Re AGPS Bondco Plc

This Court of Appeal allowed the appeal against Leech J's sanctioning of a Part 26A restructuring plan. The court held that the judge had erred in principle in his approach to the exercise of the cross-class cram down power in section 901G of the Companies Act 2006. In particular the judge wrongly treated overall creditor support and satisfaction of the section 901G "no worse off" test as factors that could, without more, justify imposing a plan that departed from the pari passu distribution that would apply in the relevant alternative.

The court emphasised that Condition A (the "no worse off" test) and Condition B are jurisdictional prerequisites but do not create a presumption favouring sanction. When a plan departs from pari passu treatment between classes (a horizontal comparison), the court must ask whether there is a good reason or proper basis for that departure; it must assess allocation of the restructuring surplus and may properly scrutinise whether a fairer plan (for example harmonising maturities) was available. The judge’s reliance on the asserted overall support for the Plan and his acceptance of the Plan Company’s "Alternative Case" did not cure the lack of justification for preserving sequential payments to different series of notes.

The appeal concerned the sanctioning by Leech J of a restructuring plan under Part 26A (Companies Act 2006) proposed by an English issuer company (Plan Company) as part of a wider Adler Group restructuring. The Plan altered the terms of six series of unsecured notes (SUNs). The restructuring provided new "New Money" financing from a steering committee (SteerCo), capitalised interest, amended negative pledge provisions and left different series of notes to be paid in accordance with their original maturities (save the 2024 series which was extended). The Plan also envisaged Transaction Security and an intercreditor waterfall that elevated certain series (notably the 2024 Notes) ahead of others.

Nature of the application: sanction of a restructuring plan under Part 26A, including an application to exercise the court's cross-class cram down power under section 901G to bind a dissenting class (the 2029 Noteholders) that did not achieve the 75% approval threshold.

Procedural history: convening hearing before Sir Anthony Mann ([2023] EWHC 415 (Ch)), sanction hearing before Leech J who sanctioned the Plan and gave a reserved judgment ([2023] EWHC 916 (Ch)), permission to appeal refused by Leech J ([2023] EWHC 987 (Ch)), then permission and appeal to the Court of Appeal which heard argument on legal and factual challenges.

Issues framed:

• whether the judge correctly treated satisfaction of Conditions A and B as a jurisdictional but not presumptive basis for sanction, and then misapplied the court's discretion;
• the proper role of the rationality test derived from Part 26 scheme jurisprudence when a dissenting class exists under Part 26A;
• whether the Plan's preservation of sequential payment dates and the priority given to the 2024 Notes departed unjustifiably from the pari passu principle that would apply in the relevant alternative;
• whether the court may treat overall creditor support and a simple majority within a dissenting class as material factors favouring cram down; and
• whether the retention of existing equity by shareholders (and the allocation of 22.5% to providers of New Money) rendered the Plan unfair.

Court's reasoning and conclusion: the Court of Appeal accepted that Conditions A and B in section 901G are jurisdictional preconditions but do not create a presumption in favour of sanction. The rationality test derived from scheme cases remains relevant within an assenting class but cannot be transposed uncritically to justify imposing a plan on a dissenting class or to rely on overall cross-class voting. The court must carry out a horizontal comparison to determine whether differences in treatment between classes are justified and, where a plan departs from pari passu distribution, require a good reason for doing so. On the facts the Plan preserved sequential payments that exposed the 2029 Noteholders to materially greater risk without adequate justification (and without evidence that a fairer alternative, e.g. harmonisation of maturities, was not feasible). The appeal was therefore allowed and the sanction set aside.

Appeal allowed. The judge erred in principle in exercising his discretion under sections 901F and 901G by over-weighting overall support and the no-worse-off finding and by failing to require a good justification for a departure from pari passu treatment. The Plan’s preservation of sequential payments (leaving the 2029 Notes to be paid last) materially departed from the pari passu distribution that would obtain in the relevant alternative without adequate justification, so sanction was set aside.

Appeal from the High Court (Business and Property Courts, Insolvency & Companies List). Convening hearing: Sir Anthony Mann [2023] EWHC 415 (Ch). Sanction and reserved judgment: Leech J [2023] EWHC 916 (Ch). Permission to appeal initially refused by Leech J: [2023] EWHC 987 (Ch). Court of Appeal judgment allowing the appeal: [2024] EWCA Civ 24.