Vol 14 (2017) - Issue 3

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Debt Restructurings in the UK and US: Class Composition, Voting Process and Protection of Dissentient Minorities in English Schemes of Arrangement and Chapter 11 Proceedings – Part One

Introduction
The importance of the modern company1 to society is unquestionable. By performing their activities, companies constitute business vehicles that are greatly responsible for the creation of jobs, production of goods to a wide variety of consumer markets and ultimately for funding the public services through the payment of taxes. If the success of a company benefits the various stakeholders that surround it, its collapse, by contrast, has a profound effect on the rights and interests held by such various groups, including shareholders and creditors that have provided capital to fund the company’s business. In the context of insolvency, those then-rights and interests become claims against the company, which potentially conflict with one another.
The concept and consequences of insolvency has always been the subject of concern of legislators. Legal regimes have been reformed from time to time so as to be in line with the stage of development of domestic and, more recently, global economies and to provide adequate solutions to financial distress of enterprises and to the collision of interests of debtors and creditors.
The approach adopted by most jurisdictions is the one that recognises the referred importance of the company, by providing for legal mechanisms and tools to be employed by debtors seeking to overcome a temporary situation of financial distress. These legal regimes embody the so-called rescue culture. Additionally, they contain provisions whose aim is to ensure the effective participation of creditors in the debtor’s restructuring, entitling them not only to supervise the process but also, and more importantly, to decide the debtor’s destiny through the approval or rejection of the proposed restructuring plan.
Although rights and interests held by creditors against a common debtor are typically not homogeneous, some of them may have similar claims. In these circumstances, it is reasonable and sensible, for voting purposes, to divide the creditors into separate classes, such that each class is comprised only of creditors that share claims against the debtor with similar features, and are able to consult together with a view to their common interest in the restructuring.