Re CB&I UK Ltd

The plan company, CB&I UK Limited, applied for sanction of a restructuring plan under Part 26A of the Companies Act 2006 invoking the cross-class cram down power in s.901G because two unsecured creditor classes (including Reficar) had voted against the Plan. The Court had to determine jurisdiction (whether the proposal amounted to a "compromise or arrangement"), the Relevant Alternative for the purposes of s.901G(4), whether the statutory "no worse off" test in s.901G(3) was met, and whether it was a proper exercise of discretion to sanction the Plan.

The court found that a modest guaranteed payment to the dissenting unsecured creditors met the jurisdictional "give and take" requirement for a compromise or arrangement. The Relevant Alternative was held to be a worldwide formal liquidation of the Group prompted by a looming US$2.2 billion cash collateralisation obligation on 27 March 2024. On that basis unsecured creditors (including Reficar) would be wholly out of the money, so Condition A (the "no worse off" test) was satisfied. The exercise of the court's discretion was influenced decisively by late-stage negotiations and the Dutch Restructuring Expert's recommendation that Reficar would receive preferred shares convertible into either 19.9% (if it accepted) or at minimum 10.9% (if it did not) of the ultimate parent company's ordinary share capital; the court considered that allocation fair and accordingly sanctioned the Plan.

Background and parties. CB&I UK Limited (the Plan Company), part of the McDermott group, sought sanction of a restructuring plan under Part 26A CA 2006. The Plan would extend maturities of secured letter-of-credit and loan facilities and release large unsecured claims, including an ICC arbitration award held by Refinería de Cartagena S.A.S. (Reficar) for approximately US$1.3 billion. Reficar opposed sanctioning because the Plan would largely extinguish its award for very small cash/contingent consideration. Secured creditors (five classes) voted overwhelmingly in favour; two unsecured classes (including Reficar) voted unanimously or substantially against.

Nature of the application. The Plan Company sought the Court's sanction of the Plan under Part 26A (s.901F/901G) using the cross-class cram down power because the relevant statutory 75% in value majority did not include the two unsecured classes.

Principal issues before the Court.

• Jurisdiction: whether the Plan is a "compromise or arrangement" against dissenting unsecured creditors.
• Relevant Alternative: what is "most likely to occur" if the Plan is not sanctioned for s.901G(4) purposes.
• Condition A (s.901G(3)): whether dissenting classes would be no worse off under the Plan than under the Relevant Alternative.
• Discretion: whether it would be unfair to sanction the Plan having regard to allocation of the restructuring surplus, disclosure, international recognition issues and whether the Plan would have substantial effect in the United States.

Facts and crucial contextual features. The Group depends critically on multiple letter-of-credit facilities and faces a contractual obligation to post cash collateral equal to approx. US$2.2 billion 95 days before facility maturities (falling due 27 March 2024). If a call for cash collateral is made the Group cannot meet it and the lenders/issuers would seek reimbursement, producing events of default and likely enforcement. The Plan provides only small fixed and contingent payments to Reficar and other unsecured creditors and leaves equity holders unimpaired at the Plan Company level. Extensive witness and expert evidence was led on the likely outcome of a failure of the Plan and on valuation and recognition issues. During the trial intensive without prejudice negotiations and a parallel Dutch WHOA process culminated in an offer, supported by the Dutch Restructuring Expert, to give Reficar preferred shares in the ultimate parent (convertible into 19.9% of ordinary capital if accepted, with a minimum 10.9% if not).

Court's reasoning (concise).

1. Jurisdiction: the court accepted that the modest guaranteed payments and contingent payments to the dissenting unsecured creditors satisfied the "give and take" requirement so that the proposal was a "compromise or arrangement" within Part 26A.
2. Relevant Alternative: after assessing the factual and expert evidence, and having regard to the imminent cash collateral obligation and likely commercial reactions of customers and suppliers, the Court concluded on the balance of probabilities that the Relevant Alternative most likely to occur if the Plan failed was a worldwide formal liquidation of the Group (a disorderly insolvency/liquidation scenario).
3. No worse off: in that Relevant Alternative unsecured creditors would receive nothing (they were "out of the money"). The Plan therefore satisfied Condition A of s.901G(3).
4. Discretion: the Court exercised its discretion to sanction the Plan. The late-stage negotiated offer, and the Dutch Restructuring Expert's recommendation that Reficar would receive 19.9% (if consenting) or at least 10.9% (if not), meant that the allocation was fair. The Court considered other discretionary objections (disclosure, New York Convention and US effect) but found they did not prevent sanctioning.

Procedural posture and outcome. This was a first instance sanction hearing before Mr Justice Michael Green following convening decisions and creditor meetings; the Court sanctioned the Plan.

Other observations. The Court expressed concern about very large professional fees (approx. US$150 million) incurred in the restructuring and emphasised the burdens and resource implications of Part 26A proceedings.

(i) Nature of the claim/application: sanction of a Part 26A restructuring plan using s.901G cross-class cram down.

(ii) Issues framed by the Court: jurisdiction (compromise or arrangement), Relevant Alternative, s.901G(3) no worse off test, and exercise of discretion (fairness of surplus allocation, adequacy of explanatory disclosure, international recognition issues, and US effect).

(iii) Concise account of reasoning: modest guaranteed payments satisfied jurisdiction; imminent cash collateral call and likely consequences established the Relevant Alternative as formal liquidation; unsecured creditors would be no worse off under the Plan; the court exercised its discretion to sanction the Plan particularly in light of the equity allocation available to Reficar through parallel Dutch procedures and the recommendation of the Dutch Restructuring Expert.

The Court sanctioned the restructuring Plan. The judge concluded that the Plan met the jurisdictional threshold for a "compromise or arrangement" under Part 26A (a modest guaranteed payment satisfied "give and take"), that the Relevant Alternative most likely if the Plan failed was a worldwide formal liquidation (prompted by a US$2.2 billion cash collateral call), that the s.901G(3) "no worse off" test was satisfied (unsecured creditors would be out of the money in liquidation), and that it was a proper exercise of judicial discretion to sanction the Plan given, inter alia, the late-stage equity offer to Reficar under the parallel Dutch process (minimum 10.9%, up to 19.9%).