UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
Class Constitution Stakeholders vote in classes according to their rights both before and following the scheme/plan. If there are material differences in the legal rights of affected stakeholders either before a scheme/plan or as modi - fied by the scheme/plan (such that they cannot consult together with a view to their common interest), they are likely to be required to vote in separate classes. Differences in the interests of affected stakeholders (eg, cross-holdings across multiple debt instruments) are unlikely to “fracture the class”, but can lead to fair - ness challenges at the sanction hearing stage. Voting Thresholds Scheme The court has discretion to sanction a scheme if it has been approved by at least 75% in value and over 50% by number of those voting, in each class. If sanc - tioned, the scheme binds all affected stakeholders, whether secured or unsecured and whether or not they consented or voted. Restructuring plan A class approves a plan if it has been approved by at least 75% in value of those voting. For the court to have power to sanction a restructuring plan that not every class has approved, the following must occur: • at least one class that would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative (ie, the hypo - thetical counterfactual to the plan) must have voted in favour; and • the court must be satisfied that no member of a dissenting class would be any worse off under the plan than they would be in the event of the relevant alternative. For the court to be willing to exercise its discretion to sanction a plan that not every class has approved, it must be satisfied that there has been a fair allocation of the benefits preserved or generated by the restruc - turing. An application can be made to exclude classes of creditors/shareholders from voting on a plan where the court is satisfied that no member of that class has
This timetable assumes that affected stakeholders are sophisticated financial institutions with experi - enced advisers. Longer timetables may be necessary – for example, if seeking to compromise individual stakeholders or if stakeholders have not locked up in advance to support the scheme/plan. Role of the Court Even if the scheme/plan is approved (or set to be approved) by the requisite majority, the English courts will rigorously assess the process, both at the conven - ing hearing and at the sanction hearing, and will need to be satisfied as to a number of aspects in order to sanction the scheme/plan as a matter of its discretion, including whether: • the classes of stakeholders are correctly consti - tuted; • the court has jurisdiction to approve the scheme/ plan; • procedural requirements have been met (including due notice and disclosure to those affected by the scheme/plan); and • the scheme/plan is otherwise fair and there is no “blot” on the scheme/plan. Affected stakeholders may appear in court to oppose the scheme/plan; this has become much more com - mon in recent years. New Money There is no formal provision for interim or exit financ - ing. New funding must comply with permissions under existing debt documentation, or otherwise be approved under the scheme or plan itself. If the returns offered to those providing new money are materially in excess of what could be obtained in the market, and existing creditors are invited to participate in the new money, then the excess cost should be analysed as a benefit of the restructuring; the plan company must justify the fair allocation of those benefits. Moratorium There is no automatic moratorium in a scheme or plan. An equivalent position is usually achieved through the use of lock-up agreements and intercreditor agree - ment standstills.
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