The First UK Cross-Class Cram-Down

Kirkland advised the DeepOcean group on its restructuring plans under the new Part 26A of the UK Companies Act 2006, including the ground-breaking first application of “cross-class cram-down” — i.e., using the acceptance of consenting class(es) to bind class(es) which has/have not accepted the plan.

The UK cable laying and trenching business of the DeepOcean group had long been underperforming. Three companies within this sub-group (the Companies) proposed parallel restructuring plans in order to achieve a solvent wind-down and avoid the negative impact of insolvent liquidation on the rest of the group. Two of the three plans were approved by the requisite majority of creditors in each class. In the third plan, whilst one of the two classes voted unanimously in favour, the requisite majority was (narrowly) not reached in the other class.

This therefore became the test case for the critical element of the new restructuring plan procedure: cross-class cram-down.

The court sanctioned all three restructuring plans on 13 January 2021 and handed down its reasoned judgment on 28 January 2021. The judgment includes extremely helpful guidance on the application of cross-class class-down which we expect to be followed in future cases, including:

• a plan company will have “a fair wind behind it” in seeking sanction provided the relevant statutory conditions are met; 
• the court will carefully consider questions of “horizontal comparability”, i.e., whether the plan provides for differences in treatment of creditors among themselves and, if so, whether those differences are justified; and
• the court will carefully consider the level of support for the plan and turnout, particularly in the dissenting class(es).

This Alert explores key issues including:

• Recap of the new restructuring plan procedure
• Background to DeepOcean's case
• DeepOcean's restructuring plans
• The cross-class cram-down criteria and their application in DeepOcean's case
• Cram-down: lessons for future cases
• Other interesting issues
  • Solvent wind-down / requisite purpose test
  • Bar date
  • Turnout
  • Fully locked-up consenting class
  • Can a plan bind “out of the money” stakeholders excluded from voting?

Early plans: This is only the third time that a restructuring plan has been sanctioned, following the introduction of the procedure in June 2020. Kirkland has advised on all three UK restructuring plans to date. See here for information on Virgin Atlantic’s restructuring plan and here for PizzaExpress.