1489313 - Hogan Lovells FIS Horizons 2021 update - Flipbook - Page 21
Financial Institutions Horizons
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Once the class votes have taken place, the plan
is submitted to the court for approval. Where
all classes have voted in favor of the plan, the
plan will bind all creditors/shareholders in each
class, regardless of whether they voted in favor
(a horizontal cram-down). Provided the plan has
been approved by at least one “in the money”
class, the court can also approve the plan at
which point the plan will be binding, not only on
those classes which voted in favor, but also those
which did not (a “cross-class cram-down”).
However, the court can refuse to approve the
plan in certain circumstances:
– If procedural requirements have not been
met or if the classes have not been properly
constituted, the court can refuse to confirm
the plan either of its own volition or at the
request of a creditor or shareholder.
– Creditors who voted against the plan can ask
the court to refuse to confirm the plan on the
grounds that the plan does not meet the best
interests of creditors test, which requires that
creditors or shareholders would receive no
less under the plan than they would on the
liquidation of the debtor.
– Where a creditor has voted against the plan
and is part of a class which has voted against
the plan, the creditor can ask the court to
refuse confirmation of the plan if:
– the value distribution under the
restructuring plans deviates from statutory
or contractual arrangements and, as such,
impairs the opposing creditors;
– the relevant creditor is an SME creditor
and has not been offered an amount
representing a value of at least 20% of
its outstanding claims (subject to certain
exceptions); or
– the creditor is a secured creditor and
has only been offered shares in the
restructuring plan.
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If an unsecured creditor class has not approved
the restructuring plan, the creditors in that
class are entitled to receive a cash distribution
equal to the amount they would have received
in a liquidation of the debtor. If the court
approves the restructuring plan, the relevant
creditors have the option to opt for the cash
distribution or to stick with the plan.
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The court can also make other orders as part of
the WHOA process:
– The debtor (or, if appointed, the restructuring
expert) can ask for a moratorium of up to
eight months during which time it will remain
entitled to conduct its business as usual,
as long as the interests of the creditors are
safeguarded. This also results in creditor
enforcement action being stayed during this
period. A moratorium can be granted in two
situations: (i) the debtor files a restructuring
statement with the court and offers or
intends to offer a restructuring plan within
two months, or (ii) a restructuring expert is
appointed.
– If the plan entails the amendment or
termination of long-term contracts such as
leases or supplier contracts, the court can
approve such steps where counterparties
refuse to cooperate.
– The debtor (or, if appointed, the restructuring
expert) can also ask the court to grant a
stipulation or preliminary injunction to
safeguard the interest of the creditors and
shareholders, after it has filed a statement
in which it declares that the negotiation has
commenced. For example, the court can
impose a condition that the restructuring plan
must be voted on within a specified period
or that the debtor must regularly inform the
creditors, shareholders and the court about
how the process is progressing.
