Restructuring plans - Project Lietzenburger

The plan involved the company moving its domicile to England and entering into a deed of contribution, making it co-obligor to the group’s German law governed debt, so the group’s debt could be restructured using the restructuring plan jurisdiction.

The plan in its original form entailed the release of certain subordinated debt for no consideration.

Following the creditor meetings, but before the sanction hearing, the Court of Appeal handed down its judgment in the Adler restructuring plan application. The court stated its provisional view that the restructuring plan jurisdiction could not be used to sanction a confiscation of property rights for no consideration as the jurisdiction required there to be a compromise or arrangement, which required an element of give and take.

At the sanction hearing in the instant case the judge held:

• While this part of the holding in Adler was obiter and not binding on the instant court, it was correct. It followed that the court had no power to sanction the original plan.
• It followed from the scheme of the legislation that the proposal had to constitute a “compromise or arrangement” for every class of creditor to whom it was directed. The court’s jurisdiction to sanction the plan was not therefore engaged, and that - while the court had some inherent power to amend a plan at the sanction stage - it was not possible under that amendment jurisdiction to amend, and thereby sanction a plan that in its original form was not capable of being sanctioned by the court.
• The court also refused to sanction the plan in unamended form by exercising the disenfranchisement power under section 901C(4), wherein those with no genuine economic interest in the company could be excluded from voting. On this point it held that, even if such a jurisdiction could in principle exist after the votes had already taken place at the sanction stage (which the court left open) – such a jurisdiction was not available where the original plan was not capable of being sanctioned.
• The court went on to hold that, were the plan sanctioned, there was a reasonable prospect of its being recognised and given effect in Luxembourg and Germany albeit the judge did state that he was not able to conclude which of the German experts he preferred (one being in favour and one against) but that was not required to satisfy the lower reasonable prospect threshold.
• Following its refusal to sanction the plan, the court convened further meetings to vote on the amended plan and exercised the power under section 901C to disenfranchise the subordinated creditors for this purpose. The plan as amended was subsequently sanctioned by the court at a later date.

In reference to Project Lietzenburger [2024] EWHC 468 (Ch), Chancery Division.