Thames Water Utilities Holdings, Re

At a convening hearing for a restructuring plan, the court does not determine the plan’s fairness or merits. Its role is to address preparatory matters, including jurisdiction, statutory conditions and class composition.

For class purposes, creditors must be grouped by their rights, assessed against the relevant comparator. A class is inappropriate only where differences make it impossible for members to consult together in pursuit of their common interest. Differences concerning interests, commercial arrangements or immaterial benefits do not necessarily fracture a class.

The comparator used for class composition need not be identical to the relevant alternative later determined for cross-class cram down. The two exercises serve different purposes.

Thames Water Utilities Holdings Ltd applied for permission under Part 26A of the Companies Act 2006 to convene seven creditor meetings to consider an interim restructuring plan providing bridge finance and extensions of existing debt maturities.

The application arose against serious financial difficulties and competing proposals advanced by Class A and Class B creditors. The court was not asked to sanction the plan or decide its fairness. The principal issues were whether the statutory conditions and jurisdictional requirements were met, whether the proposed creditor classes were properly constituted, and whether the possible emergence of a Class B restructuring plan affected the class analysis.

1. Scope of the hearing. The court’s function at a convening hearing is preparatory. It does not determine whether the plan is fair, whether it should be sanctioned, or what the relevant alternative will be for the purposes of section 901G of the Companies Act 2006.
2. Jurisdiction and statutory conditions. The Plan Company was within Part 26A and no international jurisdiction issue arose. Condition A in section 901A(1) was satisfied because the company had encountered, or was likely to encounter, financial difficulties affecting its ability to continue as a going concern. The threshold was relatively low. Condition B was also satisfied: the broadly drafted requirement was capable of including bridge finance intended to mitigate those difficulties. The plan involved sufficient give and take because it restated existing rights while providing returns intended to be at least as good as those available in the relevant comparator.
3. Class composition. Applying Sovereign Life Assurance v Dodd and the later authorities, the court considered existing rights and rights under the plan, assessed existing rights against the relevant comparator, and distinguished rights from interests. Differences do not fracture a class unless they make consultation towards a common interest impossible. The debt waterfall and the distinction between Class A make-whole and non-make-whole claims created separate classes. Differences in maturity, interest, participation rights, consent fees, backstop fees and voting mechanics did not otherwise fracture the proposed classes.
4. Different comparators. The comparator for class composition is an aid to the consultation question. The relevant alternative for cross-class cram down is a separate, binary question under section 901G(4). The possibility that the Class B proposal might later be found to be the relevant alternative did not invalidate the classes constituted at the convening stage, particularly because the proposed treatment and creditor considerations remained substantially aligned during the interim funding period.
5. The application to convene the seven class meetings was granted.