High Court Approves SGB-Smit's Restructuring Plan, Rejecting Creditor's Proposed Amendments

On 16 June 2023, the High Court of England granted approval to the restructuring plan put forward by German transformer manufacturer SGB-Smit GmbH. After receiving unanimous approval at two separate class creditors meetings, SBG-Smit sought court approval. A Russian lender, which was subject to UK sanctions and therefore disqualified from voting, challenged the restructuring plan. The court rejected the challenge and sanctioned the restructuring plan, noting that the court had no free-standing power to impose modifications on a restructuring plan that had been approved at creditors meetings, with the effect that the maturity date of the SGB-Smit’s loan facilities were extended.

Background

SGB-Smit has faced financial challenges and sought to address them through a comprehensive restructuring plan. The plan primarily focused on extending the maturity of the company's debt instruments and injecting approximately EUR70 million of fresh capital. The aim was to prevent insolvency and ensure the uninterrupted continuation of its operations. The plan garnered substantial support from the company's creditors, eliminating the need for the court to impose the plan on dissenting creditors through cross-class cramdown.

Gazprombank's Challenge and Court Decision

During the process GPB International, a subsidiary of Russian Bank Gazprombank, objected to certain provisions of the restructuring plan. However, due to international sanctions imposed on its parent company, GPB International was excluded from voting. The challenge by GPB International contested the payment mechanics clause and the exclusive jurisdiction clause favouring England and Wales.

Presiding over the case, retired judge Sir Alastair Norris clarified the court's limited role in modifying an approved scheme; while the court has the power to grant or withhold sanction, it cannot propose alterations unless concerns arise regarding fairness or the trustworthiness of the outcome. In this case, with unanimous creditor support and no evidence of unfairness or lack of trust, the court upheld the restructuring plan without modifications.

Approved Terms and Benefits

The sanctioned plan incorporates several significant terms and benefits for SGB-Smit. Firstly, it extends the maturity of the company's debt instruments by 45 months, providing essential breathing space to fulfil its financial obligations. Additionally, the plan secures approximately EUR70 million in new funding, enabling the company to invest in its operations and facilitate its recovery.

The approved plan includes provisions for partial prepayment of certain debt instruments, alleviating the company's financial burden and establishing a sustainable path forward. By implementing these measures, SGB-Smit wanted to avoid a rushed sale process at a discount, which would not adequately satisfy the creditors under the plan.

Conclusion

It is notable that the court's decision not only upholds the approved plan but also emphasises its limited role in modifying such schemes. By highlighting the significance of creditor approval and ensuring fairness, the court maintains the integrity of the restructuring process while respecting the rights and interests of all parties involved.