Opening the door for the SME market, Sir Alistair Norris has sanctioned the first ever restructuring plan for a “mid-market” company. The plan sanctioned in Amicus Finance PLC (in administration) is also the first restructuring plan proposed by insolvency practitioners and the first to cram down a secured creditor.
The sanction judgment is short, but the adjourned convening hearing that was dealt with by Mr Justice Snowden (the first hearing was before Mr Justice Trowers) gives some insight into the plan.
There were, so it seems from the convening judgment, a few bumps in the road, but with a helpful steer from the court the bumps were flattened, creditors meetings were ordered and the restructuring plan sanctioned.
From a practical point of view, here are the key takeaways:
Ensure the explanatory statement complies with the guidance and principles set down by Mr Justice Snowden in Re Sunbird Business Services Limited.
“It is not enough for office-holders simply to state their conclusions as to the estimated outcome and implicitly to invite creditors to assume that because they are professionals that they will have got it right.” The principles in Re Sunbird, as applied in Re Virgin Atlantic, apply just as much to office holders proposing a scheme or plan as to others.
Ensure creditors are given sufficient detail about the relevant alternative(s) and what has been considered
At the first convening hearing Mr Justice Trowers indicated that it would be helpful for further detail to be provided as to what alternatives (other than liquidation) the administrators had considered, with the administrators’ evidence described as being light on detail.
Ensure the notes to the estimated outcome statement (EOS) adequately explain the entries.
The EOS did not adequately explain some of the entries or the reasons for specific figures and Mr Justice Snowden indicated that he “thought it would be necessary for further detail to be provided to enable creditors to understand the basis upon which the Administrators had reached the overall conclusions set out therein”
Being in administration is not, on its own, sufficient to meet Condition A – that the company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern – further evidence will be required.
Mr Justice Snowden said that it be would be “rare to find a case where the fact of administration did not mean that the company was experiencing financial difficult” but that was not a complete answer to the question of whether, at the time a plan is proposed, a company has encountered or is likely to encounter financial difficulties that are (currently) affecting or will or may (in the future) affect its ability to carry on business as a going concern.
Ensure the drafting of the explanatory statement and restructuring plan are consistent.
The administrators were able to address the drafting points by amending and revising the restructuring plan and explanatory statement, however it’s worth noting that the company was required to pay £75,000 in costs to the opposing secured creditor to reflect its success on arguments raised about class composition and contributions which resulted in changes to the explanatory statement and restructuring plan.
There are many supporters of the restructuring plan, including those who operate in the “mid-market”, but concern about the cost of the process (which involves two court hearings), and uncertainty over what is a relatively new process, has perhaps deterred those in the “mid-market” from utilising this useful tool. However, now that the first one is over the line will this encourage others to do the same? Time will tell, but the helpful comments from the Judiciary, suggest that they are as keen as practitioners to make restructuring plans a tool for the many not just the few.