AGPS Bondco plc, Re [2024] EWCA Civ 24

Appeal against court sanction of a restructuring plan under Part 26A Companies Act 2006. The Court of Appeal held that the judge erred in sanctioning the plan as it departed without justification from the pari passu principle that would have applied in insolvency, unfairly placing greater risk of non-payment on later-dated noteholders.

Facts

AGPS BondCo PLC was substituted as issuer of six series of senior unsecured notes totalling €3.2 billion owed by the Adler Group. Following financial difficulties, a restructuring plan was proposed under Part 26A of the Companies Act 2006. The plan preserved sequential payment dates for the different series of notes, meaning earlier-dated notes would be paid first. The 2029 Noteholders (the Appellants) voted against the plan, which failed to achieve the required 75% majority in their class. The plan company sought cross-class cram down under section 901G. The judge at first instance sanctioned the plan.

The Issuer Substitution

An English company was incorporated and substituted as issuer solely to engage English court jurisdiction under Part 26A. While this technique had been used previously, the Court noted it had not been considered at appellate level and should not be taken as endorsed.

Issues

The key issues on appeal were:

• Whether the plan departed from the pari passu principle that would apply in insolvency without justification
• The correct approach to exercising cross-class cram down discretion under section 901G
• Whether overall creditor support across classes is relevant to sanctioning a plan against a dissenting class
• Whether the court should consider if a fairer plan could have been proposed

Judgment

Departure from Pari Passu Principle

Lord Justice Snowden, delivering the lead judgment, held that the judge was wrong to conclude the plan did not depart from the pari passu principle. The sequential payment of notes in order of maturity dates created a material risk that later-dated noteholders would not be paid if realisations fell short of projections:

“adherence to the principle of pari passu distribution of the Group’s assets would have eliminated that risk by proportionate distributions being made rateably to all Noteholders from time to time. Put shortly, sequential payments to creditors from a potentially inadequate common fund of money are not the same thing as a rateable distribution of that fund.”

Cross-Class Cram Down Discretion

The Court held that satisfaction of Conditions A and B in section 901G is merely jurisdictional and does not give rise to any presumption in favour of sanction. The judge erred in treating these as relevant factors supporting sanction.

Overall Creditor Support

The Court rejected the approach of treating overall support across classes as relevant:

“Given that dissimilarity of interests, the mere fact that one or more classes of creditors may have acted in their own separate interests in voting in favour of the plan says nothing about the commercial merits of the plan for a dissenting class or the fairness of imposing the plan upon them.”

Horizontal Comparison

The Court confirmed that in exercising cross-class cram down discretion, the court must conduct a horizontal comparison examining whether there has been a fair distribution of the benefits of the restructuring between assenting and dissenting classes. Where a plan departs from the priority that would apply in the relevant alternative, there must be good reason or proper basis for that departure.

Considering Alternative Plans

The Court held the judge was wrong to conclude he did not need to consider whether a fairer plan was possible. When conducting the horizontal comparison in cross-class cram down cases, such consideration is appropriate.

Implications

This first Court of Appeal decision on Part 26A restructuring plans establishes important principles:

• The rationality test from scheme cases does not apply to cross-class cram down situations
• Courts must examine whether departures from insolvency priority are justified
• Overall creditor support across classes carries little weight when assenting and dissenting classes have different interests
• Satisfaction of the statutory conditions is merely jurisdictional, not a factor favouring sanction
• Adequate time must be allowed for contested Part 26A proceedings

The decision reinforces that cross-class cram down is a significant power requiring careful scrutiny of fairness to dissenting creditors, not simply verification that statutory conditions are met.

Verdict: Appeal allowed. The judge’s order sanctioning the restructuring plan was set aside on the basis that the plan departed materially and without justification from the pari passu distribution that would have applied in the relevant alternative, and the judge erred in his approach to exercising discretion under sections 901F and 901G.

Source: AGPS Bondco plc, Re [2024] EWCA Civ 24