BVWire—UK has been tracking the fate of restructuring efforts under the UK’s new scheme. It hasn’t all been a success. Last month, the English court refused to sanction a restructuring plan Hurricane Energy PLC put forward on behalf of their main unsecured bondholders. Despite returned profitability, Hurricane forecast that it would be unable to repay the bondholders at maturity in July 2022 and proposed a restructuring plan. The plan would extend the maturity date for the bonds, reduce the amount due, and give these creditors 95% of the equity in Hurricane. Existing shareholders’ value would reduce to 5% of equity. All the bondholders voted in favour of this plan. Not surprisingly, almost none of the equity owners agreed—and so did the court.

Under the new cross-class cram-down provisions, courts need to be satisfied that the dissenting shareholders would not be any worse off under the plan than the “relevant alternative” (Condition A) and the consenting class of creditors had a genuine economic interest in the event of the relevant alternative (Condition B). The court found that Condition A had not been met primarily because the shareholders’ valuation experts developed a number of scenarios that would allow Hurricane to achieve a financial outcome for the shareholders in a year’s time better than that offered by the plan.

The judge also noted, of course, that there was no opportunity for any “meaningful return” once their interest was reduced from 100% to 5%. Indeed!