In August 2021, Sir Alistair Norris sanctioned the restructuring plan of Amicus Finance PLC (Amicus) (as we wrote about at the time). On 15 November 2021, the judge handed down his reasoning for sanctioning the plan.

Background

To summarise, Amicus is a property finance company which entered administration in late 2018. The administrators faced running out of cash, so they proposed a restructuring plan as the alternative to a conversion into immediate liquidation. New funds would be injected, lump sums would be paid in satisfaction of administration ‘expense’ creditors and preferential creditors and secured and unsecured creditors would be paid dependent on recoveries from legacy loans in Amicus’ book. For more detail, see our previous blog.

This plan was interesting for a variety of reasons – not least because it was the first restructuring plan utilised to exit administration and the first restructuring plan of an SME. Now, with the benefit of the court’s written reasoning, there are certain additional points to draw out which will be of interest to insolvency practitioners and officeholders.

Class Composition – what happens if the “wrong” creditors vote on the plan?

At convening, Snowden J (as he then was) cast doubt on whether one of the secured creditors (“Crowdstacker”, a crowdfunding platform) was indeed the relevant creditor or whether the individual platform investors might in fact be the true creditors. In response, Crowdstacker had sought to ‘novate’ the individual investors claims and place itself in the position of having sole right to attend the plan meetings. By reason of the crowdfunding platform’s terms and conditions, Crowdstacker was able to notify the individual creditors and novate Amicus’ obligations to the security trustee (with the individual’s creditor position replaced by a promise of the security trustee to pay a pro rata share of any recoveries minus its costs). Crowdstacker made these notifications and argued that this meant it was solely entitled to appear as creditor in the plan meetings.

The court expressed doubts, suggesting that there was a strong argument that the individual investors retained their proprietary rights as ultimate beneficial owners of the debt, and as such should have had the right to vote in the plan.

The court however, did not consider that it was necessary to revisit the class vote because of this potential error, stating that “it is not appropriate to require detailed argument on the issue [of whether the correct people voted in the plan] if a pragmatic alternative can be found…the pragmatic alternative is to treat Crowdstacker’s objection to the scheme as being the objection of the remaining 417 individual investors…and to examine whether that should stand in the way of sanction”.

This is perhaps a surprising result, but effectively treats Crowdstacker’s vote as if the individuals had all voted, and had all voted against – like Crowdstacker did, and to consider the fairness of the plan in that context (to avoid the need to revisit the plan voting).

No Worse Off Test – what is the standard of proof?

Crowdstacker, in challenging the plan, sought to argue that it would be worse off in the plan than in the relevant alternative (an immediate liquidation). The court ultimately disagreed with this but in so doing dealt with a point of contention between the parties as to the evidential standard that had to be met.

Crowdstacker contended, drawing on Re Hurricane Energy plc [2021] EHC 1759, that the administrators had to demonstrate that there was “no real prospect” of a better outcome under the relevant alternative. The administrators on the other hand contended that the test ought to be based on the balance of probabilities.

The court concluded, noting the language in the legislation which requires the court to be “satisfied” as to the ‘no worse off test’, that where the court is required to be satisfied, it is normally satisfied on the balance of probabilities. The judge expressly stated that he did not think “that these passages [from Hurricane Energy] justify the submission that Counsel for Crowdstacker based upon it viz. that the burden lies upon the propounder of the scheme to exclude all realistic possibility of a better outcome for a dissentient creditor under the realistic alternative”.

The judge referenced paragraph 11(a) of Schedule B1 to the Insolvency Act 1986 in relation to the making of an administration order which is also expressed so as to require the court to be satisfied (in that case on whether the company is, or is likely to be, unable to pay its debt and whether the administration order is reasonably likely to achieve the purpose of the administration) and noted that this had been construed to be a test on the balance of probabilities.

Importantly however, he noted that “the more distant the time at which (or the longer the period over which) the events in question fall to be examined and assessed the more difficult it is to satisfy the court as to the probabilities and the easier it will be ‘to refute the contention that the [dissentient] will be no better off under the relevant alternative than under the plan”.

This may seem common sense, but it should give useful context for practitioners when analysing the relevant alternative – also making clear that the relevant passages in Hurricane were confined to the very special facts of that case and that not too much can be read into them.

The nature of the explanatory statement

Finally, it is worth a brief note on the quality of the explanatory statement. The statement had been considered at convening and issues had been identified then. Subsequently, Crowdstacker identified numerous other issues, in particular around the sparsity of detail of the relevant alternative and challenges around the quality of the estimated outcome statement.

The judge noted in regard to the explanatory statement that “the touchstone is not whether the fullest specific information reasonably obtainable was included…it is whether what was provided was sufficient to enable to the creditors to make an informed decision. By way of further explanation, the court stated (and indeed repeated this a number of times in the judgment) that “an explanatory statement is meant to be a concise account of the facts material to the decision that has to be taken”.

Points specific for administration processes.

  1. Despite the statutory power of administrators to promote a plan, it is still necessary for them to do so in the interests of creditors as a whole. Providing better returns than the alternative will help demonstrate this.

  2. When promoting a plan, administrators may wish to explicitly preserve the right of creditors to pursue para 74 and 75 claims (under Schedule B1 IA 1986) – this will assist in the no worse off test as it effectively negates the argument that such claims against administrators should be given a value in the liquidation comparator (as they can still be pursued in any event). In assessing potential claw back claims as part of the no worse off test, the court will not conduct a “mini-trial” but will consider whether they are likely to prevent the company from satisfying the no worse off test.