Key points of the sanction judgment of Amicus Finance PLC
In August 2021, Sir Alistair Norris sanctioned the restructuring plan of Amicus Finance PLC (Amicus) (as we wrote at the time). On November 15, 2021, the judge issued his reasons for sanctioning the project.
In summary, Amicus is a real estate finance company that went into receivership at the end of 2018. The directors faced with a lack of liquidity, they proposed a restructuring plan as an alternative to a conversion into immediate liquidation. New funds would be injected, lump sums would be paid in satisfaction of the âadministration costsâ of creditors and senior creditors, and secured and unsecured creditors would be paid based on the collections of the loans inherited in the Amicus book. For more details, see our previous blog.
This plan was interesting for various reasons – not least because it was the first restructuring plan used to leave the administration and the first restructuring plan of an SME. Now, with the benefit of the court’s written reasoning, there are some additional points to be learned that will be of interest to insolvency practitioners and attorneys.
Composition by category – what if the âbadâ creditors vote on the plan?
During the summons, Snowden J (as it was then) questioned whether one of the secured creditors (“Crowdstacker”, a crowdfunding platform) was indeed the relevant creditor or whether the individual investors of the platform could in fact be the real creditors. In response, Crowdstacker had sought to “innovate” the claims of individual investors and place itself in the position of having the exclusive right to attend plan meetings. Due to the terms and conditions of the crowdfunding platform, Crowdstacker was able to notify individual creditors and novation of Amicus’ obligations to the security trustee (the position of the individual’s creditor being replaced by a pledge from the security trustee to pay a pro rata share of any recovery less its costs). Crowdstacker made these notifications and argued that this meant he was the only one entitled to appear as a creditor at the meetings of the plan.
The court expressed doubts, suggesting that there was a strong argument that individual investors retained their property rights as the ultimate beneficial owners of the debt and, as such, should have been entitled to vote in the debt. plan.
The court, however, did not consider it necessary to revisit the class vote due to this potential error, stating that âit is not appropriate to require detailed argumentation on the issue [of whether the correct people voted in the plan] if a pragmatic alternative can be foundâ¦ the pragmatic alternative is to treat Crowdstacker’s objection to the program as the objection of the remaining 417 individual investorsâ¦ and consider whether this should preclude a sanctionâ.
This may be a surprising result, but effectively treats Crowdstacker’s vote as though the individuals have all voted, and all voted against – as Crowdstacker did, and to consider the fairness of the plan in this context ( to avoid having to review the voting plan).
No worse test – what is the standard of proof?
Crowdstacker, by challenging the plan, sought to argue that it would be worse in the plan than in the relevant alternative (immediate liquidation). The court ultimately disagreed with this, but in doing so, addressed a point of disagreement between the parties as to the standard of proof to be met.
Crowdstacker supported, relying on Re Hurricane Energy plc  EHC 1759, that the directors had to demonstrate that there was âno real prospectâ of a better outcome under the relevant alternative. The directors, for their part, argued that the test should be based on the balance of probabilities.
The court concluded, noting the wording of the legislation which requires the court to be “satisfied” with the “no-worst case test”, that when the court is to be satisfied, it is normally satisfied on a balance of probabilities. The judge expressly stated that he did not think “that these passages [from Hurricane Energy] justify the argument that Crowdstacker’s lawyer was inspired by it, viz. that it is the responsibility of the promoter of the scheme to exclude any realistic possibility of a better outcome for a dissenting creditor under the realistic alternativeâ.
The judge referred to paragraph 11 (a) of Schedule B1 of the Insolvency Act 1986 as to who might be, unable to pay one’s debt and whether the administrative order is reasonably likely to be ‘meet the administration’s goal) and noted that this had been interpreted as a test on the balance of probabilities.
But above all, he noted that âthe more distant the time (or more the period during which) the events in question are to be considered and appreciated, the more difficult it is to convince the court as to the probabilities and the easier it will be “to refute the assertion that the [dissentient] will not be better off under the relevant alternative than under the plan â.
This may sound like common sense, but it should give practitioners useful context when analyzing the relevant alternative – also making it clear that the relevant passages from Hurricane were limited to the very particular facts of this case and that one should not can’t read too much there.
The nature of the explanatory memorandum
Finally, the quality of the explanatory memorandum should be noted briefly. The statement had been reviewed during the summons and the issues had been identified at that time. Subsequently, Crowdstacker identified many other issues, particularly around the paucity of details of the relevant alternative and challenges regarding the quality of the estimated outcome statement.
The judge noted in relation to the explanatory memorandum that âthe touchstone is not whether the most comprehensive, reasonably available specific information was included … it is whether what was provided was sufficient to enable creditors to make an informed decision. By way of further explanation, the court stated (and indeed repeated it several times in the judgment) that “an explanatory statement is meant to be a concise account of the facts essential to the decision which is to be taken. “.
Points specific to administrative processes.
- Despite the statutory power of administrators to promote a plan, it is still necessary for them to do so in the interests of all creditors. Providing better returns than the alternative will help demonstrate this.
- When promoting a plan, administrators may explicitly wish to preserve the right of creditors to pursue paragraph 74 and 75 claims (under Schedule B1 IA 1986) – this will facilitate the no-worst case test. because it effectively negates the argument that such claims against directors should be given a value in the liquidation comparator (since they can still be pursued in any event). When assessing potential recovery claims under the no-tracking test, the court will not conduct a âmini-trialâ but will consider whether they are likely to prevent the company from passing the non-tracking test. non-prejudice.