Strategic Value Capital Solutions Master Fund LP & Ors v AGPS BondCo PLC

Where a restructuring plan invokes cross-class cram down under Companies Act 2006 Part 26A, satisfying the statutory no-worse-off condition is a jurisdictional threshold only. It does not favour sanction. The court must independently assess the fair allocation of the restructuring benefits between creditor classes.

In a wind-down plan where unsecured creditors rank pari passu in the relevant alternative, a plan which exposes a later-paid class to a greater risk of non-payment by making sequential payments departs from that principle. The departure requires a good reason or proper justification. The court may consider whether a fairer allocation was available, but may not treat overall support from differently interested classes as evidence of fairness to the dissenting class.

The respondent proposed a restructuring plan under Companies Act 2006 Part 26A for six classes of senior unsecured noteholders in the Adler Group. The plan was intended to permit an orderly wind-down rather than rescue the business as a going concern.

In the relevant alternative, all notes would rank equally as unsecured debts in formal insolvency. Under the plan, however, the 2024 notes would be paid earlier and have priority under new security, while the 2029 notes would be paid last. The 2029-note class did not achieve the required 75% vote.

Leech J sanctioned the plan: In the matter of AGPS BondCo plc [2023] EWHC 916 (Ch). The dissenting 2029 noteholders appealed, principally challenging the exercise of the cross-class cram-down discretion and the plan’s departure from pari passu treatment.

1. Appeal allowed. The order sanctioning the plan was set aside. The judge had erred in principle when exercising the discretion under sections 901F and 901G of the Companies Act 2006.

2. Conditions A and B in section 901G are necessary jurisdictional conditions. Condition A supplies the vertical comparison: whether the dissenting class is no worse off than in the relevant alternative. Their satisfaction creates no presumption in favour of sanction. The court must still decide whether it is fair and appropriate to impose the plan on that class.

3. The conventional scheme rationality test applies within a properly constituted assenting class. It cannot simply be transferred to a dissenting class which has not achieved the statutory 75% majority, or to overall voting across separate classes. Creditors placed in different classes have insufficient commonality of commercial interest for their aggregate support to demonstrate fairness to the dissenting class.

4. The court must instead make a horizontal comparison. It must identify differential treatment between creditor classes and decide whether there is a fair distribution of the value preserved or generated by the restructuring. In a wind-down plan whose relevant alternative is an insolvency in which the notes rank equally, pari passu distribution is the normal reference point. A departure is permissible only with a good reason or proper justification. The court may therefore consider whether a different and fairer allocation was available.

5. Pari passu distribution protects equally ranking creditors against unequal exposure to an inadequate common fund. The judge’s finding that full payment was more likely than not did not remove the material risk that earlier notes would be paid in full before funds proved insufficient for the 2029 notes. Sequential payment was not rateable distribution and materially departed from pari passu treatment. No justification was shown for retaining the different maturity dates; they could have been harmonised.

6. The priority given to the 2024 notes was different. Their one-year maturity extension provided additional accommodation which could constitute a proper basis for enhanced priority. That feature would not itself have justified allowing the appeal.

7. The court rejected the argument that shareholders had to surrender their shares to in-the-money creditors. No distribution was to reach shareholders before noteholders were paid in full. Snowden LJ also expressed the provisional view that Part 26A does not permit compulsory extinction of debts or confiscation of shares for no consideration, because a compromise or arrangement requires give and take.

• Court of Appeal (Civil Division): allowed the appeal and set aside the sanction order: [2024] EWCA Civ 24.
• High Court, Insolvency and Companies List: Leech J sanctioned the restructuring plan under Companies Act 2006 Part 26A: [2023] EWHC 916 (Ch). Permission to appeal was later refused: [2023] EWHC 987 (Ch).