Re Project Lietzenburger Straße Holdco S.À.R.L.

The court considered an application to sanction a restructuring plan under Part 26A of the Companies Act 2006. Central issues were whether the Plan constituted a "compromise or arrangement" with each affected class as required by s901A(3), whether the Plan Company had validly shifted its centre of main interests (COMI) to England and Wales and, if jurisdiction existed, whether the court should exercise its discretion to sanction a cross-class cramdown under s901G.

The judge held that the Plan as voted on could not be sanctioned because it proposed complete release of subordinated debt for no consideration and, following the Court of Appeal's analysis in Re AGPS Bondco, the court has no jurisdiction to approve an expropriation of rights without compensating advantage. The Convening Order remained valid, but on analysis at the sanction stage Condition B in s901A was not met in relation to the Plan as proposed and therefore the court lacked jurisdiction under Part 26A to amend and sanction it.

The court found as fact that the Plan Company’s COMI had shifted to England from 16 October 2023 and that there were reasonable prospects that an English sanction would be recognised in Luxembourg and Germany. The Plan Company’s proposed amendments (payment of €150,000 to Tier 2 Creditors and €50,000 to Junior Creditors) would, if implemented, have converted the arrangement with subordinated classes into a "compromise or arrangement". However, the judge declined to exercise an inherent jurisdiction to effect those amendments and then sanction the Amended Plan because Part 26A jurisdiction was not engaged for the originally proposed Plan.

The court therefore refused to sanction the Plan as proposed, refused to make the amendments and sanction it at this hearing, but ordered that further meetings be convened of the Senior Creditors only (on short notice) under s901C(4) on the basis that subordinated classes had no genuine economic interest in the relevant alternative of liquidation.

The Plan Company, a Luxembourg incorporated holding company with obligations as guarantor of German- and Luxembourg-law governed secured debt, applied for sanction of a restructuring plan under Part 26A (the "Plan"). The debt structure comprised Senior Debt, Tier 2 (subordinated) Debt and Junior Debt. The Plan proposed significant restatement and new money facilities for Senior Creditors and the complete release of the Subordinated Debt as voted on; following the Court of Appeal's (obiter) analysis in Re AGPS Bondco the release of subordinated debt for no consideration raised jurisdictional difficulties.

Procedural posture: Miles J had earlier granted a Convening Order and three class meetings were held on 27 November 2023. The Senior Creditors voted overwhelmingly in favour; Tier 2 and Junior classes dissented in substance (the Plan Company accepted that Tier 2 were not fairly represented). The sanction hearing followed.

Key issues framed by the court:

• Whether the Plan as proposed satisfied Condition B of s901A(3) (i.e. was a "compromise or arrangement" with every class to which it was directed);
• whether the court has jurisdiction to sanction or to amend and then sanction the Plan given the proposed expropriation of subordinated rights;
• whether the Plan Company’s COMI had shifted to England and the impact of that shift on recognition of any sanction in Luxembourg and Germany;
• if jurisdiction existed, whether the court should exercise its discretion to sanction a cross-class cramdown under s901G having regard to the relevant alternative and fairness to dissenting classes.

Principal factual and legal reasoning:

• The court concluded that the Plan as voted on proposed expropriation of subordinated rights for no consideration and, adopting the obiter reasoning in Re AGPS Bondco, held that Part 26A does not permit the court to sanction a confiscation or expropriation of rights without compensating advantage; accordingly it could not sanction the Plan as voted on.
• The Plan Company proposed amendments at the sanction hearing paying €150,000 to Tier 2 and €50,000 to Junior creditors. The judge accepted that those payments would likely convert the proposal into a "compromise or arrangement" for those classes but concluded that he lacked power at the sanction stage to effect material amendments that would create jurisdiction where it did not exist for the originally proposed Plan and so declined to amend and sanction the Amended Plan at this hearing.
• On the facts the court found the Plan Company’s COMI had moved to England from 16 October 2023 (management presence in London, office premises, employees, registration as an overseas company and notice to creditors). The judge found no fatal Luxembourg-law or German-law obstacle to recognition: there were reasonable prospects an English sanction would be recognised in Luxembourg and in Germany (issues of Article 45 of the Luxembourg Restructuring Law, financial collateral protection and German recognition under s343 InsO were considered and found not to present decisive bar to recognition).
• The judge found the most likely relevant alternative if the Plan were not sanctioned to be liquidation of the Plan Company, PropCo and AH4, under which subordinated creditors would receive nothing; that finding affected the court’s exercise of discretion because subordinated classes had no genuine economic interest. The court concluded the Senior Creditors’ favourable vote was rational and fairly representative.

Disposition and consequential orders: The court refused to sanction the Plan as proposed and refused to make the putative amendments and sanction the Amended Plan at this hearing. The judge ordered that a further meeting of Senior Creditors alone be convened (s901C(4)), on short notice, and explained that, if the Senior creditors approve the Amended Plan, the ensuing sanction hearing would consider whether the Amended Plan should be sanctioned.

The court refused to sanction the Plan as proposed and declined to amend it and sanction the Amended Plan at this hearing. The judge concluded that Part 26A did not permit sanction of a plan that expropriates subordinated rights for no consideration, and that Condition B in s901A(3) was not satisfied in relation to the Plan as proposed. The court found that the Plan Company’s COMI had shifted to England and that there were reasonable prospects of recognition in Luxembourg and Germany; but because the statutory preconditions for sanction were not met for the originally proposed Plan the judge would not exercise inherent jurisdiction to effect material amendments and then sanction. The court ordered further Senior Creditor meetings of the Amended Plan under s901C(4).

Miles J made the Convening Order and gave reasons on 1 November 2023 (Convening Order and judgment reported at [2023] EWHC 2849 (Ch)). Three class meetings were convened pursuant to that order and held on 27 November 2023. The present judgment is first instance and is not an appeal.