Court Upholds Cross-Class Cram-Down in CB & I UK Ltd Restructuring Plan Under Companies Act 2006

Citation: [2024] EWHC 398 (Ch)
Judgment on

Introduction

In the case of CB & I UK Ltd ([2024] EWHC 398 (Ch)), Mr Justice Michael Green grappled with the sanctioning of a restructuring plan under the relatively new legislation of Part 26A of the Companies Act 2006. The case presents a complex scenario involving cross-class cram-down power, the notion of the ‘relevant alternative’, and the treatment of dissenting classes, specifically against a backdrop of a substantial arbitration award. This article aims to unpack the legal principles applied in this case, which concern the corporate restructuring terrain, especially in situations where a restructuring plan is not unanimously agreed upon by all classes of creditors.

Key Facts

CB&I UK Ltd, part of the McDermott Group, sought court approval for a restructuring plan that would significantly affect the claims of two classes of dissenting creditors, including Refinería de Cartagena S.A.S. (Reficar). The plan aimed to extend debt maturities and reduce the liabilities of the Group by dealing differently with classes of secured and unsecured creditors. Central to the dispute was whether a plan offering minimal payment to an unsecured creditor holding a substantial arbitration award could constitute a “compromise or arrangement” rather than a mere extinction of debt, and the applicability of the cross-class cram-down provisions.

Part 26A Restructuring Plans

The case hinged on the statutory provisions of Part 26A of the Companies Act 2006, which provide for a restructuring plan that can be sanctioned by the court even if not all creditor classes agree to it, on the condition that no dissenting class is worse off than in the ‘relevant alternative’.

‘Compromise or Arrangement’

The court first considered whether the proposed plan could be classified as a “compromise or arrangement”. Citing s.901A(3) of the Companies Act 2006, and judicial precedents such as Re NFU Development Trust Limited and Re AGPS Bondco, the court opined that there is a jurisdictional requirement for ‘give and take’ in a plan. In this case, the payment offered to the dissenting creditor was deemed sufficient to pass this threshold.

Relevant Alternative

A pivotal concept considered was the ‘relevant alternative’, as defined in s.901G(4) of the CA 2006. The court concluded, on the balance of probabilities, that the most likely alternative to the plan would be a formal liquidation of the Group, which would leave the dissenting creditor ‘out of the money’.

Cross-Class Cram-Down

Regarding the exercise of cross-class cram-down provisions, s.901G(3) mandates the satisfaction of the ‘no worse off’ test. This was established by the court, which found that in the relevant alternative of insolvency, Reficar would fare no better than under the proposed restructuring plan.

Exercise of Judicial Discretion

On the exercise of discretion, the court relied on past judgments that emphasized the limited weight given to dissenting creditors’ views when they are ‘out of the money’. Further discussions on fairness centered on the distribution of the restructuring surplus.

Recognition Under New York Convention

The case briefly discussed potential implications of the New York Convention on the recognition of international arbitration awards. However, this did not affect the court’s discretion since Reficar’s claims of unfairness were mitigated by the offer it received.

Outcomes

The court sanctioned the plan, stating that Reficar would receive a fair distribution of either 10.9% or 19.9% of the equity in the parent company, should they elect to do so.

Conclusion

In CB & I UK Ltd, the court reinforced the principles guiding restructuring plans under Part 26A. The decision underscores the threshold for what constitutes a ‘compromise or arrangement’, clarifies the application of the ‘relevant alternative’ concept, and evidences the pragmatic use of discretion when treating dissenting creditors in the broader context of corporate restructuring. Additionally, the case illustrates the robustness of the legislative framework to facilitate complex financial restructurings even when not all parties are in agreement.