevant alternative is the outcome the court considers most likely if the plan is not sanctioned. It need not be certain or more likely than not. The comparison concerns anticipated returns and, where relevant, timing, enforceability and the security of payment.

A plan may include an alteration of creditors’ rights against third parties where that alteration is ancillary to the arrangement and necessary to make it effective.

Two Italian companies in the Cimolai Group applied for sanction of parallel restructuring plans under Part 26A of the Companies Act 2006. The plans were intended to operate alongside Concordato proceedings in Italy and principally addressed liabilities arising under English-law foreign exchange derivative contracts.

Several creditor classes approved the plans, but certain single-creditor classes did not vote. The court therefore had to decide whether the statutory cross-class cramdown conditions were met, whether the dissenting creditors would be no worse off, and whether the plans should be sanctioned in the court’s discretion.

1. Sanction. The court sanctioned both restructuring plans. The statutory requirements, including company eligibility, sufficient connection with England and Wales, threshold conditions A and B, class constitution, meeting procedure and voting requirements, were satisfied.
2. Cross-class cramdown. Because certain classes had not approved the plans by the statutory majority, the court applied section 901G. The relevant questions were whether the dissenting creditors would be no worse off under the plans than under the relevant alternative, whether at least one economically interested class had approved the plans by the required majority, and whether the court should exercise its discretion to sanction them.
3. Relevant alternative and no-worse-off test. The relevant alternative under section 901G(4) is whatever the court considers most likely to occur if sanction is refused. The court need not find that the outcome is certain or more likely than not; it must select the most likely among the available alternatives. The comparison is primarily by reference to anticipated returns, but may also include timing of distribution, enforceability and the security of the payment covenant.
4. The likely alternatives were approval of the Italian Concordato without an effective English compromise, or eventual liquidation in Italy. On either analysis, the dissenting creditors would be no worse off under the English plans. The speculative possibility of additional recovery through enforcement outside Italy did not alter that conclusion.
5. Discretion. The court considered creditor support, the fairness of the distribution, treatment of creditors, statutory priorities and the commercial justification for retaining existing equity ownership. There was no evidence of unfair representation, bad faith or any blot on the plans. The plans were arrangements which an intelligent and honest creditor acting in its own interests might reasonably approve.
6. Third-party releases. Following Re Fitness First Clubs Ltd and Re Gategroup Guarantee Ltd (No. 1), alteration of creditors’ rights against third parties was permissible where ancillary to the arrangement and necessary to secure its effectiveness. The release provision concerning JB Drax was ancillary to the Cimolai plan and was therefore permitted.