Vol 14 (2017) - Issue 4

Article preview

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 Two

Introduction
The first part of this article gave a general description of the procedure relating to schemes of arrangement (hereinafter also 'schemes') in the United Kingdom, with some comparative remarks on restructurings through a Chapter 11 proceeding in the United States, as well as an analysis of how issues with respect to constitution of classes of creditors are handled in the United Kingdom and in the United States.
The remainder of this article is intended to give an even more practical approach by giving an overview on the voting process in each of those jurisdictions, the effects of approval of the respective plans toward debtor and creditors and protection mechanisms available to dissentient minorities. At the end of this second part of the article I summarise my thoughts on the matters discussed herein and in the first part.

3. Voting process and approval of a restructuring proposal
3.1 English schemes of arrangement
A statutory requisite that must be met before a court can consider sanctioning a scheme is its approval by all classes of creditors involved in the restructuring. The law is straightforward in determining that creditors’ approval of a scheme depends on the affirmative vote of the majority in number representing three-fourths in value of each class of creditors, present and voting in person or by proxy at the relevant meeting. These levels of approval are called headcount test and majority-in-value test. For calculating such majorities, non-voting creditors and those not attending the meeting are disregarded. The issues that may arise in connection with the tests referred to above relate to the splitting of votes and the determination of the value of certain claims, respectively.
The act of splitting votes is a solution conceived by market practice for situations where the headcount test may not be met, although the majority in value has been achieved. In a situation where such a strategy is employed, a major creditor who supports the scheme may split and transfer part of its claim to persons connected to it, increasing the number of creditors voting in favour of the restructuring proposal and, consequently, enhancing the chances of approval.