Multi process restructurings

Prompted by the EU Restructuring Directive and accelerated by the pandemic, jurisdictions all across Europe have completely transformed their restructuring regimes in recent years. This is part of a global trend towards more debtor-friendly, rescue-orientated restructuring regimes, inspired by US Chapter 11. 

This means that in large cross-border situations, there will increasingly be a choice of forum for debtors: the key cross-border hubs (US, UK) will remain on the table; the newer cross-border hubs (eg. Ireland and the Netherlands) increasingly so; and the ‘home jurisdiction’ also is also likely to have available tools. 

This increased choice, the complexity of modern restructurings and questions around international recognition of various restructuring tools are also driving a clear uptick in “multi-process” restructurings, where processes in two or more jurisdictions are necessary or desirable to implement a single group restructuring. This blog describes the three types of multi-process restructuring that we are seeing, as well as our observations on some of the complexities that can come with such restructurings. 

First, there is perhaps the most familiar multi-process restructuring: a main restructuring process which is then recognised in another jurisdiction, of which the classic example is a UK scheme or restructuring plan coupled with Chapter 15 recognition in the US. There have been many examples of this type of transaction, including the Virgin Atlantic restructuring in 2020.

Second, there are parallel processes where there are separate restructuring processes conducted in two or more jurisdictions with similar legal systems. Take the example of an English scheme with a parallel Cayman scheme – or the Hong Kong Airlines example from 2022, where the restructuring coupled an English scheme with a Hong Kong scheme. 

Lastly, and this is the true newcomer, there are interlocking multi-process restructurings. These are where separate restructuring processes are held in two or more jurisdictions with different legal systems, where each restructuring process is inter-conditional upon the other. Recent examples of this include Cimolai, where an Italian concordato process was paired with a UK restructuring plan, Vroon, involving a Dutch WHOA and an English scheme and, most recently, McDermott implementing a UK restructuring plan conditional upon a Dutch WHOA. 

So what is driving this increase in multi-process restructurings, when delivering a restructuring through a single process seems, superficially at least, more straightforward? The answer to this is in three parts. 

• First, there are limits to what can be achieved by single-process restructurings: for example, it may not be possible to achieve a debt-for-equity swap with a single process if the debtor is in one jurisdiction but creditors are to receive equity in a holdco incorporated in another jurisdiction. 
• Second, the recent explosion in the number of European restructuring tools available gives debtors more opportunities to play jurisdictional arbitrage and put together the combination of tools that delivers the most flexible outcome. 
• Third, a single restructuring process in one jurisdiction may not be afforded recognition in other jurisdictions where it matters, for example because the debtor has assets in that jurisdiction which could be the subject of an enforcement, rendering the effects of the foreign restructuring process null. 

Recognition is an increasing area of focus for English processes due to both a) the Brexit effect and b) the fact that more countries have an effective pre-insolvency restructuring tool, meaning that there is less need to turn to an English process to rescue a company from sure insolvency at home. This in turn might drive courts across Europe to look much harder at recognition issues – and, let’s not forget, while plenty has been written and opined about recognition of English processes abroad, it is little tested in practice. 

While a multi-process approach may be the only way to deliver some restructurings, there are complexities that come with it. 

Different courts will have different procedural requirements, which can make it difficult to align parallel restructuring processes. The Dutch WHOA, for example, permits the court to appoint a ‘restructuring expert’ who is tasked with preparing and proposing the restructuring plan for the benefit of the company’s creditors. The restructuring expert can confirm points of law with the Dutch court (via a request for interim decisions) while the terms of WHOA proposal are still being negotiated, allowing the restructuring to adapt in real time for what the Dutch court will (or will not) be prepared to sanction. This contrasts with processes in certain other jurisdictions, where the court may only be able to express a view on contested terms of a restructuring when considering whether to sanction that restructuring and it is therefore too late to change those terms. In a multi-process restructuring, this can lead to a disconnect between the terms of the WHOA proposal, which may have moved from those initially proposed by the borrower to reflect the input of the restructuring expert, and the other restructuring, which may not have moved from those initially proposed. There may also be different requirements as to evidence between the various processes. For example, if the absolute priority rule applies, there is likely to be more focus on the reorganisation value (or restructuring surplus) coming out of the plan, and how it is being allocated. As things currently stand in England, however, this may not be attributed a great deal of weight if the dissenting creditors have been established to be out of the money in the relevant alternative. 

What works in one jurisdiction might not work for the other. Different processes have different requirements as to creditor support (for example, the German StaRUG requires the support of creditors who hold 75 per cent. of the total debt in a particular class, compared to a UK restructuring plan where the 75 per cent. threshold is in respect of only those creditors in a class who are present and voting – so, unlike the StaRUG, the UK restructuring plan discounts creditors who abstain), so it is possible to have creditor support sufficient to deliver only part of a multi-process restructuring. There may also be different requirements as to how creditors are treated in the respective processes. This can affect the terms of the whole restructuring, as where there are such different requirements, the more exacting will need to apply across the whole restructuring: where a multi-process restructuring involves an English plan and a Dutch WHOA, for example, the absolute priority rule may need to be respected in both processes even though it does not apply in England. For the same reason, multi-process restructurings may be more likely to be challenged, as there are more requirements which opposing stakeholders have the opportunity to argue have not been met (and, of course, one more jurisdiction in which to bring a challenge). 

While multi-process restructuring may not be straightforward, we expect to see their rise continue as the market becomes more comfortable with the variety of new tools available across Europe. Debtors, creditors and courts will need to adapt to this new world.