In Re Chaptre Finance plc [2024] EWHC 2908 (Ch), the restructuring plan was originally supported by a valuation report and relevant alternative analysis report that were not prepared in accordance with the requirements for expert evidence in CPR Part 35. On the contrary, these reports included a disclaimer of any duty to the court. Following a creditor’s challenge the plan company subsequently filed expert reports which did comply with the requirements in CPR Part 35. Mr Justice Miles suggested that without these CPR compliant expert reports he may not have sanctioned the restructuring plan. In his view the original reports, which lacked the status of expert evidence would not have been a sufficient basis to conclude that the ‘no worse off’ test required to cram down a dissenting class of creditors had been satisfied.

The key general requirements of CPR Part 35 and its practice direction are:

• expert evidence must be independent and uninfluenced by litigation pressures;
• experts should provide objective, unbiased opinions within their expertise and refrain from acting as advocates;
• experts must consider all material facts, including those that might detract from their opinions; and
• experts should clarify when an issue falls outside their expertise or when they cannot reach a definite opinion due to insufficient information.

There are also formalities as to the form of expert report, which must include an acknowledgement of the expert’s overriding duty to the court and curriculum vitae. Care must also be taken with communications with the expert as the instructions they receive may be disclosable and it would be counter-productive to compromise their independence.

A plan company will typically need, as a minimum, reports setting out: 

• what is the most likely scenario that would occur if the court does not sanction the restructuring plan (i.e. the relevant alternative); 
• a valuation of the plan company and its assets in the relevant alternative; and 
• the comparative estimated outcomes for the affected creditors and shareholders under the restructuring plan and in the relevant alternative. 

Independent expert evidence may also be required in relation to the effectiveness of the restructuring plan in overseas jurisdictions.

Prior to Re Chaptre Finance it was common for the valuation to be prepared by an independent valuer. There was a mixture of practice as to whether the analysis to determine what is the relevant alternative was carried out by an independent party (typically an insolvency practitioner) or by the plan company’s financial advisors. The comparative estimated outcomes report was often prepared by the plan company’s financial advisors rather than an independent party, although this would be heavily informed by the independent valuation.

Following Re Chaptre Finance, we expect plan companies and their advisors will take a conservative approach and have all reports prepared by independent experts in compliance with CPR Part 35 from the outset. This means it is now unlikely that the plan company’s financial advisors will prepare either the relevant alternative analysis or the comparative estimated outcomes report. 

The financial advisor will likely be involved early in the process, often even before the idea of a restructuring plan is proposed. In contrast an independent expert is usually instructed at a much later stage. However, as we expect the independent experts will now need to cover the relevant alternative analysis and the comparative estimated outcomes it would be advisable to instruct the independent experts earlier to give them more time for the additional work.

The usual costs rule in CPR Part 44 that, subject to the court’s discretion, the loser pays the winner’s reasonable costs is not applicable to a restructuring plan. 

The court does not wish to unduly discourage affected shareholders or creditors from raising genuine issues in an appropriate manner. Accordingly, the court does not generally make adverse costs orders against objecting shareholders or creditors when their objections (though unsuccessful) are not frivolous and have been of assistance to the court in its scrutiny of the restructuring plan. However, objecting shareholders or creditors should still ensure that they do not make submissions that are frivolous or unhelpful to the court as the court may still make an adverse costs order if the circumstances justify that order. 

There is no principle or presumption that the court will order the plan company to pay the costs of an opposing shareholder or creditor. It may do so if the objections have not been frivolous and have assisted the court (regardless of whether the objections were successful) or it may make no order as to costs. The decision in each case will depend on all the circumstances. Objecting shareholders or creditors who are out of the money should also take heed of Mr Justice Michael Green’s decision in Re Fitness First Clubs Limited [2023] EWHC 1699 (Ch) that despite making submission that were helpful to the court an objecting landlord was not awarded its costs as it should have appreciated that its arguments “in relation to discretion was facing serious difficulties by virtue of the fact that they were out of the money”.

A plan company may also be ordered to provide security for costs. This is an interim remedy that protects an objecting shareholder or creditor from the risk that plan company will not be able to satisfy an adverse costs order made against it, for example by requiring the plan company to pay money into court. A security for costs order was made in the context of a restructuring plan for the first time in Consort Healthcare (Tameside) Plc v Tameside and Glossop Integrated Care NHS Foundation Trust [2024] EWHC 1702 (Ch). 

However, security for costs applications will not be appropriate in all, or perhaps even most, restructuring plans because they have the potential to stifle the use of restructuring plans by distressed companies without the resources to meet a security for costs order. The Consort Healthcare restructuring plan was effectively a continuation of a long running contractual dispute which had already been the subject of adjudication that was analogous to a bilateral dispute between the plan company and the challenging creditor. The Court also considered that Consort Healthcare (Tameside) Plc’s funders were willing to fund the restructuring plan process and so could be expected to provide funds to meet a security for costs order. It may be that in the future funders of a restructuring plan will be clearer that they will not provide funds to meet a security for costs order.

There are two principal documents issued by the plan company to inform the affected creditors and shareholders about the restructuring plan. The first of these, the so-called ‘Practice Statement Letter’, gives the plan creditors notice of the first of the two court hearings (the convening hearing) and information about the issues that the court will consider at the convening hearing. The second document, the aptly named explanatory statement, is issued following the convening hearing and ahead of the meetings at which the plan creditors consider and vote on the restructuring plan. The explanatory statement in particular should provide the plan creditors with sufficient information to make a fully informed decision about how they wish to vote. It can, therefore, be a substantial document running to hundreds of pages including appended reports on valuations, the relevant alternative and comparative estimated outcomes.

Nonetheless, a plan creditor may consider that the explanatory statement is insufficient and make direct requests for further information and documents. It can be tempting for the plan company to ignore such requests, particularly where the requests seem generic, irrelevant or adequately answered in the practice statement letter or explanatory statement. However, the court will expect the plan company to engage constructively with information requests regardless. 

If a plan creditor is dissatisfied with the responses to its information requests, then it may apply to the court for disclosure. When considering whether to make an order for disclosure the court will consider (amongst other things):

• the overriding objective under the CPR to deal with a case justly and proportionately;
• the need to provide such information as is reasonably necessary to enable creditors to make an informed decision (i) as to whether the restructuring plan is in their interests, (ii) whether losses are being appropriately allocated, and (iii) whether the value created by the restructuring plan is being fairly apportioned; and
• that restructuring plans promoted by companies that are in financial distress and so disclosure and inspection requests must not come at a time or be at a level so burdensome as to distract from the progressing of the restructuring plan.

Any disclosure order will typically be for specific disclosure of certain documents or information not general disclosure of any documents related to a particular issue. While a general disclosure order is possible it would not normally be appropriate unless the explanatory statement was significantly deficient (which presents its own challenge to the viability of the restructuring plan).

Contesting a disclosure application will incur costs, though just as importantly if it cannot be dealt with at the convening hearing, a disclosure application also poses a risk to the timetable for the restructuring plan. A plan company may consider it better to be more transparent rather than face an adjournment of its sanction hearing.

A plan company should be prepared to implement the restructuring plan that it proposes in its practice statement letter and explanatory statement. In Re Speciality Steel UK Ltd [2024] EWHC 3355 (Ch) the court ordered the convening of creditors meetings even though it was aware that negotiations between the plan company and creditors were continuing and may result in changes to the plan documentation. However, the court noted that this was exceptional and it “should ordinarily refuse to permit the convening hearing to be treated as some sort of false feast, in which it gives its approval to a matter proceeding on one basis whilst the parties contemplate ultimately proceeding on a different basis.”

However, a plan company should be alive to the possibility of consensual bilateral arrangements with creditors after launching the restructuring plan. In some cases the credibility of formally starting the restructuring plan process may unlock previously intransigent creditors. In other cases a bilateral deal may reduce the risk and costs of a challenge to the restructuring plan. In all cases, the plan company should be mindful that any bilateral agreement with a plan creditor should be disclosed to the other plan creditors. The plan company will need to explain to both the court and the other creditors that any bilateral agreement is beneficial for the plan company and not simply a concession to creditor pressure. Ideally, the creditors would be updated in good time ahead of the creditors’ meetings so that news of any consensual bilateral arrangements can be factored into the creditors’ voting decision.

The plan company will also need to be mindful that any consensual deal does not fracture an existing class by giving certain creditors rights that mean it is no longer possible for them to consult with the other members of their class with a view to their common interest. The plan company must ensure that any consensual deal does not fracture an existing class of creditors or else it will need to seek a new convening order as was the case in Re Ambatovy Minerals SA [2024] EWHC 2839 (Ch).