Project Verona Limited, Re

When deciding whether to sanction a restructuring plan under Companies Act 2006 Part 26A, the relevant alternative is what the court considers most likely to occur if the plan is not sanctioned. It need not be certain or more likely than not. The court may rely on directors’ and expert evidence, although that evidence must be critically assessed.

Cross-class cram down requires satisfaction of the statutory conditions and a fair allocation of the restructuring benefits. The court should consider horizontal and vertical comparisons, together with benefits received by stakeholders outside the plan. Low creditor turnout does not invalidate an otherwise properly convened vote where creditors received adequate notice and non-attendance reflects apathy rather than inability to participate.

Project Verona Limited applied for sanction of a restructuring plan under Companies Act 2006 Part 26A. The plan had been approved by the secured creditor and by the Category B and Category C Landlords, but four creditor classes had not approved it. Some classes had no attendees, while others had only one attendee and therefore no meeting for statutory purposes.

The company sought cross-class cram down. The central issues were the relevant alternative, compliance with the statutory conditions, the effect of low turnout, and whether the restructuring benefits were fairly distributed among plan creditors and stakeholders outside the plan.

1. The plan was sanctioned. The court held that the relevant alternative was a pre-pack administration in which the Group’s Category A Sites would be sold. The evidence did not establish a practical possibility of a better plan, given the Group’s cash position.
2. Under section 901 G of Companies Act 2006, the relevant alternative is what the court considers most likely to occur if the plan is not sanctioned. It need not be certain or more likely than not. Directors and their expert advisers are normally best placed to identify it, although their evidence requires critical assessment. In the absence of a sufficient reason to doubt the unchallenged evidence, it was accepted.
3. The court had jurisdiction to sanction the plan despite no vote in two dissenting classes and no constituted meeting in two further classes where only one creditor attended. Attendance by a single creditor did not constitute a meeting. The statutory conditions were satisfied: dissenting creditors would receive more than in the administration alternative, and the secured creditor, which would receive value in that alternative, had voted in favour.
4. Low turnout in assenting classes did not undermine the votes. Creditors had been directly notified and appeared not to attend through apathy rather than inability. The votes also passed a rationality check because an intelligent and honest creditor could reasonably prefer the plan’s return over nil in the relevant alternative.
5. Fair distribution required horizontal and vertical comparisons among plan creditors and consideration of benefits obtained by stakeholders outside the plan. The preferential or operational importance of Category A Landlords, employees and critical suppliers justified their more favourable position. The treatment of HMRC was not unfair. No creditor had articulated a proper basis for concluding that shareholders or the secured creditor received too much of the restructuring surplus.

The court found no jurisdictional defect or other blot on the plan and sanctioned it.

The judgment followed an earlier convening judgment of the High Court, reported at [2024] EWHC 1261 (Ch), by which meetings of seven creditor classes had been convened. The present judgment determined the sanction application.