UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
foreign company may propose a scheme with respect to its financial liabilities. Before the court considers the sanction of a scheme of arrangement, affected creditors will vote on the proposed compromise or arrangement in respect of their claims in a single class or in a number of classes, depending on the rights of such creditors that will be affected by the proposed scheme and any new rights that such creditors are given under the scheme. This compromise can be proposed by the debtor company, any creditor of the company or any liquida - tor or administrator appointed to the company. If a majority in number representing 75% or more by value of those creditors present and voting at the meeting(s) of each class of creditors vote in favour of the pro - posed scheme, irrespective of the terms and approval thresholds contained in the finance documents, then that scheme will (subject to the sanction of the court) be binding on all affected creditors, including those affected creditors who did not participate in the vote and those who voted against the scheme. The scheme then needs to be sanctioned by the court at a sanction hearing where the court will review the fairness of the scheme and consider whether it is reasonable. The court has discretion as to whether to sanction the scheme as approved, make an order conditional upon modifications being made or refuse to sanction the scheme. Once sanctioned, the scheme of arrangement binds all affected stakeholders whose rights will be as set out in the scheme of arrangement, which will be effective (in line with its terms) upon delivery of the court’s order sanctioning the scheme of arrangement to the Registrar of Companies. Unlike an administration proceeding, the commence - ment of a scheme of arrangement does not automati - cally trigger a moratorium of claims or proceedings. Restructuring Plan Like a scheme of arrangement, a restructuring plan is a procedure under Part 26A of the CA06 which allows the English courts to effect a compromise of a company’s liabilities between a company and its creditors (or any class of its creditors), but with the added possibility of a “cross-class cram-down”. While
generally available to the same domestic and foreign companies as schemes of arrangement, a company seeking to enter into a restructuring plan process must show that: • it has encountered, or is likely to encounter, finan - cial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern; and • a compromise or arrangement has been pro - posed between the company and its creditors (or any class of them) for the purpose of eliminating, reducing or preventing, or mitigating the effect of, any of those financial difficulties. A restructuring plan may be proposed by the debtor company, any creditor of the company or any liquida - tor or administrator appointed to the company. Affect - ed creditors will vote on the proposed compromise or arrangement in respect of their claims in a single class or in a number of classes depending on the rights of such creditors which will be affected by the proposed restructuring plan and any new rights that such credi - tors are given under the restructuring plan. A restructuring plan will be deemed to be approved if at least 75% in value of the creditors and/or members (if applicable) present and voting at the meeting of at least one class of creditors vote in favour of the pro - posed compromise. There is no requirement for the approving creditors to constitute a majority in num - ber of those creditors present and voting, and there is crucially no requirement for each and every voting class to approve of the plan, provided that the court is satisfied that: • none of the members of a dissenting class would be any worse off if the restructuring plan were to be sanctioned than they would be in the event of the “relevant alternative”; and • the restructuring plan was approved by at least one class of creditors who would receive a payment or have a genuine economic interest in the company in the event of the “relevant alternative”. The “relevant alternative” for the purposes of this assessment is whatever the court considers would be most likely to occur in relation to the company if
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