The ability to cram down dissenting creditors in a Restructuring Plan (RP) is a helpful tool to ensure that a proposed restructuring is not derailed.  But ultimately the power rests with the court in deciding whether to cram down an RP on dissenting creditors.

Recently, we have seen the court cram down the RP proposed by Poundland.  A large portion of the creditors that voted against the plan were the company’s landlords which left the judge having to consider whether it was right to “cram down” almost an entire category of creditor (landlords) to impose a plan favoured by another category (financial creditors)?

In order to cram down a plan on dissenting creditors the court must first consider the test set out in the legislation, that (a) no member of the dissenting class shall be worse off under the RP than in the relevant alternative;  and (b) that at least one of the class of creditors voting in favour of the plan will receive a payment or has a genuine economic interest in the relevant alternative.  If that test is satisfied (as it was in Poundland) the decision whether to approve a plan and cram it onto those creditors that voted against it, rests with the court. The purpose of this discretion is to enable the Court to prevent any one class of creditor from exercising an unjustified right of veto[1].

Sir Alastair Norris set out eleven principles the Court will consider when deciding whether to exercise its discretion to cram-down in River Island, an RP where cram down also featured. These principles were based upon guidance provided in Adler, Thames Water and Petrofac. He considered the same principles in Poundland, namely:

  • Fair sharing of benefits and burdens: There must be a fair sharing of the burden of the restructuring plan amongst those whose rights are compromised and a fair allocation of its benefits (the value preserved or generated by the plan) to and between them.
  • Perspective of the dissenting classes: The assenting classes will have made their own judgment upon that question, and the concern of the Court is to look at it from the perspective of the dissenting classes and to ask why the compromise approved by the assenting classes should be imposed upon them.
  • Burden of proof on the plan company: The burden lies upon the plan company to persuade the Court that there is a fair sharing of the burdens and of the benefits even if no objectors appear at the sanction hearing.
  • Relevant alternative as starting not end point: The starting point (but only the starting point) is the treatment of the dissenting class in the relevant alternative.
  • Pari passu expectation in insolvency: Where the relevant alternative is an insolvency process the initial expectation will be pari passu treatment of creditors within each insolvency class.
  • Justification for differential treatment: Differential treatment within an insolvency class is permissible if justified on proper grounds.
  • Focus on creditor interests: When considering whether the treatment of a class or any differential treatment within a class is “fair” the primary focus of the Court is upon their interests qua creditor.
  • Consideration of non-compromised parties: When considering the sharing of the burdens and the benefits the Court is not confined to a consideration of the restructuring plan itself but is entitled to stand back and consider also the effect of the restructuring plan on those who are not parties to the compromises (such as creditors outside the scope of the plan or shareholders).
  • Source of benefits matter: When considering the sharing of the burdens and the benefits the Court is entitled to take into account the source of the benefits (how the value is preserved or generated by the plan).
  • Substance over form: When assessing the burdens and benefits the court is concerned with the substance not the form: the provision of new money on terms more advantageous to the provider than would be required by a lender in the market is in reality a benefit conferred on the provider rather than a contribution to the cost of the plan.
  • Genuine attempt at fairness: The Court will have regard to the evolution of the restructuring plan and will seek to assess whether it is a genuine attempt to formulate a fair and reasonable solution to a critical problem or an attempt to impose arbitrary compromise terms upon creditors with a view to extracting advantage in a critical situation.

In Poundland, it was easy for the judge to find that the RP was not unfair to the category A landlords who would be paid rent in full – he was somewhat puzzled why they had voted against it.

Working through the other categories of landlord whose rents were reduced by anything between 15% -75% depending on viability (class B landlords), or zero where the stores were underperforming (class C1 landlords) the judge found the plan to be fair and better than the alternative of administration, after working through the principles outlined above, sanctioning the plan and cramming it down on those creditors that voted against it

Some of the key points that the judge considered when applying the principles were that landlords received better returns than in administration and retained break rights; opposition appeared to be based on strategic or extraneous factors, not fairness; the allocation of equity and priority debt was fair in light of contributions; and there were commercial reasons for the exclusion of some creditors (such as key suppliers) which were not unfair.

The principles set out by Judge Norris are useful, and we hope will be further supplemented when we hear what the Supreme Court has to say on the Waldorf appeal where it will consider “What is the correct approach to the treatment of creditors who are “out of the money”?  That is something for early next year.

[1] Re Petrofac [2025] EWCA Civ 821 at [131].