Administrations: A new (restructuring) plan of action?

After a somewhat stop/start convening hearing concluded in July, Amicus Finance PLC (in administration) was the first company given the opportunity to convene creditor meetings for a restructuring plan whilst in administration.

After a turbulent trading period following shocks from Brexit and covid-19, along with greater than anticipated difficulty in realising legacy loans and mounting legal costs from disputes with various parties, the administrators had concluded that continuing the administration was no longer viable, or in the best interests of creditors. We summarise the facts and consider whether the restructuring plan could offer a new exit route for administrators.

Background

Amicus, which specialised in short-term property finance, with a USD600 million book, has been in administration since December 2018, when Mark Fry, Jamie Taylor and Kirstie Provan of Begbies Traynor were appointed. The administration to date has been partially funded by Hartford Growth (Trading) Limited, who are owed GBP1.65 million. The other main secured creditor is Crowdstacker Corporate Services Limited, an online peer-to-peer lending platform provider engaged to assist Amicus in raising funds through its peer-to-business loan platform.

On 7 May 2021, the Administrators circulated a practice statement letter to affected creditors, notifying them of the impending restructuring plan application. The Administrators also filed a revised statement of proposals with Companies House, confirming that they were finalising the terms of a proposed restructuring plan and were now conducting the administration in pursuit of objective (a) (rescuing the Company as a going concern) rather than objective (b) (achieving a better result for the Company’s creditors as a whole than would be likely if the Company were wound up).

Terms of the Plan

The Plan if sanctioned will compromise the claims of four groups of creditors:

• Expense Creditors - creditors owed sums that are classified as expenses of the administration, who will see their claims paid in full.
• Preferential Creditors - these creditors will also see their claims paid in full.
• Secured Creditors (including Hartford and Crowdstacker) who will each receive GBP75,000 plus amounts under an agreed waterfall.
• Unsecured Creditors, who will receive 2.3p in the GBP.

A minority shareholder of Amicus, Omni Partners LLP, will inject GBP3.1 million into the company, with Twentyfour Assets Management LLP investing GBP640,000. After discharging the amounts listed above (with the exception of the waterfall), around GBP2.2 million would remain to fund the work-out of the loan book with the aim of value being returned to Hartford and Crowdstacker through the waterfall, and ultimately to the shareholders. The administrators would be retained as plan administrators, but the company would exit administration.

Convening Order & Next Steps

After a somewhat promulgated convening hearing, Mr Justice Snowden ordered the convening of five classes of creditors meetings: one greater than had been proposed by the Administrators. The additional class served to divide the Secured Creditors into (i) a class of Secured Creditors that includes Crowdstacker’s debt and the portion of Hartford’s debt that ranks pari passu with the Crowdstacker debt and (ii) a separate class containing the remainder of the Hartford debt. Whilst Mr Justice Snowden’s written judgment has not yet been handed down, at the hearing he indicated that the Court’s decision was driven by concerns that the practical effect of not splitting the class would be that the Hartford claims would serve to overwhelm the votes of Crowdstacker in that Secured Creditor class.

Class meetings were understood to be taking place on either 23 or 26 July, and (as was somewhat anticipated), the class of Secured Creditors containing equal claims of Crowdstacker and Hartford did not reach the required majority to negate the need for cross-class cram down. Accordingly, at sanction, the Court in making any order to sanction the restructuring plan will need to be satisfied that no creditor in a dissenting class would be worse off than in the relevant alternative (a liquidation in this case).

On 2 August, Crowdstacker appeared before Mr Justice Zacaroli. Their application related to the relevant alternative, asserting that the relevant alternative assumes a nil return in any liquidation, which would not take into account certain antecedent claims that they assert liquidators of Amicus would have available to them. They sought an order for disclosure of information relating to these potential claims.

Mr Justice Zacaroli exercised the Court’s discretion not to grant the order sought. Emphasising that the approach to disclosure applications must be informed by the purposes of the restructuring plan legislation. He explained this often means time pressures and limited resources allow limited scope for companies to comply with such an order. As such, a full blown examination of the issues, though clearly relevant to determining the outcome in the relevant alternative, would be incompatible with the legislative aims – and in any event the Court would not be able to determine the outcomes of any of the purported claims at the sanction hearing (so these would not be able to have any bearing on the sanction decision).

Given the financial predicament faced by the administrators of Amicus, and referring to the late stage of the application by Crowdstacker, Mr Justice Zacaroli refused the application but held over the issue of costs to sanction, and made the order without prejudice to any issues that Crowdstacker would want to raise at sanction.

Implications for administrators

It remains to be seen whether this particular plan will obtain sanction later this month - Crowdstacker have made clear that they have further points to be brought up at the sanction hearing.

To the extent that sanction is forthcoming, the Amicus case could forge a new path for the restructuring plan, offering substantial benefits to the corporate rescue regime. We anticipate that this route could, with the support of creditors and the oversight of the courts, see:

• administrators pursuing objective (a) with a greater degree of regularity, enhancing the corporate rescue regime in the UK;
• administrations being curtailed as companies are returned to the hands of directors to continue trading under the supervision of plan administrators;
• the use of a restructuring plan to deliver sales of the shares of companies in administration, rather than their business and assets, where there are particular regulatory benefits of preserving the corporate vehicle; and
• administrators spending less time working through intensive longer tail administrations, particularly in the financial services sector.

That said, the restructuring plan remains a novel tool, with significant up-front costs and challenges being brought with determined regularity. It may be that administrators turn to this tool once the dust has settled on the path trodden by Amicus, rather than hastening to follow.