“In view of Capricorn's efforts to seek engagement from your client, including by way of our letters of 15, 17 and23 January 2025 , it is inappropriately last minute to demand an undertaking by the end of the day, especially so when you have presumably been aware of present matters for over two weeks. Our client has clearly expressed that it has been, and remains open, to sensible commercial negotiations with WPUK and its advisors.” (Emphasis added)
“Save for very limited discussions as between the Bondholders' financial advisers, WPUK itself has not approached Capricorn to ask whether it would consider a compromise of its debt. We do not understand why this has not been done. For the avoidance of doubt, our client is willing to enter into settlement discussions with WPUK and will take a commercial and realistic view of the position. In the event that WPUK does not agree to enter into discussions, or does not engage substantively with Capricorn, Capricorn will contend at sanction that: (i) an alternative deal, rather than a formal insolvency, is the relevant alternative; and (ii) as a matter of discretion, the Court should not sanction a plan where the Bondholders are seeking to cram down the unsecured creditors for their own benefit without seriously engaging in discussions about a fair share of the restructuring surplus.”
“The classic formulation of the principles which guide the Court in considering whether to sanction a scheme was set out by Plowman J in In re National Bank Ltd[1966] 1 WLR 819 , 829 by reference to a passage in Buckley on the Companies Acts, 13th ed (1957), p 409, which has been approved and applied by the courts on many subsequent occasions: ‘In exercising its power of sanction the Court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but at the same time the Court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme.’ This formulation in particular recognises and balances two important factors. First, in deciding to sanction a scheme under section 425, which has the effect of binding members or creditors who have voted against the scheme or abstained as well as those who voted in its favour, the Court must be satisfied that it is a fair scheme. It must be a scheme that ‘an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve’. That test also makes clear that the scheme proposed need not be the only fair scheme or even, in the court’s view, the best scheme. Necessarily there may be reasonable differences of view on these issues. The second factor recognised by the above-cited passage is that in commercial matters members or creditors are much better judges of their own interests than the courts. Subject to the qualifications set out in the second paragraph, the Court ‘will be slow to differ from the meeting’.”
“In general terms, the principles set out in the first and fourth stages of my summary in Noble Group will continue to apply. The court must confirm that the classes have been correctly constituted, that the explanatory statement is adequate, and that there is no defect in the plan making it unlawful or otherwise inoperable.”
“[122] As David Richards J explained in Telewest[2005] 1 BCLC 772 , para 21, under Part 26 the question of whether it is ”fair“ to impose a scheme upon the dissenting minority within a class is answered by applying a limited rationality test to the majority vote within that class. The court does not impose its own view of the commercial merits of the scheme, but asks a more limited question in relation to each class of whether the compromise or arrangement embodied in the scheme is one that ”an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. [123] Almost invariably, under Part 26 this question is answered by the very fact of the vote in favour at each class meeting. The confidence that the court reposes in the decision of each class meeting in such circumstances is reinforced by the fact that the decision in favour of the scheme is the decision of an enhanced majority of 75% in value, rather than just a simple majority, of those who voted at the class meeting. Moreover, the greater the majority in favour at the class meeting, the greater confidence that the court can have that the scheme is in the interests of the class in question.” “[128] I see no reason why these principles that have been developed in relation to schemes should not be applied under Part 26A within an assenting class as the basis of an exercise of discretion to impose the plan on the dissenting minority within that class.” [Emphasis is as in Snowden LJ’s judgment.]
“The determination of the Relevant Alternative is made at the time at which sanction is being considered. If there are a number of alternatives, the Court must select the alternative which is more likely to occur than the other alternatives: see Virgin Active at [106]-[108]. At [107], Snowden J said: “… the Court is not required to satisfy itself that a particular alternative would definitely occur. Nor is the Court required to conclude that it is more likely than not that a particular alternative outcome would occur. The critical words in the section are what is ”most likely“ to occur. Thus, if there were three possible alternatives, the Court is required only to select the one that is more likely to occur than the other two.”
“the Court is not required to be satisfied that a particular alternative would definitely occur, merely (where there are possible alternatives) which one is most likely to occur.”
“In my view, the Court should recognise that the directors are normally in the best position to identify what will happen if a scheme or restructuring plan fails. Where the evidence appears on its face to reflect a rational and considered view of the company’s board, the Court will require sufficient reason for doubting that evidence.”
“…outlines the most likely circumstances to arise should the Restructuring Plan fail to be implemented (“the Relevant Alternative”) and the outcome to Plan Creditors should the Restructuring Plan be sanctioned”
“does not anticipate having sufficient liquidity to meet its existing and upcoming payment obligations and as the Sales Process has not yet yielded any viable sales possibilities based on the Group’s current financial position, the Plan Company will likely suffer a significant liquidity shortfall in the near term…”
“…would be in default under its contractual DSA arrangements with its Joint Venture Partners including because it is likely that no further payments would be made by an insolvency practitioner on behalf of WPUK to the Joint Venture Partners under the JOAs…”; and he would expect that then; “the Joint Venture Partners would seek to take forfeiture action in respect of the relevant fields, removing WPUK as a licensee and taking ownership of WPUK’s right to its percentage interest share of petroleum under the relevant Licences. This would mean that WPUK’s income stream would be lost, which would have devastating consequences on the Waldorf Group as a whole.”
“The Plan Company does not have the available liquidity to make an increased upfront payment to the Unsecured Plan Creditors above that which is being offered under the Plan and the SteerCo have consistently made it clear that they will not fund any additional payments to the Unsecured Plan Creditors (nor are they receiving any upfront recoveries that could be reallocated to the Unsecured Plan Creditors). In that regard, the Plan Company remains unable to propose a counter-offer to the Original Offer and or the Revised Offer.”
“[given] the extent to which value is being provided to the Opposing Creditors beyond that available to them in a formal insolvency process (both through the immediate cash consideration and the contingent value rights) under the Restructuring Plan, the Restructuring Plan is the best possible deal for the Opposing Creditors that Frost (and I understand the other members of the SteerCo) will agree to in the circumstances. Put another way, Frost, and the other members of the SteerCo, would not have agreed to, and still will not agree to, a restructuring plan which sees the Bonds relinquish any more value to the Opposing Creditors…”
“… It would be public record but the general view is that once we have a reputation for allowing junior creditors to jump senior creditors in line to improve their recoveries at our expense and our investors’ expense, it sets a very, very dangerous precedent for us. It would make it really hard to underwrite the credit because we never know how much of the asset value is going to float us. It is already unknown, but at this point it is OK, well, do we need to give 40% to junior creditors to get a plan sanctioned? Do we need 30% whatever it is? It just encourages, you know, again, ransom behaviour…, where we are kind of being held hostage as senior creditors to improve the economics of junior creditors without any consideration being given.”
“Option B would involve [Capricorn] and HMRC being elevated in the distribution waterfall to share the returns of the secured creditors (i.e. the Bondholders) whilst a significant portion of the secured creditors’ claims remains unpaid and [Capricorn] and HMRC retain their initial 5% upfront payment. In circumstances where, in a formal insolvency process, secured creditors would be entitled to payment of the entirety of their claims in advance of the Opposing Creditors (save in relation to the “Prescribed Part”), SteerCo consider that Option B would be wholly unfair [And they are not prepared to agree to it.]”
“… the Senior Creditors’ rejection of the Safra Proposal came after it was given serious thought. That itself points against Safra’s suggestion that holders of the Senior Debt were ”bluffing“ when they rejected the Safra Proposal and pointed out flaws with it.”
“In relation to the question of the relevant alternative, I must agree with the Plan Company for various reasons: i) In my view the definition requires a particular alternative to be identified. Long Corridor has identified no such alternative – whilst it did at a late stage put forward a plan referred to as the “Alternative Plan“, it is not now suggesting that this is the relative alternative, and given commercial defects identified in the Alternative Plan, I think Long Corridor is being realistic in not continuing to suggest that the Alternative Plan should be regarded as the relevant alternative. Instead, Long Corridor is now promoting a vague idea that Plan Creditors and shareholders might agree another plan, but that is not sufficiently choate an idea to amount to a relative alternative. Unless a putative alternative plan is specified in detail it is impossible for the court to judge the effect on creditors of that plan.[My emphasis] ii) The undisputed evidence of Mr Sum is that the Plan Company can stave off its creditors for only another month, whereas agreeing and implementing another plan would take many weeks longer. A relevant alternative must be something where there is at least some prospect of implementing the alternative, and on the evidence before the Court there is no prospect that the Plan Company could hang on to do anything other than to go into liquidation. iii) There is evidence that the Class A creditors would not support an alternative plan of the type advocated by Long Corridor and also there may be little reason for shareholders to provide the necessary votes for it. iv) Long Corridor’s suggestion that a better plan could emerge out of a liquidation is not realistic given the complex nature of the Plan Company’s Group; liquidation of the Plan Company is likely to lead to severe reputational and financial damage (for example through acceleration of loans and the drying up of credit lines through-out the Group) and there would be insufficient resources to pay a liquidator to put in place and meet the necessary professional fees in developing and implementing such a plan.”
“the Class B AHG submitted that if I refused to sanction the Plan, the Class A Creditors would quickly change their minds and support the B Plan in order to avoid a SAR. They relied on the fact that all of the witnesses were concerned to avoid a SAR if at all possible, that the terms of the B Plan were better for the Plan Company and that the only reason why the Plan Company has been forced to promote the Plan rather than the B Plan is that its hands are tied by the TSA.”
“[160] …As a matter of principle, when the court exercises its discretion to impose a plan upon a dissenting class, it subjects that class to an enforced compromise or arrangement of their rights in order to achieve a result which the assenting classes of creditors consider to be to their commercial advantage. In my judgment, that exercise of a judicial discretion to alter the rights of a dissenting class for the perceived benefit of the assenting classes necessarily requires the court to inquire how the value sought to be preserved or generated by the restructuring plan, over and above the relevant alternative, is to be allocated between those different creditor groups.”
“[149] As a matter of principle, we reject the rigid approach suggested by the Plan Company. While it may well be right in some cases to conclude that the fact that a dissenting class would be out of the money in the relevant alternative is a sufficient justification to exclude them from whatever benefit the restructuring preserves or generates, that will not necessarily always be so. As we have already noted, and in agreement with the submissions of Mr Thornton on this point, there are myriad reasons why a company might be suffering financial difficulties, and why a plan may be proposed, and a variety of structures that it might adopt. The nature of the benefits preserved or generated by a plan and the extent to which a fair distribution of those benefits will require consideration to be given to those who would be out of the money in the relevant alternative are likely to vary accordingly.”
“[152] The agreement by the Class B Creditors to the postponement of the maturity date in respect of their loans is as critical in achieving the benefit of the restructuring, over the relevant alternative, as the postponement of the maturity date in respect of the Class A Creditors' loans. Both sets of creditors contribute equally in this sense to the benefits to be preserved or generated by the Plan.”
“[169] …if the Plan Company wishes to obtain the Court's sanction to RP2, it will need to demonstrate that it has engaged with any reasonable proposals made to it, and that it has indeed communicated fairly with all of the Plan Creditors throughout the restructuring process. The implementation of RP2 will be conducted in the full glare of publicity, and the Plan Company has fair warning that it must engage fairly with, and provide sufficient information to, all stakeholders throughout the process. We reiterate the point made in §3 above, moreover, that it must do so at an early enough stage that any issues that arise can be identified, and narrowed, so that the judge before whom RP2 comes is not placed under the same intolerable pressure as Leech J was in this case.”
“a clear rejection of the argument based upon Virgin Active. It should also not be read as an indication that in most cases an out of the money class can fairly be excluded from the benefits of a restructuring and need only be given a de minimis amount necessary to satisfy the jurisdictional requirement that the plan should amount to a "compromise or arrangement".” (2) At [132] to [134], that Thames Water does not only apply to “bridging” transactions: “[132] Mr Allison's second submission was that the fairness of a plan will be assessed by reference to its purpose, citing Thames Water at §§117-118, §149 and §153. Specifically, he submitted that a different approach is justified where the plan is designed merely to provide a "bridge" (as in Thames Water) from where it is designed to implement a comprehensive balance sheet restructuring (as in this case). [133] In Thames Water, the Court of Appeal relied on the fact that the plan was intended only to provide a bridge as one of the reasons why regard should be had to the position of the out of the money creditors. The Court was careful, however, to say nothing about when it might be appropriate to have regard to their position if the plan had a different purpose, such as a comprehensive balance sheet restructuring. [134] While we agree, therefore, that the purpose of the plan is one of the factors to be taken into account, there is nothing in Thames Water which supports the proposition that the impact on the out of the money creditors should carry no or even little weight in the case of a plan designed to implement a comprehensive restructuring of the company's balance sheet.”
“…if a class of creditors who would expect to receive a distribution from the realisation of assets in the liquidation wished to obtain the additional benefit of the preservation of the company itself and the value of its business as a going concern, free of the claims of the other creditors, they would have to negotiate with the company and with the classes of out of the money creditors for the latter to give up their claims. That would inevitably require a genuine commercial compromise by all parties.” (underlining added). (2) At [131], the Court of Appeal analysed the purpose of the cross-class cram down power process: “[131] … the primary purpose of the introduction of the cross-class cram down power under Part 26A was to allow the Court, in an appropriate case, to override the absence of assent in each class and thereby to prevent any one or more classes of creditors from exercising an unjustified right of veto. The cross-class cram down power was not designed as a tool to enable assenting classes to appropriate to themselves an inequitable share of the benefits of the restructuring. The Court's discretion to refuse to sanction a plan would in such circumstances clearly be engaged.” (underlining added). (3) At [191] of the judgment, the Court of Appeal (Snowden LJ, Zacaroli LJ and Sir Christopher Floyd) said the following (emphasis added): “[191] As we have observed (see above at §131), the proper use of the cross-class cram down power is to enable a plan to be sanctioned against the opposition of those unreasonably holding out for a better deal, where there has been a genuine attempt to formulate and negotiate a reasonable compromise between all stakeholders. Our conclusion that the Plan Companies have failed to justify the returns granted in respect of the New Money as a cost of the restructuring means that the formulation of the Plans – and such negotiation as there may have been between the different classes of creditors – has taken place on a false premise. It has failed to address at all the appropriate allocation of such part of the return on the New Money that constitutes a benefit preserved or generated by the restructuring. Moreover, the absence of evidence as to the price at which equivalent funding for the restructured Group could have been obtained in the market means that we could only speculate as to what part of the return on the New Money should be regarded as a benefit of the restructuring, the fair allocation of which falls to be considered.”
“[183] As we have said, the burden of establishing that a plan is fair, so as to justify the exercise of the Court's discretion to sanction a plan notwithstanding the presence of a dissenting class or classes, rests squarely on the plan company. Whether it has discharged that burden is a question of fact to be determined on the specific facts of the case. Where, as here, the Plan Companies' own evidence in the form of the valuation of the equity in the restructured Group begs clear questions, then there is a burden on the Plan Companies to provide evidence to meet those questions.”
“12. What can be taken from Petrofac is that where, as in Waldorf, the approach of the plan company has been (1) to start from the hard-edged rule that a de minimis plan return is enough for out of the money creditors, and (2) [to] negotiate on that basis (or, more accurately, not negotiate at all), that is not using the Part 26A cross-class cram down power for the purpose for which it was designed. To put that point another way, mis-using the Part 26A process in such a way is an abuse of the cross-class cram down process… 13. In Waldorf, there is no evidence to explain why the plan return to HMRC and Capricorn is set at 5% of their claims. Further, there is no adequate evidence to explain that 5% is all that the plan company can afford to pay. Such negotiations as have taken place in this case have taken place on the false premise that ‘out of the money’ creditors need only receive a de minimis payment.”