In the matter of Listrac Midco Limited

A restructuring plan may be sanctioned by cross-class cram down where a dissenting class meeting was duly summoned but only one creditor, or no creditor, attended. The trigger is the absence of agreement by the required 75% majority, however that absence arises.

The court must be satisfied that dissenting creditors would be no worse off than under the relevant alternative and that an approving class has a genuine economic interest in that alternative. In exercising its discretion, the court considers statutory compliance, representation, good faith, rational approval, defects and the fair distribution of restructuring benefits. Giving most value to secured creditors can be fair where unsecured creditors are out of the money and the secured creditors provide new funding.

Seven companies in a care-services group applied for sanction of restructuring plans under Part 26A of the Companies Act 2006. The restructuring reduced secured indebtedness, provided £15 million in new liquidity and compromised specified lease and unsecured liabilities. The likely alternatives were administration for five companies and liquidation for two.

All classes approved the plans for four companies. At least one class failed to approve the plans for each of the other three companies. Some affected class meetings had only one attendee or no attendees. The principal issues were whether cross-class cram down remained available in those circumstances, whether its statutory conditions were met and whether sanction should be granted as a matter of discretion.

1. All seven restructuring plans sanctioned. The statutory requirements were satisfied and the court exercised its discretion in favour of sanction.
2. For the four plans approved by every class, section 901F of the Companies Act 2006 conferred jurisdiction to sanction. The meetings were properly summoned and conducted. The approving classes were fairly represented, acted bona fide and for proper purposes, and could rationally regard the plans as preferable to insolvency. No blot or material international complication was identified.
3. Section 901G was engaged for the other three plans despite certain classes having only one attendee or no attendees. Although Re Altitude Scaffolding [2006] BCC 904 indicated that a meeting ordinarily requires at least two persons, section 901G(1) requires the dissenting-class meeting to have been summoned under section 901C. Its trigger is the failure to obtain agreement from 75% in value of those present and voting. The cause of that failure is immaterial. Otherwise, creditors could defeat cross-class cram down merely by declining to attend.
4. Condition A, the no-worse-off condition, was met. In the relevant administrations, affected leases would have been renegotiated or surrendered and unsecured claims would have received only their estimated insolvency returns. Under the plans, compromised creditors received 110% of those estimated returns. Condition B was also met because the secured creditors unanimously approved every plan and would recover in the relevant alternative, giving them a genuine economic interest.
5. The limited turnout and two adverse votes did not justify refusing sanction. The affected unsecured creditors were out of the money. The overall voting pattern showed substantial support or understandable non-engagement rather than broader opposition.
6. The restructuring benefits were fairly distributed. Excluded creditors were selected by objective commercial criteria connected with the group’s continued operation. It was fair for secured creditors to receive most of the value because they held the economic interest being compromised and supplied the funding needed for the group’s survival. The modest uplift for unsecured creditors was not objectionable merely because it could have been larger.

High Court, convening stage: Trower J made an order convening the creditor meetings and rejected objections concerning the proposed plans: [2023] EWHC 78 (Ch).

High Court, sanction stage: Adam Johnson J sanctioned all seven plans: [2023] EWHC 460 (Ch).