[co-author: Eirene Psomas]*
On the 19th of August 2021, the English High Court sanctioned a Part 26A restructuring plan proposed by the administrators of Amicus Finance plc (in administration) (“Amicus”) for the company’s solvent exit from administration, enabling the company to be rescued as a going concern (the “Restructuring Plan”). Sir Alistair Norris has since handed down his judgment,1 which significantly shows that the court will wield its cross-class cram down power on a dissenting secured creditor class where such dissenting creditor cannot satisfy the court that it is any worse off under the plan than it would be in the relevant alternative.
The Restructuring Plan is the first to be proposed by insolvency officeholders, demonstrating its utility as a tool for administrators and in effecting a rescue of a company as a going concern following an administration. Amicus is also the first mid-market company to use a restructuring plan and it is likely that the decision may help pave the way for more mid-market restructuring plans.
You may review the legal update on the Hurricane Energy restructuring plan here for a summary of the legal framework for sanctioning of a Part 26A restructuring plan.
The key takeaways arising from the sanction judgment are:
- Burden of proof for the “no worse off test”: Where the court is asked to exercise its power to cram down a dissenting class, the burden of proof lies with the plan proponent (in this case the administrators of Amicus) to satisfy the court that, on the balance of probabilities, no member of a dissenting class would be any worse off under the plan than it would be in the relevant alternative (being an immediate liquidation in this case).
- Antecedent Transactions (the “clawback claims”): The court will consider potential claims which the company or its insolvency officeholders may have against third parties and the impact of those claims in relation to the “no worse off” test. However, the value of any returns arising from those claims are to be realistic and ultimately the court’s focus is on the “eventual net recoveries” that will have bearing on returns to creditors. The court will not conduct a mini-trial within the sanction hearing with respect to those claims without disclosure or evidence.
- Complaints against insolvency officeholders: Allegations regarding the conduct of the administrators will not influence the exercise of the court’s discretion to sanction the plan, particularly where the proposed plan expressly preserves the right of a compromised creditor to pursue claims against the administrators under paragraphs 74 and 75 of Schedule B1 of the Insolvency Act 1986 for their conduct or misfeasance.
- Court’s role in sanctioning a plan: The role of the court is to scrutinise the plan within a “tight timeframe” to ensure a fair outcome for creditors of the plan company. In doing so, the court is weary that the utility of restructuring plans will be undermined if the court becomes “side-tracked into time-consuming examination of detailed disputes without disclosure or oral evidence” to the potential detriment of the company (particularly in relation to small-to-medium-sized enterprises). As such, the court must strike a balance between “proper scrutiny and a proper outcome within the desired timescale”.
- Disclosure in the Explanatory Statement: The company is required to provide sufficient information to enable creditors to make an informed decision, not “the fullest specific information reasonably obtainable”.
- Uncertainty of returns: The court did not consider it material that returns under the Restructuring Plan were uncertain and noted that returns in the event of an immediate liquidation would be even more uncertain.
Amicus is a short-term property finance provider that entered administration in December 2018. By November 2020, the administration had encountered difficulties and by early 2021, the administration of Amicus was no longer financially viable due to, among other things, the impacts of Brexit and the COVID-19 pandemic. The administrators had insufficient funds to continue the administration beyond July 2021 and determined that it would be in the best interests of creditors as a whole to propose the Restructuring Plan as opposed to an immediate liquidation of the company.
The Restructuring Plan envisaged the company’s solvent exit from administration. Under the terms of the Restructuring Plan, approximately £4 million of funding would be provided to Amicus by: (i) a minority shareholder, Omni Partner LLP; and (ii) Twentyfour Asset Management LLP under an existing facility. These funds would be used to make certain lump sum payments to discharge the creditors’ claims described below and the balance would be used to continue the operations of Amicus and make recoveries under numerous legacy loans and pursue certain negligence claims against Amicus’ professional advisors. Any recoveries made from those legacy loans and/or negligence claims were to be distributed under a waterfall arrangement.
The Restructuring Plan proposed to compromise the claims of the following classes of creditors:
Crowdstacker was the sole dissenting secured creditor (representing 49.98%) and represented 417 of the 418 Individual Lenders. One Individual Lender voted in respect of its claim. There was some doubt as to whether Crowdstacker had effectively novated the Individual Lenders' claims under its crowdfunding platform’s terms and conditions and was the relevant creditor or whether the Individual Lenders behind the crowdfunding platform had retained their proprietary rights and were the beneficial owners of such claims and therefore, the "true creditors". However, the court took a pragmatic approach to this issue and representing the 417 Individual Lenders and agreed with the approach of the administrators to admit the vote of the Individual Lender in respect of its claim.
The administrators submitted that should the Restructuring Plan not be approved, the relevant alternative was an immediate liquidation of Amicus. The relevant alternative was not disputed. In a liquidation scenario, it was projected that expense creditors would receive 62p/£ and all other creditors would receive nothing.
Crowdstacker opposed the Restructuring Plan on the basis that it would be better off in an immediate liquidation of Amicus. It argued, among other things, that in the Estimated Outcome Statement for a liquidation scenario, Amicus’ estimates for recovery were undervalued and did not account for certain antecedent transactions.
Ultimately the court was satisfied that Crowdstacker was no worse off under the Restructuring Plan than it would be in an immediate liquidation, taking into account all relevant circumstances, including the value of any potential antecedent transactions. In coming to this conclusion, the court confirmed that the word “satisfied” required that the court be satisfied by the plan proponent on the balance of probabilities that the dissenting creditor would be “no worse off”.
In the absence of any “blot” or defect in the scheme and after taking into consideration all relevant discretionary matters,2 Norris J sanctioned the Restructuring Plan and in doing so, noted the following:
- The Restructuring Plan had been proposed by the administrators of Amicus, who had held that office for two years and were bound to act in the interests of creditors as a whole. Further, the administrators’ pre-insolvency involvement with the company did not make it “impossible” for them to exercise independent judgment.
- Complaints as to the conduct of the administrators have no bearing upon the exercise of the court’s discretion to sanction a plan, particularly where the plan permits the compromised creditors the right to pursue any such claims.
- In scrutinising a restructuring plan, the court must strike a balance between “proper scrutiny and a proper outcome within the desired timescale”.
- The Restructuring Plan had the overwhelming support of a majority of creditors, including in the senior secured creditor class (albeit minute in value terms).
- That there remains some doubt as to whether Crowdstacker represented the views of the Individual Lenders who hold the economic interest in the Crowdstacker platform loans.
- Based on the Estimate Outcome Statement, Crowdstacker would receive no return in an immediate liquidation, and as such, is preventing those with a genuine economic interest in Amicus from restructuring the company for the benefit of creditors as a whole.
- In presenting the Explanatory Statement to creditors, the company is required to provide sufficient information to enable creditors to make an informed decision, not “the fullest specific information reasonably obtainable”.
- The Restructuring Plan is one that an honest and intelligent creditor could regard as fair.
- The payment of expense creditors (including the administrators’ fees) ahead of secured creditors does not render the Restructuring Plan “unfair”; it reflects the statutory scheme of priorities.
- The scheme is not “unfair” because it provides for specific returns to some creditors and leaves other creditors reliant upon returns being made under the waterfall arrangement in the event that recoveries are made in respect of the legacy loans.
- The fact that returns under the Restructuring Plan are uncertain is not material and the returns in the event of an immediate liquidation would be even more uncertain.
1) Re Amicus Finance plc (in administration)  EWHC 3036 (Ch).
2) As provided in Re DeepOcean 1 UK Ltd  BCC 483.