The High Court has sanctioned the Part 26A restructuring plan of E D & F Man Holdings Limited (the Plan) on which Freshfields has advised the E D & F Man Group (the Group). The Plan represents the first full-scale financial restructuring to utilise cross-class cram-down in respect of a financial creditor class and to amend articles of association. This scenario represents the paradigm use case practitioners and commentators envisaged when Part 26A was introduced in 2020.
The Group is one of the world’s largest traders of agricultural products. The Plan implements a complex cross-border refinancing of over $1.5 billion of debt, together with a ringfencing and recapitalisation of the Group’s commodities business including $300m of new money to finance trading, and amendments to Holdings’ articles of association and shareholder’s agreement. The Plan will provide the Group with a strong balance sheet, the injection of new funding, and the separation of the commodities businesses from legacy issues.
The Plan had five classes of creditors, across the Group’s various core facilities and liabilities under a settlement agreement, and two classes of members (including the ordinary shareholders and preference shareholder).
The case raised a series of points likely to be of interest to practitioners and commentators and those considering future restructuring plans:
- the Plan is the first to be sanctioned that has implemented amendments to equity documents as part of the Plan. The Plan was overwhelmingly supported by the ordinary shareholder class with a high turnout, and put in place amended articles of association without separately holding a general meeting of shareholders and passing the usual special resolution (as the restructuring plan legislation provides an alternative way to implement such changes).
- with respect to the ‘relevant alternative’ which the court is required to determine under section 901G(4) of the Companies Act 2006, Trower J noted that the court in usual circumstances ought to put faith in the directors’ ability to determine what the most likely relevant alternative is for their business noting “the court should recognise that the directors are normally in the best position to identify what will happen if a scheme or restructuring plan fails. Where the evidence appears on its face to reflect a rational and considered view of the company's board, the court will require sufficient reason for doubting that evidence”.
- although the value in the relevant alternative was shown to break (on the high case) in the B debt, the court considered with respect to an equitable sharing of the restructuring surplus that “the closer the members of the dissenting class are to being out of the money, the less clearly it can be seen that they might have an entitlement to an enhanced share.”
- Trower J confirmed his view previously set out in Re Swissport Fuelling Ltd  EWHC 1499 (Ch) that utilising a deed of contribution to provide a ricochet claim to enable a plan to be proposed by a guarantor rather than the primary debtor should not be controversial, stating that “there is no objection to the use of such a structural device so long as it is done with a view to achieving the best possible outcome for creditors as a whole”.
- finally, the Court was complimentary of the relevant alternative and plan outcome reports, which had been provided in full to Plan stakeholders, and prepared by FTI consulting in a detailed and thorough manner. It is not always the case that fulsome reports are presented, particularly on the likely outcomes under a plan, but it seems likely these may become the benchmark for analysis provided to stakeholders under plans going forwards
the court should recognise that the directors are normally in the best position to identify what will happen if a scheme or restructuring plan fails.