Court “crams down” five classes of dissenting creditors

The company had suffered financial difficulties due to the COVID-19 pandemic and its majority shareholder had provided the company with secured loans of circa £10m in 2022 and 2023. One of the facility agreements included a condition requiring the company to initiate a CVA or restructuring plan acceptable to the majority shareholder by no later than 30 June 2023.

The company had various classes of creditor, including six categories of landlord creditors. The proposed restructuring plan had different proposals for the various landlord creditors and was not approved by a requisite majority of over 75% in value for five categories of landlord creditors.

Notwithstanding that the restructuring plan had not been approved by the required 75% majority in the dissenting class, the court could sanction the restructuring plan under s.901F and s.901G Companies Act 2006 if two statutory pre-conditions in s.901G were met, namely: (A) that the dissenting creditors would not be any worse off than they would be in the event of “the relevant alternative”; and (B) that the restructuring plan had been approved by a 75% majority of another class of creditors who have a “genuine economic interest in the company”.

There was no dispute that condition B was met. The court held that condition A was also met as the relevant alternative was that the company would go into administration with the likely outcome of an accelerated pre-packaged sale and the court was satisfied that the recovery for the dissenting creditors would be higher under the restructuring plan than the relevant alternative. The plan was therefore approved.

Re Fitness First