Chaptre Finance PLC, Re

Under Part 26A of the Companies Act 2006, the relevant alternative is the outcome most likely to occur if the restructuring plan is not sanctioned. The court must compare the dissenting creditors’ position under the plan with that alternative.

Where dissenting creditors are out of the money in the relevant alternative, their views on the fairness or distribution of restructuring benefits should carry little or no weight. The in-the-money creditors may determine how those benefits are shared, subject to the court’s overall discretion.

Expert valuation evidence relied on in restructuring plan proceedings should comply with CPR Part 35. A party challenging opposing expert evidence will generally need to cross-examine the expert.

Chaptre Finance plc applied to sanction a second restructuring plan concerning the financing of a biomass power plant. The plan was approved by the Priority Creditors, Elevated Creditors and Hedging Banks, but not by the Senior Creditors.

The plan was intended to facilitate up to £85 million of new super senior funding, amend the finance structure and enable an agreement with the critical pellet supplier. The opposing Senior Creditors argued that the statutory no-worse-off condition was not satisfied and that the plan was unfair.

The court had to determine the relevant alternative, compare the Senior Creditors’ recoveries under administration with those under the plan, and decide whether the plan should be sanctioned despite the dissenting class.

1. Relevant alternative and no-worse-off condition. Under section 901G of the Companies Act 2006, the relevant alternative was the outcome most likely to occur if the plan were not sanctioned. On the evidence, that outcome was formal insolvency proceedings involving an administration and a sale of the business and assets. The Senior Creditors would receive nothing in that alternative, whereas the plan offered them a projected recovery. The no-worse-off condition was therefore satisfied.
2. Discretion and fairness. The court applied the principles identified in Re AGPS Bondco plc and Re Virgin Active Holdings Ltd. Where dissenting creditors are wholly out of the money in the relevant alternative, their objections to the distribution of restructuring benefits should receive no or little weight. The in-the-money creditors were entitled to share those benefits, including through amendments to the security waterfall and distressed-disposal provisions. No fairer or better alternative plan was realistically available.
3. Assenting classes. Applying Re Telewest Communications plc (No 2), the court was satisfied that an intelligent and honest creditor, acting in its interests, might reasonably approve the plan. A meeting attended by only one creditor did not prevent a cramdown under Part 26A, applying Re Listrac Midco Ltd.
4. Evidence. Valuation and outcomes evidence should comply with CPR Part 35. The original reports were deficient, but the later compliant expert reports remedied the problem. Applying TUI UK Ltd v Griffiths and approving the approach in Smile Telecoms Holdings Ltd, the court declined to reject the expert evidence without cross-examination. The opposing creditors’ non-compliant letter did not provide a proper evidential basis for preferring its conclusions.
5. Order. The restructuring plan was sanctioned.

This was a first-instance sanction application. A convening hearing took place before Edwin Johnson J on 14 October 2024, after which creditor meetings were held. Mr Justice Miles sanctioned the plan at the hearing on 11 November 2024.