The judgment handed down in the matter of CB&I UK Ltd suggests that the English Courts will not expedite or truncate sanction hearing timetables to accommodate requests from companies which have applied for a restructuring plan under Part 26A of the Companies Act 2006 (“Restructuring Plan”) unless there are good reasons for doing so. Distressed companies and practitioners will want to take heed of these recent developments in light of the fact that many Restructuring Plans are proposed in the context of a burning platform where time may be of the essence.

The CB&I hearing dealt with two applications. This blog only deals with the application made by an opposing creditor, Refineria de Cartagena SA (“Reficar”) for an extension of the timetable for the sanction hearing.

Background

The CB&I Restructuring Plan proceedings were issued on 24 September 2023. A convening hearing took place on 28 September 2023 where Mr Justice Miles ordered, among other things, that a sanction hearing was to be listed on an expedited basis for four days plus one day of pre-reading in the week commencing 27 November 2023. Reficar subsequently made an application to extend the sanction hearing timetable to two days pre-reading plus six days of hearing time. Although Reficar’s application did not request a delay to the sanction hearing, owing to Court availability, the next 6-day slot was not until early February 2024. The Court granted the order sought by Reficar which meant that the sanction hearing was ultimately delayed by a period in excess of two months.

Brief Summary

The main takeaways from the CB&I judgment are, in our view, as follows:

• Reficar argued that Courts need to strike a balance between “the urgency of the situation and fairness to members of the creditors who oppose the scheme or plan”. Mr Justice Miles agreed, but at the same time noted there is a clear need to avoid unnecessary or protracted and elaborate trials which could add to costs, potential timing issues, and heighten insolvency risk for the plan company. Further, such an approach could leave plan companies exposed to the risk of opposing creditors tactically holding the plan company hostage, which could potentially defeat the overall purpose of Restructuring Plans, and signal their death.
• It ought to be noted that CB&I’s Restructuring Plan was unusual in that it did not seek to compromise certain classes of creditors (i.e. the trade creditors, intercompany creditors and the equity in the group which comprised largely of senior creditors). Conversely, Reficar – a creditor which had secured an arbitration award in the amount of USD 1 billion – stood to recover virtually nothing, nor did it stand to gain any other upside (e.g. equity or other interest in the CB&I group). Mr Justice Miles was no doubt mindful that the plan company was seeking to effectively write-off the debt owed to Reficar, and it was fair and just to allow Reficar the opportunity to put forward its case, particularly where it had argued that it may not necessarily be out of the money (with the suggestion being made that the equity holders were unlikely to allow the plan company to go into insolvent liquidation and lose their entire equity stake in the process).
• It was also questioned whether there was, in fact, a genuine urgency to secure sanction.Some of the evidence that the company had previously put forward alluding to the same was, at least, partly rebutted by counsel for Reficar by the time Mr Justice Miles handed down his convening hearing judgment. Reficar argued that the company had been able to enter into new contracts since the convening hearing, certain risks (in terms of financial instruments being performance based rather than on demand) may have previously been overstated, and the cash collateralisation of certain letters of credit (which the company had relied on as a crunch point) was only required to take place on 27 March 2024 – in short, there was no imminent risk of demise of the CB&I group prior to that point in time.

Concluding Remarks

It is clear from the CB&I judgment that in the appropriate circumstances, the Courts will take a more balanced approach when timetabling sanction hearings so that, on the one hand, they consider whether there is a genuine urgency in the case of the plan company, and on the other, whether creditors who may possibly be in the money have been granted a fair opportunity to consider the case put forward by the plan company and respond with their own case and evidence. With respect to the latter, the Court will take into consideration matters such as the amount and complexity of the plan company’s evidence and whether the creditors have had sufficient time to digest the same and respond with their own submissions and evidence.

The above is particularly important in the context of Restructuring Plans (as opposed to, say, schemes of arrangements under Part 26 of the Companies Act 2006) in view of the cross-class cramdown mechanism which is a unique feature of Restructuring Plans (and not available in schemes of arrangements). That being said, Mr Justice Miles was cognisant that for Restructuring Plans to be workable, unnecessary or over-elaborate procedures should be avoided where possible and the Courts should be astute to opposing creditors (particularly those who are out of the money in the relevant alternative) making requests that would delay or extend the process as a tactical measure.

CB&I is unique and complex in its facts and, in our view, is unlikely to impact more straightforward cases, however, it does highlight the importance of plan companies thinking ahead in time and properly engaging with creditors and providing them with sufficient time to consider the plan company’s evidence prior to the convening hearing. The Courts will likely be less sympathetic to creditor applications for amendments to the Restructuring Plan timetable where all (at least) potentially in-the-money creditors have been fully informed in good time ahead of the convening hearing and cram-down is envisaged.