Key Issue: High Court Decision on Restructuring Plan in Project Lietzenburger Straße Holdco SARL Case Clarifies Legal Principles for Cross-Border Insolvency Proceedings

Citation: [2024] EWHC 468 (Ch)
Judgment on

Introduction

In the High Court of Justice’s recent decision regarding Project Lietzenburger Straße Holdco SARL [2024] EWHC 468 (Ch), a variety of substantive legal issues were addressed. The case delves into the intricacies of restructuring plans under Part 26A of the Companies Act 2006, touching upon topics of ‘centre of main interests’ (COMI) shifts, recognition of foreign insolvency proceedings, class composition and voting, and fair allocation of restructuring benefits among creditors. This article aims to elucidate key legal principles applied in the judgment and their implications for the parties involved.

Key Facts

The matter concerned an application by Project Lietzenburger Straße Holdco S.à.r.L (the “Plan Company”) to sanction a restructuring plan (the “Plan”) affecting three classes of creditors under Part 26A of the Companies Act 2006. The restructuring sought to address the company’s complex financial difficulties, centring on the development of a commercial real estate project in Germany. The Plan Company had recently relocated its COMI from Luxembourg to England and sought to utilize English restructuring mechanisms.

Several legal principles were at the core of the case:

  1. COMPROMISE OR ARRANGEMENT: The court must confirm that a proposed plan qualifies as a “compromise or arrangement” involving creditors. A plan offering no compensation to a class of creditors, effectively expropriating their rights, would not qualify.

  2. CROSS-CLASS CRAMDOWN: Under Part 26A, if certain conditions are met, the court can sanction a restructuring plan even without the approval of all creditor classes. This includes determining the “relevant alternative” and whether dissenting classes would be worse off under that alternative.

  3. JURISDICTION AND RECOGNITION OF FOREIGN PROCEEDINGS: Recognition of UK insolvency processes by other jurisdictions, like Luxembourg and Germany, depends on the existence of a real connection to the UK and whether proceedings would breach other states’ public policy.

  4. SUFFICIENT CONNECTION & FORUM SHOPPING: To reassure the court, the applicant must establish a sufficient connection to the jurisdiction, which in this case was largely dependent on the COMI shift. The court also assessed the company’s motivation in seeking a UK-sanctioned restructuring plan in response to allegations of forum shopping.

  5. FAIRNESS IN ALLOCATION OF RESTRUCTURING BENEFITS: The appropriateness of the allocation of restructuring benefits among different classes requires scrutiny, particularly when a “cross-class cramdown” is at issue.

Outcomes

The court initially refused to sanction the Plan as originally proposed, due to its lack of a qualifying “compromise or arrangement” with subordinated creditors. On the presented “Amended Plan,” incorporating modest payments to subordinated creditors, the court expressed willingness to sanction this version, subject to the creditors’ vote.

The court confirmed Condition A and B of s901G were satisfied, including considering the relevant alternative that subordinated creditors would not be worse off under the Plan than in a liquidation. However, the court made clear that these statutory conditions being met does not automatically lead to the sanctioning of a plan.

Regarding the fairness in allocation of benefits under the Plan, the court found no issue, since subordinated creditors, being out of the money in the relevant alternative to the Plan, had no genuine economic interest in the company.

Conclusion

The Project Lietzenburger Straße Holdco SARL case delineates critical boundaries within which a restructuring plan under Part 26A can be considered. The analysis of COMI shifts, recognition in foreign jurisdictions, fairness, and forum shopping aligns with established legal principles while reiterating the autonomy of the courts in sanctioning decisions. The judgment sets a compelling precedent for multi-jurisdictional corporate restructurings, emphasizing the scrutiny over the rationale and consequences of transferring a company’s COMI to influence restructuring outcomes under English law.

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