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

Satisfaction of the statutory conditions for cross-class cram down creates no presumption that a restructuring plan should be sanctioned. The court must examine whether the plan fairly distributes the benefits of restructuring between assenting and dissenting classes, using their position in the relevant alternative as a reference point. That examination may require consideration of alternative allocations.

For a wind-down plan replacing an insolvency in which creditors rank equally, departures from rateable distribution require justification. Sequential repayment from a potentially inadequate common fund exposes later-paid creditors to greater risk and departs from the pari passu principle, even where full repayment is considered likely. Overall voting support across classes cannot establish fairness to a dissenting class. Support within that class below the statutory threshold requires scrutiny of representation, information, extraneous interests and commercial reasons.

AGPS BondCo PLC, an English subsidiary of a Luxembourg property group, became the issuer of six series of senior unsecured notes through an issuer substitution. The notes had different maturity dates but would rank equally in a formal insolvency. Following an unsuccessful contractual consent solicitation, the company proposed a restructuring plan under Part 26A of the Companies Act 2006.

The plan supported a controlled wind-down through asset sales and new lending. It retained sequential repayment dates, extended the earliest series by one year and gave that series enhanced security priority. Five classes approved the plan by the statutory majority. The 2029 class approved it by only 62.28%. Strategic Value Capital Solutions Master Fund LP and the other appellants held notes in that dissenting class and opposed sanction.

Leech J sanctioned the plan and imposed it on the dissenting class: [2023] EWHC 916 (Ch). The plan became effective before permission to appeal was determined. The appeal principally concerned the exercise of the sanction discretion, the allocation of repayment risk and restructuring benefits, the significance of voting support, and the retention of shareholder equity.

Appeal allowed unanimously. The order sanctioning the plan was set aside. Snowden LJ gave the substantive judgment, with which Sir Nicholas Patten and Nugee LJ agreed.

1. Conditions A and B in section 901G of the Companies Act 2006 were necessary conditions for cross-class cram down. Their satisfaction created no presumption in favour of sanction. The court retained a discretion governed by legal principle and the relevant circumstances ([105]–[107], [153]–[154]).

2. The conventional scheme rationality test depended on sufficient commonality of interests within a properly constituted class. It remained appropriate within assenting classes. It could not establish fairness to a dissenting class by reference to votes in other classes or overall voting support. Support below 75% within the dissenting class could receive some weight, but required scrutiny of representation, consultation, extraneous interests and the underlying commercial reasons. The small cohort of holders owning only 2029 notes was unrepresentative, and deficiencies in the explanatory statement undermined reliance on its support ([125]–[134], [208]–[224]).

3. The court had to compare the treatment of creditor classes and examine the allocation of value preserved or generated above the relevant alternative. Differences required justification. The no-worse-off condition answered a different question. This horizontal comparison could require consideration of whether a different allocation was possible. Lazari Properties 2 Ltd v New Look Retailers Ltd and the relevant reasoning in Great Annual Savings Co Ltd were approved. Amicus Finance did not establish that alternative allocations could be disregarded when imposing a plan on a dissenting class ([156]–[182]).

4. In this wind-down, all noteholders ranked equally in the relevant insolvency alternative. Sequential payments from a potentially inadequate common fund departed from pari passu distribution by concentrating shortfall risk on later-paid creditors. Findings that full repayment or protective acceleration was likely supplied no assurance against that risk. Retaining the original maturities did not preserve the creditors’ insolvency bargain. No sufficient justification was shown, and harmonising repayment dates could have eliminated the differential treatment ([186], [190]–[209], [233]).

5. The extension of the 2024 notes could justify enhanced security priority because it provided additional accommodation benefiting the restructuring. Proportionality had not been expressly examined, but that aspect was not challenged. The appeal would not have succeeded on that ground ([228]–[232]).

6. Pari passu distribution did not require shareholders to surrender their shares. No shareholder distribution was permitted before full creditor repayment. The wider compulsory-transfer argument also lacked an identified viable mechanism. Provisionally and obiter, Part 26A did not authorise extinguishing debts or confiscating shares without compensating advantage. The contrary reasoning in Re Prezzo Investco Limited was disapproved ([241]–[277]).

The factual and German-law issues in grounds 7 and 8 were left undecided. Setting aside sanction rendered the plan’s alterations to the notes ineffective so far as English law was concerned ([97], [279]–[280]).

• Court of Appeal: [2024] EWCA Civ 24 . Allowed the appeal unanimously and set aside the sanction order.
• High Court: Leech J sanctioned the restructuring plan on 12 April 2023, with reasons in [2023] EWHC 916 (Ch) . Permission to appeal was refused in [2023] EWHC 987 (Ch).
• High Court: Sir Anthony Mann found the threshold requirements satisfied and directed six separate class meetings in [2023] EWHC 415 (Ch) .