In the matter of CB & I UK Ltd

Under Part 26A of the Companies Act 2006, a restructuring plan may compromise the rights of an out-of-the-money creditor where it provides a modest compensating payment and therefore involves sufficient give and take. The relevant alternative under section 901G is the outcome the court considers most likely to occur if the plan is not sanctioned. The court must select the most likely alternative among the realistic possibilities, scrutinising the evidence and allowing for commercially rational conduct by the company and its stakeholders. A formal liquidation may be the relevant alternative even where a more orderly realisation of assets is possible, if those variations would not materially improve the dissenting creditor’s recovery. The court may exercise the cross-class cram-down power where the dissenting creditor would receive no less than in that alternative.

CB&I UK Ltd applied for sanction of a restructuring plan under Part 26A of the Companies Act 2006. Five secured creditor classes approved the plan, but the classes comprising Reficar and other unsecured creditors rejected it. The plan extended secured debt maturities and released Reficar’s approximately US$1.3 billion arbitration claim in return for a minimal payment and contingent consideration.

The disputed issues included whether the plan was a compromise or arrangement, the relevant alternative if sanction were refused, satisfaction of the no-worse-off condition in section 901G, and whether the plan was fair. The central question was whether the Plan Company had established that a worldwide formal liquidation was the most likely alternative.

The plan was sanctioned. The court held as follows.

1. Compromise or arrangement. A restructuring plan must involve give and take between the company and the plan creditors. A confiscation or expropriation without compensating advantage would not qualify. However, a small payment may satisfy the jurisdictional threshold where the creditors are out of the money. The minimum payment of £800,000 to Reficar and Contraloría was sufficient. The plan therefore fell within section 901A(3) of the Companies Act 2006 (paras [79]–[86]).
2. Relevant alternative. The relevant alternative is determined when sanction is considered. Where there are several possibilities, the court must select the one more likely to occur than the others; it need not find that the selected outcome is itself more likely than not. Directors are normally well placed to identify the likely outcome, but their evidence requires careful scrutiny. The court must consider whether the company and stakeholders would act commercially rationally to avoid a disastrous outcome (paras [87]–[92]).
3. The evidence established that failure of the plan would trigger a cash collateralisation obligation of approximately US$2.2 billion, which the Group could not meet. The resulting defaults, loss of letter-of-credit capacity, liquidity problems and likely reactions of customers and suppliers made a worldwide formal liquidation the most likely outcome. Possible variations, including a more orderly liquidation or going-concern sales, did not materially improve the position of unsecured creditors (paras [101]–[112]).
4. Reficar accepted that, if formal liquidation was the relevant alternative, unsecured creditors were wholly out of the money. The no-worse-off condition in section 901G(3) was therefore satisfied, and the court had jurisdiction to cram down the dissenting classes (para [113]).
5. The plan was fair in the circumstances. Reficar would receive between 10.9% and 19.9% of the ordinary equity in the ultimate parent under the interconnected Dutch restructuring process. It could not therefore maintain that the restructuring surplus had been allocated unfairly (paras [114]–[119]).
6. The objections concerning the explanatory statement, the New York Convention and likely effectiveness in the United States were either not pursued or did not affect the result (paras [120]–[123]).