Key Facts
- •Cine-UK Limited, Cineworld Cinemas Limited, Cineworld Cinema Properties Limited, and Cineworld Estates Limited (Plan Companies) sought court sanction for restructuring plans under sections 901F and 901G of the Companies Act 2006.
- •The plans aimed to address severe financial difficulties caused by the Covid-19 pandemic and actors'/writers' strikes, particularly concerning over-rented UK cinema leases.
- •The plans involved compromising secured and unsecured debts, recapitalizing the UK Group, amending lease terms, and releasing certain liabilities.
- •Two creditors (UK Commercial Property Finance Holdings Limited and The Crown Estate) objected, arguing breach of prior undertakings not to further compromise specific leases.
- •The plans were approved by requisite majorities of some creditor classes but not others, leading to a request for cross-class cram down.
Legal Principles
Cross-class cram down under section 901G of the Companies Act 2006 requires the 'no worse off' test to be satisfied and at least one class of creditors approving the plan.
Companies Act 2006, sections 901F and 901G
The 'no worse off' test involves identifying the relevant alternative (most likely outcome if the plan fails) and ensuring no creditor class is worse off under the plan than in that alternative.
Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch)
When dissenting creditors are 'out of the money' in the relevant alternative, their views carry little weight in the court's discretion to sanction the plan.
Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch)
The pari passu principle, requiring equal treatment of similarly situated creditors in insolvency, is a key consideration in restructuring plans, particularly when the relevant alternative is insolvency.
Re AGPS BondCo Plc [2024] EWCA Civ 24
Equity will generally enforce negative covenants, but this may be overridden by public policy considerations, such as the pari passu principle in insolvency.
Doherty v Allman (1878) 3 App Cas 709
Outcomes
The court rejected the injunction applications by the objecting creditors.
The court found that the objections were raised too late, that the negative covenants in the side letters were capable of being compromised under the plans, and that enforcing the side letters would violate the pari passu principle.
The court sanctioned the restructuring plans.
The court found that the statutory conditions for cross-class cram down were met, the dissenting creditors were largely 'out of the money' in the relevant alternative, and the plans were fair to all creditors, considering the pari passu principle and the need to rescue the companies from insolvency.