Re Project Lietzenburger Strasse Holdco

The court ordered that three meetings of creditors be convened under Part 26A of the Companies Act 2006 to consider a restructuring plan proposed by Project Lietzenburger Strasse HoldCo S.à.r.l. The judge held that the convening hearing functions under the Practice Statement had been met: the court had sufficient notice to proceed notwithstanding that it was shorter than typical; the jurisdictional threshold conditions in section 901A (Conditions A and B) were satisfied on a prima facie basis; and there was no obvious jurisdictional 'knockout' or other factor that would unquestionably prevent sanction. The judge also held, on a good arguable case, that the proposed class composition (separate classes for senior, tier 2 and junior secured creditors) was appropriate and that features said to risk fracturing the senior class—consent fees, elevation for participants in super-senior financing, the backstop fee, a structuring fee and interim facilities—did not, on the material before the court, fracturing the class. Issues on COMI, international effectiveness and final enforceability were reserved to the sanction hearing where expert material will be considered.

This was a first-instance convening hearing under Part 26A of the Companies Act 2006. The applicant, Project Lietzenburger Strasse HoldCo S.à.r.l. (the Plan Company), a Luxembourg incorporated intermediate holding company in a group owning a major uncompleted development in Berlin, applied for orders to convene three creditor meetings (senior, tier 2 and junior secured creditors) to consider a restructuring plan.

The Plan is intended to address an imminent payment default of over €1 billion of secured debt due on 28 November 2023 by extending senior debt maturities, releasing out-of-the-money tier 2 and junior debt, and facilitating new super-senior financing of €190 million to complete the development. Evidence was led by Mr Beckwith for the Plan Company and expert evidence from Ms Rickelton (FTI). Her evidence, supported by a Knight Frank valuation, concluded that the relevant alternative was formal insolvency of group obligors, likely leading to a sale realisation materially below current valuation, with senior creditors' recoveries in the relevant alternative estimated at about 44.5 cents in the euro and tier 2 and junior creditors recovering nothing; under the Plan participating senior creditors would receive about 89.3 cents and non-participating seniors about 50 cents in the euro.

The court addressed three principal issues at the convening hearing:

• Notice and timing: the Practice Statement matters were considered; although the Plan Company provided shorter notice than common practice (16 days rather than c.21), the court decided not to adjourn because further delay was unlikely to crystallise a dispositive issue and a sanction timetable could be accommodated in late January/early February 2024.
• Jurisdiction and connection: on a prima facie basis the statutory conditions under section 901A were met (Condition A — financial difficulties; Condition B — a proposed arrangement to address them). Questions of COMI and international effectiveness were not finally determined and were reserved to the sanction stage where expert foreign-law evidence may be called.
• Class composition and fracturing: the court was satisfied on a good arguable case that three classes should be convened and that the consent fee, elevation mechanism for super-senior participants, backstop fee, structuring fee and interim facilities did not, on the evidence, fracture the senior class.

The judge emphasised the court's expectation that adequate notice be given where possible and deprecated a practice of using convening hearings merely to push contested issues to sanction hearings without proper notice. The convening order and timetable were made so that the plan can proceed to creditor meetings and, if approved, a sanction hearing in the proposed window.

The application to convene three creditor meetings under Part 26A was allowed. The court concluded that (i) the convening hearing requirements under the Practice Statement were met, despite concerns about the shortness of notice; (ii) the prima facie jurisdictional conditions in section 901A were satisfied; (iii) there was no obvious knockout jurisdictional roadblock; and (iv) the proposed class composition was appropriate and the contested commercial features alleged to fracture the senior class did not do so on the material before the court. Issues as to COMI, international effectiveness and enforceability were reserved for the sanction hearing.