On 19 August 2021 the UK High Court sanctioned Amicus Finance Plc’s restructuring plan (the Plan), applying cross-class cram-down to essentially allow the dissenting votes of certain secured creditors to be overridden.
Whilst the court has sanctioned the plan, written reasons for the court’s decision to do so will follow. The below outlines the background to the plan, what happened at voting stage and gives a flavour of the arguments that were run and that are expected to feature in the written reasons in due course.
Amicus Finance Plc (Amicus) is a short-term property finance company that entered administration in December 2018. The administrators proposed the Plan as they considered that there was insufficient cash available to continue to fund the administration. The Plan is intended to return Amicus to solvency and rescue it as a going concern. The administrators argued that the Plan would provide Amicus’ creditors with a better return than in a liquidation, which they consider to be the relevant alternative.
The Plan involves three key elements:
- The injection of approximately £3.7m in new funds.
- The making of lump sum payments to Amicus' “expense creditors” (essentially those creditors who would be entitled to be paid as an expense of the administration) and preferential creditors in full satisfaction of their debts, and to Amicus' secured and unsecured creditors in part satisfaction of their debts.
- Payment in a waterfall to the secured and unsecured creditors to the extent that monies can be recovered by Amicus from certain legacy loans during a specified period following the approval of the Plan.
Creditors were split into the following classes:
- Senior secured creditors: this class comprised Crowdstacker Corporate Services Limited (Crowdstacker) and HGTL Securitisation Company Limited (HGTL Securitisation) to the extent that their claims ranked equally, which was up to approximately £4.7m each. The administrators had initially proposed one class of secured creditors only, however, following a challenge by Crowdstacker at the convening hearing the court ordered the division of this class.
- Junior secured creditor: this class comprised only HGTL Securitisation in respect of the remainder of its secured claims, not covered by the senior secured creditor class above;
- Preferential creditors
- Expense creditors
- Unsecured creditors
At the creditors' meetings, Crowdstacker voted against the Plan, which meant that the Plan had failed to gain the support of the required 75% in value of the senior secured creditor class, with only HGTL Securitisation (as well as one individual lender who lent to Amicus using Crowdstacker's lending platform, and who sought to vote directly in respect of their loan) having voted in favour, equating to 50.02%.
The remainder of the creditor classes voted overwhelming in favour of the Plan. The focus of the sanction hearing was therefore Amicus’ request that the court utilises “cross-class cram-down” and sanctions the Plan despite the failure to secure the requisite support of the senior secured creditor class.
It is also notable that between the creditors' meetings and the sanction hearing, Crowdstacker made an application for disclosure in regard to a potential deal with Cabot Square Capital which fell away, but in which two key steps had been taken. These steps were: (i) the hiving off of a part of Amicus’ business, Amicus Asset Finance (the AAF Transaction); and (ii) the entry into a deed of variation in regard to the ranking of Crowdstacker’s claims. The court declined to grant the disclosure order sought on the basis that the scope for disclosure, as it was issue based, was too wide, and that the requested disclosure order would have been disproportionally onerous for the administrators to comply with.
The sanction hearing
The sanction hearing was heard on 11 and 12 August by Sir Alastair Norris. Legislation prescribes that the court may exercise cross-class cram-down if Conditions A and B are met.
- Condition A: none of the members of the dissenting class would be any worse off than they would be in the relevant alternative (s901G(3) CA 2006).
- Condition B: the compromise has been agreed by 75% in value of a class who would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative (s901G(5) CA 2006).
In the present case, it was not disputed that the relevant alternative to the Plan would be liquidation – although it was disputed whether the plan would lead to a worse outcome than a liquidation. The fact that Condition B was met was not in dispute; 100% of the expense creditor class had voted in favour of the Plan, and this was a class which would receive a payment in a liquidation.
Crowdstacker disputed that Condition A was met, on the basis that the company's estimated outcome statement (the EOS) was fundamentally flawed and therefore unreliable with respect to the estimated return in a liquidation.
Crowdstacker argued that the EOS undervalued the estimated realisations of Amicus' loan-book and did not provide a value for the sale of goodwill, IP and assets of the business in liquidation. Crowdstacker alleged that the EOS failed to apportion any value to potential claims which may be brought by a liquidator or creditors in a liquidation. Crowdstacker argued that the AAF Transaction was a transaction at an undervalue and if Amicus entered liquidation, the liquidators would challenge the transaction, including potentially pursuing claims against the administrators themselves for their involvement in the transaction, and the resulting proceeds of the litigation would swell the pot of assets available for distribution to creditors.
Crowdstacker further argued that in a liquidation it would have claims against Amicus and other third parties in respect of losses it suffered as a result of misrepresentations, leading to Crowdstacker releasing its security over Amicus Asset Finance.
Amicus' contended that in the event of a liquidation, no material realisations would be made in respect of any legacy loans. In the circumstances, only the expense creditors would be likely to receive payment (in the sum of approximately 52p in the pound).
Amicus argued that it was correct not to attribute any value to any possible avoidance claims which they considered speculative and/or without merit. Crowdstacker had not provided any evidence as to how the investigation and pursuit of these claims, would be funded.
Further, with respect to Crowdstacker's purported misrepresentation claim, Amicus argued that whether those claims exist or not, as a liquidation was not expected to pay a dividend to unsecured creditors, any additional claims Crowdstacker may have against Amicus for misrepresentation would be irrelevant. To the extent such claims are against persons other than Amicus, these would be unaffected by the Plan.
The difference to Hurricane Energy
Amicus sought to distinguish its case from Re Hurricane Energy Plc  EWHC 1759 (Ch), in which Zacaroli J refused to apply cross-class cram-down, on the basis that:
- In Hurricane, Zacaroli J considered that the fact that the company's shareholders would be deprived of all but a fraction of their equity was a factor which weighed against exercising his discretion to sanction the plan. Amicus contended that this was not the case here, as Crowdstacker were expected to receive c. 25p in the pound.
- Unlike in Hurricane, this was a case where there would be an imminent liquidation in the event that the Plan was not approved. There was therefore an element of urgency which justified taking a pragmatic approach to valuation.
This is the first time a restructuring plan has been proposed to exit a company from administration and is thought to be the first restructuring plan proposed by a small / medium sized enterprise. It is only the fourth restructuring plan applying the new cross class cram down provisions – but we can see that the court is not afraid to use its new powers.
Over the last year since the introduction of the restructuring plan we have not only seen the plan in use (and this is another example) but we have also seen that the mere existence of the new restructuring tool, including the powerful cross class cram down, has shaped restructurings outside of court.
It is only the fourth restructuring plan applying the new cross class cram down provisions – but we can see that the court is not afraid to use its new powers