Vol 18 (2021) - Issue 4

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Hurricane Energy: For the First Time, the English Court Declines to Approve a Restructuring Plan

Synopsis
The English court declined to sanction the restructuring plan of Hurricane Energy plc on 28 June 2021.
This is the first time the court has done so since the restructuring plan procedure was introduced (in June 2020); it follows the court's approval of the first seven restructuring plan cases.
The court declined sanction because:
– it rejected the company's evidence as to the 'relevant alternative' to the restructuring plan;
– accordingly, on the facts, it was not satisfied that one of the threshold conditions for cross-class cram-down (the 'no worse off test') had been satisfied; and
– in any case, the court would not have been willing to exercise its discretion to sanction this plan. The case represents an important test of the parameters of the restructuring plan procedure. It demonstrates that:
– the court will critically assess plan companies' evidence as to the most likely alternative to the plan, especially absent a 'burning platform' and where future profitability is inherently uncertain;
– the court will consider other options open to plan companies to meet any liquidity shortfall;
– where the 'relevant alternative' is not an immediate liquidation but rather continued trading, it is not necessary for opposing stakeholders to pin-point what strategy/ies the company is most likely to adopt; rather, the company's possible courses of action are factors to be considered in determining whether there is a realistic possibility that the financial outcome for stakeholders would be better than under the plan;
– in considering whether a plan fairly allocates value between the different stakeholders, the court will consider potential upside from future trading combined with possible steps to address the repayment of debt upon maturity; and
– absent a 'burning platform', and where a restructuring could reasonably be undertaken at a later stage, the court may conclude that junior stakeholders should not immediately be deprived of their interests but instead wait and see if actual performance over the coming months improves the outlook for such stakeholders.