In deciding not to sanction one recent case, the judgement noted that on “a balance of probabilities” the court could not be satisfied that the relevant alternative put forward was the most likely alternative outcome. Conversely, in a recently sanctioned case the judgment noted that the evidence had “considered five possible scenarios likely to occur if the Plan was not to be implemented and two possible scenarios in an administration”, with the judge being “firmly of the view that the Plan should be sanctioned”. Expect a challenge Both the Adler and McDermott processes raise important questions about how much time should be given to stakeholders to consider proposals before having to vote on them, and how much energy a court should devote to considering valuation and related evidence. The movement towards greater disclosure puts compromised creditors in a stronger position
to mount a challenge, and the potential for an extended timeline provides another vital string to the bow of their advisors. Compromised creditors will now feel more capable of raising a challenge, whilst company-side valuation experts must work on the basis that rival valuation evidence may well be submitted, and cross-examination will be required. The concept of fairness Recent cases have seen HMRC emerge as a uniquely positioned creditor class, with the concept of ‘fairness’ providing a potential defensive mechanism. The Adler appeal judgement also highlighted the importance of fairness in distribution of the restructuring surplus. The ways in which the notion of fairness shapes the framework of the RP will gradually gain clarity as case law evolves. For now, it remains a key area of potential challenge alongside, and intrinsically linked to, valuation. As case law continues to evolve, drawing on the relevant aspects of recent judgements and respecting the relationship between valuation and the wider process are increasingly central disciplines in the planning and implementation successful RPs.
Compromised creditors will now feel more capable of raising a challenge, whilst company-side valuation experts must work on the basis that rival valuation evidence may well be submitted, and cross-examination will be required.
Valuation services
Jim Davies Partner Financial Advisory London +44 (0)7841 829 826 jim.davies@frpadvisory.com
Restructuring Services
frpadvisory.com
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