Introduction

Dobbies Garden Centres Limited ("Dobbies") found itself grappling with significant financial challenges, jeopardizing its ability to continue operations as a viable business entity. In response, Dobbies petitioned the Court of Session under Part 26A of the Companies Act 2006, seeking the court's sanction for a Restructuring Plan aimed at ameliorating its financial distress.

The key objective of the Restructuring Plan was to restructure Dobbies' existing obligations with its creditors to ensure the company's survival and continued operation. The plan involved amending and extending secured loan facilities, compromising various leases and property arrangements, and addressing business rates, all in exchange for improved financial covenants and payments exceeding creditors' expected outcomes had the company entered administration.

Central to the case were seven classes of creditors, including secured creditors, various landlord creditors, general property liabilities creditors, and business rates creditors. Notably, only the secured creditors approved the Restructuring Plan, necessitating the invocation of the court's cross-class cram down power under Section 901G of the Companies Act 2006 to impose the plan upon the dissenting classes.

Summary of the Judgment

The Court of Session, presided by Lord Braid, meticulously examined Dobbies' Restructuring Plan. During the sanction hearing held on December 9, 2024, despite informal objections from a few creditors, no formal opposition was lodged, and no creditors appeared at the hearing.

The critical issue was whether the court should impose the Restructuring Plan on the dissenting classes of creditors, given that only the secured creditors had approved it. Lord Braid affirmed that the Restructuring Plan met all necessary statutory requirements, including the threshold conditions under Section 901A and the fairness test under Section 901G.

Ultimately, the court granted sanction for the Restructuring Plan, allowing Dobbies to restructure its debts and continue operations, thereby setting a significant precedent in the application of cross-class cram down provisions under Part 26A of the Companies Act 2006.

Analysis

Precedents Cited

The judgment extensively referenced several pivotal cases that informed the court’s approach:

• Re Virgin Atlantic Airways Ltd [2020] BCC 997 – Emphasized the court's discretion in sanctioning restructuring plans.
• Re AGPS Bondco plc (Adler) [2024] BCC 302 – Provided a recent and relevant framework for applying cross-class cram down under Part 26A.
• Re LIstrac Midco Ltd & Ors [2023] EWHC 78 (Ch) and Re Fitness First Clubs Ltd [2023] EWHC 1699 (Ch) – Highlighted principles regarding class composition and creditor representations.
• Re C-Retail Limited [2024] EWHC 1715 (Ch), Re Chaptre Finance plc [2014] EWHC 2908 (Ch), and others – Addressed specific objections and procedural nuances in testing the validity of meetings and class formations.

These precedents collectively underscored the necessity of fairness, proper representation, and equitable treatment of all creditor classes in the restructuring process.

Legal Reasoning

Lord Braid delineated a systematic approach to evaluating the Restructuring Plan's compliance and fairness:

1. Threshold Conditions (Section 901A): Dobbies must demonstrate financial difficulties affecting its viability as a going concern and propose a compromise to mitigate these issues. The court found that Dobbies met these conditions through comprehensive financial forecasts and credible reports from Grant Thornton and FTI Consulting.
2. Class Composition (Section 901C): The court scrutinized the categorization of creditors into seven distinct classes—secured creditors, various landlord classes, general property creditors, and business rates creditors. The rationale for each class was grounded in the dissimilarity of their rights and the need for effective consultation based on shared interests.
3. Cross-Class Cram Down (Section 901G): Since only the secured creditors approved the plan, the court examined whether it could impose the plan on the dissenting classes. Lord Braid confirmed that the plan was fair to the creditors as a whole by ensuring that all dissenting creditors would not be worse off than in the relevant alternative (i.e., entering administration).
4. Fairness and Equitability: The court compared the outcomes for creditors under the plan versus the relevant alternative, ensuring that the plan provided a fair distribution of the restructuring surplus. The provisions guaranteeing at least 150% of the estimated insolvency returns to dissenting creditors were pivotal in affirming fairness.

Additionally, Lord Braid addressed procedural concerns, particularly regarding the nature of meetings. He clarified that a meeting can validly occur even if represented solely by proxies, dispelling the notion that multiple physical attendees are mandatory.

Impact

This judgment has substantial implications for future company restructurings:

• Validation of Cross-Class Cram Down: Affirming the use of Section 901G under Part 26A, the case sets a clear precedent that courts can impose restructuring plans on dissenting creditor classes, provided fairness to all creditors is maintained.
• Clarification of Meeting Requirements: The court’s interpretation that meetings can be validly held through proxies alone offers flexibility in handling creditor assemblies, especially in scenarios with limited participation.
• Guidance on Class Composition: The detailed analysis of creditor classes serves as a benchmark for categorizing creditors in future petitions, ensuring that classes are defined based on the similarity of creditor rights and interests.
• Enhanced Creditor Protection: By mandating that dissenting creditors receive payments exceeding their insolvency returns, the judgment reinforces protections for creditors not consenting to restructuring plans, thereby promoting equitable treatment.

Complex Concepts Simplified

Conclusion

The Court of Session's judgment in Dobbies Garden Centres Ltd v Court of Session [2024] CSOH 111 marks a pivotal development in corporate restructuring law under Part 26A of the Companies Act 2006. By sanctioning the Restructuring Plan through cross-class cram down, the court underscored the balance between facilitating viable business continuance and ensuring equitable treatment of all creditor classes.

Key takeaways from the judgment include:

• The affirmation of cross-class cram down as a viable and lawful method to enforce restructuring plans approved by majority creditor classes.
• A clarified understanding that creditor meetings can be effectively conducted through proxies, thus enhancing procedural flexibility.
• The establishment of precise criteria for class composition, ensuring that creditor classes are defined based on shared interests and similar rights.
• Reinforced protection for dissenting creditors by mandating payments that exceed their expected returns in an insolvency scenario, thereby promoting fairness in restructuring outcomes.

This judgment not only guides future petitions under Part 26A but also strengthens the overarching framework for corporate insolvency and restructuring, fostering an environment where business viability and creditor rights are judiciously balanced.