Introduction

The case of Strategic Value Capital Solutions Master Fund LP & Ors v AGPS BondCo PLC (Re AGPS BondCo PLC) ([2024] EWCA Civ 24) represents a landmark decision by the England and Wales Court of Appeal (Civil Division) concerning the restructuring of corporate debt under Part 26A of the Companies Act 2006. The appellants, holders of senior unsecured notes (SUNs) in the 2029 series, challenged the lower court's sanctioning of a restructuring plan that imposed sequential payments on various note classes, thereby deviating from the principle of pari passu distribution.

The core issues revolved around the court's discretion to enforce restructuring plans despite dissent from certain creditor classes and whether the plan's structure unfairly disadvantaged specific noteholders, in contravention of established insolvency principles.

Summary of the Judgment

The Court of Appeal allowed the appellants' appeal, setting aside the High Court's decision to sanction the restructuring plan. The appellate court found that the plan's sequential payment structure departed materially and unjustifiably from the pari passu distribution principle that should govern creditor distributions in the relevant alternative scenario of formal insolvency. Consequently, the restructuring plan was deemed unfairly prejudicial to the dissenting class of 2029 noteholders, warranting its invalidation.

Analysis

Precedents Cited

The judgment extensively referenced several key cases that shaped the court's reasoning:

• Noble Group Limited [2018] EWHC 2911 (Ch): Highlighted the necessity for courts to ensure sufficient time for proper valuation and deliberation in scheme proceedings.
• Virgin Active Holdings Limited [2021] EWHC 1246 (Ch): Emphasized the complexity introduced by cross-class cram down under Part 26A and the resulting valuation disputes.
• ED&F Man Holdings UK Limited [2022] EWHC 687 (Ch): Acknowledged overall support from creditors but did not fully address fairness to dissenting classes.
• Houst Limited [2022] EWHC 1941 (Ch): Reinforced the need for fair distribution of restructuring benefits between assenting and dissenting creditor classes.
• DeepOcean 1 UK Limited [2021] EWHC 138 (Ch): Recognized the importance of horizontal comparison in assessing fairness under cross-class cram down scenarios.

These cases were pivotal in establishing that while overall creditor support is relevant, it does not override the fundamental principles of fairness and pari passu distribution, especially when dissenting classes are involved.

Legal Reasoning

The court's legal reasoning centered on the principle of pari passu distribution, which mandates that all creditors of the same class should be treated equally, ensuring that no creditor class is favored over another without justifiable cause. The restructuring plan under Part 26A deviated from this principle by instituting sequential payments based on the maturity dates of different note series. This approach inherently placed greater risk on the 2029 noteholders, who were to be paid last, without a compelling justification for such differential treatment.

The appellate court further clarified that:

• Section 901G of Part 26A is a jurisdictional requirement ensuring that dissenting classes are no worse off than in the alternative scenario. Satisfaction of these conditions does not create a presumption in favor of sanctioning the plan.
• The court must engage in a horizontal comparison to assess the fairness of the distribution of restructuring benefits between assenting and dissenting classes, beyond merely ensuring that dissenting classes are not worse off in absolute terms.
• Enhanced priorities or sequential payments must be justified within the restructuring context, and if they result in unfair disadvantages, the court should not sanction the plan.

The Judge in the High Court failed to adequately address these aspects, leading to the appellate court's decision to overturn the sanction.

Impact

This judgment establishes a critical precedent in the realm of corporate debt restructuring under Part 26A:

• Strict Adherence to Pari Passu: Restructuring plans must respect the pari passu principle unless a compelling and justifiable reason exists for differential treatment.
• Rigorous Fairness Assessments: Courts will scrutinize the fairness of benefit distributions, ensuring that dissenting classes are not unjustly disadvantaged.
• Refined Use of Cross-Class Cram Down: While cross-class cram down remains a powerful tool for restructuring, its application must be carefully managed to uphold fairness and equality among creditor classes.
• Enhanced Judicial Oversight: Judges will exercise greater diligence in evaluating the structure and implications of restructuring plans, particularly regarding creditor class distributions.

Future restructuring efforts under Part 26A will need to meticulously ensure compliance with pari passu principles, providing robust justifications for any deviations to withstand judicial scrutiny.

Complex Concepts Simplified

Pari Passu Distribution

Pari passu is a Latin phrase meaning "equal footing." In insolvency, it requires that all creditors within the same class be treated equally, receiving the same proportion of any available funds without preference or priority. This principle ensures fairness and prevents any particular creditor class from being favored over others without a valid reason.

Cross-Class Cram Down

Under Part 26A, cross-class cram down allows a restructuring plan to be approved even if not all creditor classes consent, provided certain conditions are met. This mechanism helps in situations where unanimity is unattainable but the plan is still deemed fair and beneficial for the company and its creditors as a whole.

Relevant Alternative

The relevant alternative refers to the most likely scenario that would occur if the restructuring plan is not implemented. Courts assess whether dissenting creditor classes are not worse off under the plan than they would be in this alternative, ensuring that the plan's imposition doesn't unfairly disadvantage any particular class.

Issuer Substitution

Issuer substitution involves replacing the original issuer of debt instruments with a newly incorporated entity, primarily to invoke the jurisdiction of a specific court for restructuring proceedings. This tactic can influence the legal framework and procedural aspects of the restructuring process.

Conclusion

The EWCA's decision in Strategic Value Capital Solutions Master Fund LP & Ors v AGPS BondCo PLC underscores the judiciary's commitment to maintaining fairness and equality in corporate restructuring. By invalidating the lower court's sanction of a plan that undermined pari passu distribution without adequate justification, the Court of Appeal has reinforced key insolvency principles. This ruling serves as a vital guide for companies and creditors alike, emphasizing the necessity for restructuring plans to uphold equitable treatment across creditor classes, thereby fostering transparent and just financial reorganizations.

Practitioners must ensure that any restructuring plan under Part 26A is meticulously structured to comply with pari passu principles or provides a robust rationale for any deviations. Failure to do so may result in appellate challenges and the nullification of the restructuring efforts, as demonstrated in this significant case.