Question mark

Following the sanctioning of the Good Box restructuring plan (RP) it seems the answer is yes. This might sound surprising to those familiar with schemes of arrangement, because that outcome is at odds with the long-standing decision in Re Savoy Hotels.

For those less familiar with schemes and scheme case law, the court declined to sanction the Savoy scheme because the company did not approve it, consequently the judge found that the court had no jurisdiction to sanction it.

In Good Box the position was somewhat different from your “usual” RP or scheme, because firstly the RP had been proposed (and drafted) by a creditor and secondly the company was in administration. Although the administrators said that their position was neutral, they did vote against the RP (and some might say that by doing that they were effectively opposing it).

Did the court therefore have had jurisdiction to sanction the RP when one of the parties to the compromise (the company) did not consent, or at least did not positively consent to it and in fact had voted against it?

Although RPs are new, it was envisaged that the courts would draw on case law relating to schemes when considering whether to sanction an RP, and it is evident from the RP judgments we have seen, that judges have done so. So, although Savoy Hotels is a case concerning a scheme the principles ought to apply to RPs as well – meaning that the company has to consent to the plan.

In fact, the judge acknowledged this in Good Box confirming that it is a requirement for the company to consent to a plan proposed under Part 26A.

So, at first glance and in light of Savoy, the court did not have jurisdiction to sanction the Good Box RP, so how did the court navigate this?

The solution was for the court to order that the administrators consent to the RP under the court’s inherent jurisdiction. It is also worth noting that the administrators appeared to be happy to be guided by the court about what they should do.

After considering whether there were any interests in the company that needed protecting by the company remaining in administration and getting comfortable that there were not, the judge ordered the company (through its administrators) to consent to the plan. This then in turn enabled the court to sanction the RP.

Aside from negotiating Savoy Hotels the court was also asked to exercise its RP powers to cram down a group of dissenting creditors, namely the convertible loan note holders which included the Future Fund/British Business Bank that was owed c£9.5m. It did so with little difficulty, having determined that the conditions for cram down were met.

Given the unusual facts and circumstances of this case, it is unlikely that we will see many RPs where the court is asked to sanction the plan without the active consent or participation of the company.  That said this case is certainly helpful in several respects. It demonstrates:

  • that the regional courts are equally prepared to deal with RPs as the London courts;
  • that judges are willing to take a pragmatic approach (we saw this in the Houst case as well);
  • that in the right circumstances a creditor led RP can achieve sanction;
  • that the courts are not afraid to exercise the cross-class cram-down power provided the conditions are met – to date we have seen HMRC, landlords and the British Business Bank being crammed down; and
  • that the paperwork in support of an RP does not need to run to hundreds of pages provided creditors have the right information before them.