UK Commercial Finance Holding Ltd v Cine UK Ltd

The court considered applications to sanction four restructuring plans under sections 901F and 901G of the Companies Act 2006. The judge identified the relevant alternative (likely insolvent administration), applied the "no worse off" test and Condition B, and considered whether the plans should be imposed by cross-class cram down. The plans provided new equity funding, amendments to secured facilities and a structured compromise of lease liabilities, with creditor returns protected by a floor (the higher of 150% of the Estimated Insolvency Return or £1,000 for unsecured creditors).

Key legal principles applied were: the identification of the relevant alternative for the no worse off test, the pari passu principle as an important reference point for fairness where the relevant alternative is an insolvency, and the court's broad discretionary power to sanction plans (including under section 901G) subject to fairness and substantial effect. The court held that most dissenting classes were "out of the money" and that the statutory conditions for cram down were satisfied.

The court rejected last‑minute injunctive applications by two landlords (UK Commercial Property Finance and The Crown Estate) based on side letters which had purported to prevent inclusion of certain leases in any restructuring plan. The judge concluded the side‑letter undertakings were capable of being compromised under Part 26A and that enforcing those undertakings would conflict with the pari passu and collective insolvency considerations; accordingly the injunctions were refused and the restructuring plans were sanctioned.

Background and parties: Cineworld group companies (the Plan Companies) operating UK cinemas proposed four restructuring plans to compromise specified creditor claims, chiefly lease liabilities. The Plans followed the Group's earlier Chapter 11 reorganisation in the United States and were designed to address an acute UK cash shortfall. The Plan Companies sought sanction under section 901F and, where necessary, cross‑class cram down under section 901G of the Companies Act 2006. The Plans include equitisation of intercompany secured debt, new equity funding, amendments to the Term Loan, a categorisation of leases into classes (A–D) with differing treatments, and compromise of various unsecured liabilities.

Nature of the application/relief sought: Sanction of four restructuring plans and, as necessary, orders under section 901G to cram down dissenting classes; separate injunctive relief sought by two landlords (the Objectors) to exclude certain leases from the Plans on the basis of side‑letter undertakings.

Procedural posture: Convening hearing granted permission to convene creditor meetings. Plan meetings were held; the Intercompany Lender and Term Loan Lenders approved the Plans, but other classes included dissenters. Two landlords issued injunction applications very close to the sanction hearing, seeking to prevent inclusion of particular leases said to be protected by side letters.

Issues framed by the court:

• What is the relevant alternative for the "no worse off" test?
• Whether Conditions A and B of section 901G were satisfied (including class composition and voting outcomes).
• Whether the court should exercise its discretion to sanction the Plans, having regard to fairness (including the pari passu principle) and whether dissenting classes were "out of the money".
• Whether contractual side letters which purported to exclude particular landlords from any restructuring were enforceable (and thus whether injunctions should be granted), or whether those rights were capable of compromise under Part 26A and should be considered in the sanction exercise.
• Whether the Plans would have substantial effect, including in foreign jurisdictions.

Court's reasoning and conclusions: The court accepted the Plan Companies' evidence that absent sanction the likely alternative was insolvent administration, in which administrators or secured creditors would likely acquire business and assets. The Plans were modelled to ensure no creditor class would be worse off than in that relevant alternative (the no worse off test): unsecured creditors would receive the higher of 150% of the Estimated Insolvency Return or a £1,000 floor. Most dissenting classes were judged to be "out of the money" (with only de minimis prescribed‑part recoveries for some unsecured creditors), so their objections carried little weight. The court applied the pari passu principle as the default comparator for fairness where the relevant alternative is an insolvency and explained that promises to exclude particular creditors from a collective restructuring must be weighed against that public‑policy imperative. The side letters were held to be capable of compromise under Part 26A, and the court refused the Objectors' injunctions because enforcing the side‑letter undertakings would undermine the collective insolvency/pari passu considerations and there was no good reason why those landlords should be excluded given the relevant alternative and creditor equality considerations. The court was satisfied the Plans would have substantial effect (including credible prospects of effect in Scotland and Ireland) and found no blots or technical defects in the Plans. The Plans were sanctioned.

The court sanctioned the four restructuring plans under section 901F, and (where necessary) pursuant to section 901G authorized cross‑class cram down. The judge found the statutory conditions (including the no worse off test and that at least one class had approved the Plans) were met, concluded that most dissenting classes were out of the money, exercised the court's discretion in favour of sanction (applying the pari passu principle and assessing fairness), refused injunctive relief sought by objecting landlords on the basis that the side‑letter undertakings were capable of compromise and their enforcement would conflict with collective insolvency and pari passu considerations, and was satisfied the Plans would have substantial effect; accordingly the Plans were sanctioned.