DeepOcean 1 UK Ltd, Re [2021] EWHC 138 (Ch)

Three companies in the DeepOcean group sought court sanction for a restructuring plan under Part 26A of the Companies Act 2006. One creditor class voted against the plan but the court exercised its cross-class cram down power under section 901G, sanctioning the plan as creditors would be no worse off than in insolvency.

Facts

Three companies within the DeepOcean group (the ‘Plan Companies’) applied for court sanction of a restructuring plan under Part 26A of the Companies Act 2006. The restructuring plan had previously been approved at a convening hearing. The plan was designed to address financial difficulties affecting the group’s ability to continue as a going concern. At the plan meetings, all classes approved the plan by the statutory majority except the DSC Other Plan Creditors, who only achieved 64.6% approval by value, falling short of the required 75%.

Commercial Arrangements

Prior to the plan meetings, accommodations were reached with UK Landlord Creditors and UK Vessel Owner Creditors, funded by another group company, DeepOcean Norway AS, which did not affect the amounts payable to Other Plan Creditors under the plan.

Issues

The principal legal issues were:

• Whether the court had jurisdiction to sanction the restructuring plan despite one creditor class not achieving the statutory majority;
• Whether the conditions for cross-class cram down under section 901G of the Companies Act 2006 were satisfied;
• How the court should exercise its discretion in sanctioning a restructuring plan involving cross-class cram down.

Judgment

Statutory Requirements and Cross-Class Cram Down

Mr Justice Trower held that the court had jurisdiction under section 901G to sanction the plan despite the dissenting class. He explained that condition A (that no member of the dissenting class would be worse off than in the ‘relevant alternative’) and condition B (that at least one class with a genuine economic interest approved the plan) were both satisfied.

“The consequence of this is that it is necessary for me to be satisfied that, if the Restructuring Plan were to be sanctioned, none of the members of the dissenting class (i.e. the DSC Other Plan Creditors) would be any worse off than they would be in the event of the CL&T Group Insolvency Scenario.”

The evidence established that DSC Other Plan Creditors would receive nothing in insolvency but approximately 4% under the plan, satisfying condition A.

Discretion

Trower J considered the approach to exercising discretion in cross-class cram down cases. He noted that the traditional reluctance to differ from the meeting cannot apply in the same way where section 901G is engaged:

“By its very nature, the power to be exercised under section 901G contemplates that the court can override the wishes of a class meeting.”

He further observed:

“I think it reflects a recognition that, all other things being equal, satisfaction of conditions A and B is capable of justifying an override of the views of a dissenting class.”

The court also considered horizontal fairness between creditors and found no unjust differential treatment given that the dissenting class was out of the money in the relevant alternative.

Implications

This case is significant as an early application of the cross-class cram down provisions introduced by the Corporate Insolvency and Governance Act 2020. It clarifies that where dissenting creditors are ‘out of the money’ in the relevant alternative, and conditions A and B are met, the court will be inclined to sanction the plan. The judgment provides important guidance on how courts should exercise discretion when overriding the wishes of a dissenting class, emphasising fairness and the legislative intent behind Part 26A.

Verdict: The court sanctioned the restructuring plan for all three Plan Companies, exercising cross-class cram down powers under section 901G of the Companies Act 2006 to bind the dissenting class of DSC Other Plan Creditors.

Source: DeepOcean 1 UK Ltd, Re [2021] EWHC 138 (Ch)