Following the
A quick summary of the
The
-
introduce €937 million of new senior secured debt to repay the Notes maturing on
- extend the maturity date of the 2024 Notes until
31 July 2025 in exchange for priority over other Noteholders in terms of repayment (maturity of all other Notes to remain the same); and - amend the remaining Notes to allow refinancing and receive a PIK interest and a subordinated security interest,
- Rationality test: the rationality test used was derived from schemes of arrangement which did not require further investigations regarding improvements to the Plan; and
- Incorrect weighting of factors: the AHG argued that too much weight was given to the "no worse off" test and the simple majority of the AHG approving the Plan.
(together, the "Plan").
An ad hoc group of 2029 Noteholders (the "AHG") opposed the Plan, which was approved by five out of six classes of creditors (37.72% of the AHG voting against).
- Pari passu: the first instance judge failed to recognise the Plan's departure from the pari passu principle that would apply in the relevant alternative;
Main takeaways from the
Further scrutiny and commentary on the pari passu principle
The Court of Appeal's finding that the restructuring plan violated this fundamental principle sends a loud message about the non-negotiable nature of equitable creditor treatment. The Court of Appeal makes clear that adherence to the pari passu principle is paramount to eliminate risks associated with sequential payments to creditors from an inadequate common fund of money and that, if the pari passu principle is applied in an alternative scenario to the restructuring plan, then it must also apply to the restructuring plan itself. Departure from this principle requires a robust and cogent justification.
The Court of Appeal declared the Plan to be in violation of the pari passu principle, as it did not treat the AHG in the same way as the secured creditors and other Noteholders. The Court was not convinced that the reasons provided in favour of the Plan outweighed the inequality of the Plan. In particular, the
The horizontal comparator test over the rationality test
The Court of Appeal deviated from the "rationality test" used in schemes of arrangement and instead introduced the "horizontal comparator test".
The horizontal comparator test demands a meticulous evaluation of how different classes should be treated relative to each other in the relevant alternative scenario. This shifts the focus from a broad rationality check to a more nuanced analysis. The Court, in applying this test, would consider whether a proposed plan is the "best" plan, evaluating if a different formulation could be "fairer." For instance, if a plan offers enhanced benefits to one class over another without a justifiable reason, it might be deemed inequitable.
Other takeaways
The Court of Appeal emphasised the need for a fair court process, comprehensive evidence exchange and sufficient time for valuation considerations. Genuine urgency will be accommodated, but the
The Court of Appeal also noted that a restructuring plan can impose a "haircut" on creditors while permitting shareholders to retain equity. The Court of Appeal clarified that, in an insolvency scenario, shareholders not being paid until creditors are paid in full is not necessarily a departure from thepari passuprinciple.
Conclusion
Beyond the specifics of the
The Conyers team have acted for debtors, creditors, directors and shareholders in many of the most complex restructuring engagements involving offshore entities. We look forward to discussing the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Conyers
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