UK Commercial Property Finance Holdings Limited v Cine-UK Limited & Anor

Part 26A restructuring plans may compromise contractual rights, including a promise not to submit particular liabilities to a plan, where the holder has a contingent claim against the company and the statutory conditions are met. Where the relevant alternative is insolvency, fairness is assessed collectively. Creditors with like rights in that alternative should receive like treatment unless a good reason, such as facilitating the rescue or essential supply, justifies a departure. A dissenting class that is substantially out of the money carries little weight. A negative covenant is not enforced automatically where doing so would defeat the pari passu principle or the statutory rescue. Lease modifications may be fair where affected landlords have suitable break rights. Four plans were sanctioned and injunctions sought by two landlords were refused.

Four Cineworld group companies sought sanction of restructuring plans under Part 26A of the Companies Act 2006. The plans principally restructured lease liabilities, intercompany debt, secured lending and other unsecured liabilities. The proposed relevant alternative was insolvent administration, followed by an asset sale, in which creditors were expected to receive materially less.

UK Commercial Property Finance Holdings Limited and the Crown Estate Commissioners sought injunctions excluding certain leases and guarantees from the plans. They relied on side letters under which the plan companies had agreed not to compromise those liabilities through a restructuring plan. The central issues were whether the side-letter rights could be compromised, whether they affected class composition, whether the plans were fair notwithstanding the covenants, and whether the court should sanction the plans.

1. Disposition. The court sanctioned all four restructuring plans under sections 901F and 901G of the Companies Act 2006. The injunction applications brought by UK Commercial Property Finance Holdings Limited and the Crown Estate Commissioners were dismissed.
2. Statutory conditions and discretion. The court adopted the three-stage approach identified in Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch): satisfaction of the no-worse-off condition by reference to the relevant alternative, approval by at least one class, and the court’s discretion to sanction. The relevant alternative was the outcome most likely to occur without sanction. The directors’ evidence was entitled to weight, and the evidence established that administration was the likely alternative. Each creditor class would receive more under the plans.
3. Fairness. The dissenting classes were substantially out of the money. Their views therefore carried little or no weight, save that modest prescribed-part or short-term occupation payments did not alter the conclusion. Where creditors are in the money, the court must make a horizontal comparison and ordinarily apply the pari passu principle. Creditors with like rights in the relevant alternative should be treated alike unless a good reason or proper justification exists. Exclusions or preferential treatment may be justified where they facilitate the restructuring or the continued supply of essential goods or services. Long-term lease modifications were not inherently unfair because landlords had break rights and could elect not to remain bound by amended terms.
4. Side letters and injunctions. The landlords had contingent claims in damages for breach of the side letters and were therefore creditors for Part 26A purposes. Their rights were capable of compromise. The side letters did not require separate classes because the rights in the relevant alternative and the rights out under the plans were materially the same as those of comparable creditors. The relevant alternative was administration, not the same plans with the objectors excluded.
5. Equity’s jurisdiction to enforce negative covenants could not be treated as an automatic entitlement in this collective statutory context. Enforcement had to be considered within the sanction and fairness analysis, giving appropriate weight to the public policy embodied in the pari passu principle and the rescue purpose of Part 26A. Excluding the objectors would confer an unjustified preferential position and would not facilitate the restructuring. The plans therefore remained fair notwithstanding the covenants.
6. The court also accepted that a plan could be modified after voting but before sanction where the modification was substantially the same, did not impose a different plan on consenting creditors, and did not undermine their assent. There was credible evidence that the plans had a real prospect of substantial effect in the relevant foreign jurisdictions, and no technical blot or defect.

The judgment was at first instance. At a convening hearing on 28 August 2024, Edwin Johnson J permitted creditor meetings and determined threshold, jurisdiction and class-composition issues. The meetings took place on 18 September 2024 before the sanction hearing.