Debtwired! Restructuring Plans: Discretion, Distribution of Benefits and Bargaining
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Sep 9, 2024 Georgina Peters, a South Square Barrister with a focus on restructuring plans, joins Sarah Paterson, a Professor of Law at LSE, to unpack the complexities of judicial discretion in corporate restructuring. They dive into the significance of cram-down jurisdiction and its effects on debt management. The discussion highlights the necessity for fair benefit distribution and the challenges dissenting creditors face in restructuring processes, alongside critical insights on bargaining dynamics and legal scrutiny that accompany approval decisions.
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Compromise Demands Bargaining
- Part 26A requires that a restructuring plan involves compromise and arrangement implying engagement or give and take from all parties.
- Cross-class cram down should be used only after failed bargaining efforts, highlighting a market failure justification.
Courts Tolerate Some Engagement Gaps
- Fitness First and Virgin Active cases drew judicial concern over lack of creditor engagement prior to plans.
- Despite warnings, courts approved plans emphasizing substantive approval over procedural engagement critiques.
Fair Benefit Sharing Essential
- Dissenting creditors should receive a commercially reasonable share of restructuring benefits, not just a nominal amount.
- The plan must explain and justify fair benefit allocation, reflecting the give and take inherent in compromise.