Restructuring plans – 2024 in review and predictions for 2025

2024 was a busy year for the UK restructuring market, and particularly for the restructuring plan – we’ve seen some important developments in case law and a number of “firsts” for the plan. How did our predictions from the end of 2023 fare? Were we on the mark? With some relief to the authors and a spoiler alert, we (mostly) got them right (views welcome!). Riding on that wave, we look into the crystal ball and try to predict where the battlegrounds for 2025 lie for restructuring plans. 

2024 was a year of firsts in UK restructuring plan case law: 

• Adler – the Court of Appeal’s first judgment on a restructuring plan; 
• Superdry – the first plan coupled with a private placement and delisting, all inter-conditional;
• Consort Healthcare – the first plan seeking to amend a PFI contract and the first where a plan creditor applied for (and won) security for costs; 
• Project Verona Limited – the first successful plan launched by an AIM-listed company;
• Ambatovy – the first plan to have a second hearing to amend the convening order; and
• Dobbies – the first plan brought to the Scottish court.

How did our predictions for 2024 fare?

We predicted that (unsurprisingly!) the body of UK restructuring plan precedents would keep growing. We thought these questions would loom large: 

1. When is it appropriate to depart from absolute priority, for shareholders to retain their equity, or for pari passu creditors to be treated differently? 

Following Adler, we know that when considering a plan involving cross-class cram-down, the court will consider: 

• how different classes of creditor would be treated relative to one another in the relevant alternative;
• whether their relative treatment under the plan is consistent with that or if there’s differential treatment; and 
• if there is differential treatment, whether that’s for ‘good reason’ and justified on a ‘proper basis’.

The court also held that it was not unfair for the shareholders to retain equity in this case where all the debt rolled whole. The plan reflected the treatment that would apply in the relevant alternative (a German liquidation), as shareholders would only be paid once all plan creditors were paid out in full. See our blog for more detail on the Adler judgment. 

2. Is it permissible to structure a transaction artificially to establish restructuring forum? This has indeed proved a hot topic this year. The increasing availability of alternative restructuring proceedings – especially in Europe – adds a new dimension to the question of whether forum shopping is required or justified. 

In Light SA (an English scheme of arrangement case), the court was satisfied that the scheme companies had engaged in “good forum shopping”: the scheme was chosen to achieve the best outcome for creditors, as it could implement an arrangement that would not be possible elsewhere. 

However, in Adler, the court sounded a note of caution, expressly avoiding an endorsement of the practice of incorporating an English subsidiary to assume a foreign company’s debt obligations in order to give the English court jurisdiction. 

3. How should the court strike a balance between urgency and procedural fairness? 

How long do dissenters need to make their case, and how can this be accommodated if there is a burning bridge? Last year, we noted that courts are pushing back on aggressive timetables where long negotiations have taken up almost all the time, leaving little for other creditors and the court process. Comments in Adler, McDermott, Aggregate and more recent cases such as Ambatovy have confirmed this.

4. Should third party releases be permitted? 

This topic received widest attention due to  the US Supreme Court’s decision in Purdue Pharma (see our blog). But it has proved relevant also in cross-border cases. The US Trustee has objected to recognition of third party releases contained in Yuzhou Group’s Chapter 15 application for its (sanctioned) Hong Kong scheme – the hearing is adjourned at this stage.

The English court in Light SA heard evidence that Purdue means recognition of a scheme under Chapter 15 “may require further consideration”. On the evidence, the court was satisfied that the better view is that US courts may give third party releases effect under Chapter 15 or principles of comity. 

5. Other

We also predicted more interlocking, multi-process restructurings in a cross-border context. This has been borne out with cases such as Sino-Ocean, which involves an English restructuring plan and a Hong Kong scheme run in parallel. See our blog on this trend.

One prediction didn’t bear fruit: perhaps to the relief of some, foreign recognition of the English restructuring plan still hasn’t been challenged in earnest. In Cineworld, there was evidence that the plan wouldn’t be recognised in Ireland. The court sanctioned the plan anyway, since the group didn’t have significant assets in Ireland or any other EU member state.

What’s next for the restructuring plan?

So, our 2024 predictions didn’t fare too badly – time to push our luck and make some predictions for 2025!

The restructuring plan turns five – and some precedents might be more helpful than others

At time of writing there have been 32 restructuring plans (counting by “brand” and overall group restructuring rather than filed plans). As the restructuring plan matures, it’s clear that judicial pronouncements aren’t necessarily going in a straight line. 

Judges are sounding notes of caution about earlier judgments, especially those which were brought before the court with great urgency or without opposition. In remarks to the American Bankruptcy Institute’s European conference, Lord Justice Snowden suggested it was a mistake to equate judgments with statutes “to be followed without question” or subjected to “minute textual analysis”. 

With that in mind, some questions we believe that the courts are likely to grapple with in 2025:

1. How should the restructuring surplus be shared out? 

Can shareholders retain equity when creditors are impaired? Who decides: the court, in-the-money creditors or creditors as a whole? Is it enough for shareholders to put in new money? How about providing expertise? Who values that? 

Much helpful thinking on this has been written in recent years by leading academics such as Professors Sarah Paterson, Irit Mevorach and Riz Mokal. This feels likely to be the main issue for courts to grapple with – on both a conceptual and an applied basis – and 2025 will undoubtedly see more judicial guidance in this space. 

2. Third party releases (again)

The waves made by Purdue Pharma in the US may have somewhat ebbed but how third party releases should be treated in a restructuring plan remains a hot topic (in particular for third parties where there is no “ricochet” claim). Yuzhou is stayed in the US and therefore unlikely to provide an answer at least with respect to the treatment of third party releases in the US in a cross border context. However,  the courts in England, or in other jurisdictions, will likely have to grapple with this next year. 

3. Restructuring plan meets litigation

One reason the courts are likely to face these questions is that – learning from earlier (failed) challenges - creditors are bringing more comprehensive, “root-and-branch” challenges, sometimes presenting genuine alternative plans. The art of the attack continues to develop and the elements of a successful challenge are becoming clearer, and with that the court’s expectations of the parties – and the consequences of failing to live up to those (see our blog on Chaptre Finance). We question whether we will see the English courts using tools such as case management conferences to focus a challenge – and to keep a challenged restructuring plan hearing within a manageable court timetable. So, five-day contested sanction hearings may not be where the practice is developing, even though more challenges are to be expected. In a cross-border context, this is even more complex, as we saw in McDermott (see our recent podcast) so that is likely to develop further.

4. Restructuring plans to address mass claims

With mass claims of many types from competition follow on damages, product liability and consumer misselling at an all-time high in the UK, will 2025 see more use of schemes and restructuring plans, as a way of channelling such claims?  The prohibition on non-debtor third party releases in Chapter 11 after Purdue and the relatively low jurisdictional bar and process flexibility in England may see foreign debtors seek to use English processes to resolve mass claims with third party releases and bring them back in to the US under Chapter 15 (see our blog). However, companies and sponsors will need to be in mind the court’s additional care and sympathy for real people, compared to sophisticated corporate lenders.

So, all in all - 

At the end of 2024, we have more clarity on some issues (particularly thanks to Adler). Other questions remain vexed, and some issues are increasingly relevant as market practice evolves in a more contentious direction. If the court begins to cast a more sceptical eye at earlier judgments, 2025 could provide some unpredictable developments. One thing we can say confidently – 2025 is shaping up to be another interesting year for the restructuring plan!