These slides consider debt restructuring; its conditions and key stages, and the CCCD (cross-class cram down) rule through which a restructuring plan can at the discretion of the court be imposed on an entire class of dissenting creditors or members. Several restructuring plans are examined modelled along equity preservation, equity dilution and other options set out under the UK's Corporate Insolvency and Governance Act 2020.

1. Lecture: Restructuring Debt and
the Cross Class Cram Down Rule
Lyla Latif

2. Debt Restructuring – When does it/should it occur?
• Reorganisation of a distressed company’s outstanding debt obligations
• Occurs when borrowers become over-leveraged and are unable to service their current
debt securities
• To prevent insolvency proceedings and to ensure that debt obligation can be complied
with.

3. Conditional
• All* lenders must agree to debt restructuring
• Dependent on the governing law
• Lenders must submit to foreign proceedings
otherwise debt restructuring will not be
enforced by domestic courts
• The rule in Gibbs (1890) applies to cross
border debt liability

4. Anthony Gibbs &
Sons v La Societe
Industrielle et
Commerciale des
Metau (rule in
Gibbs)
• Facts: Contract for sale of copper to be delivered in England
by the Plaintiff. The defendant; a French company refused
to accept delivery. P sued D for damages.
• Issue: D was placed in judicial liquidation in France. Under
French law, D was discharged from its liability in damages.
• Principle: French law was irrelevant because ‘it was not a
law of the country to which the contract belongs, or one by
which the contracting parties can be taken to have agreed
to be bound; it is the law of another country by which they
have not agreed to be bound.’ (Lord Esher MR).
• Gibbs establishes that any discharge of, or variation to, a
contractual obligation must be governed by the proper law
of the contract.

5. RE OJSC International Bank of Azerbaijan (2018)
• This case involved the International Bank of Azerbaijan (IBA). It was placed in a voluntary restructuring
proceeding in Azerbaijan and its debts were restructured.
• Under Azerbaijani law the restructuring plan became binding on all creditors once approved.
• The problem was that some of the debts included English law governed debts where the creditors had
neither participated in the restructuring nor submitted to the jurisdiction of the Azerbaijani court.
• IBA applied to the English courts for recognition of the Azerbaijani proceedings under the Cross Border
Insolvency Regulations (CIBR) 2006 (which implemented the UNCITRAL Model Law on Cross Border
Insolvency) – the effect of any such recognition would operate as an automatic stay of enforcement action
in the UK.
• Issue: two English creditors who did not submit to Azerbaijani jurisdiction sought relief in English courts
and challenged the recognition of Azerbaijani proceedings.
• Court of first instance: refused recognition as it was contrary to the rule in Gibbs. The case was appealed.

6. CA Ruling
• Gibbs applies – English law debts will be governed according to English law unless the
lenders submitted to foreign jurisdiction, which did not happen in this case. Therefore
nothing stopped the English creditors from seeking to recover their debt claim under
English law by pursuing the remedies that were available.
• UNCITRAL Model Law – its scope was limited to procedural aspects of cross border
insolvency cases. The Model Law cannot be used to extinguish the substantive rights
guaranteed by Gibbs.
• Cited Rubin v Eurofinance SA (2012) - principle of universalism cannot be used to justify
the disregard of English law to assist a foreign insolvency process.

7. Principle of
Universalism
Reasons:
Counters the risk that different
proceedings produce different results
Different proceedings are unlikely to
progress at a similar pace
It counters against creditors who seek to
bring claims against assets before and
often without giving notice to other
creditors
Applies to cross border debt claims.
That a single set of proceedings should cover all
aspects of a restructuring – it is the basis of the
UNCITRAL Model Law.

8. United Nations
Commission on
International Trade
Law (UNCITRAL)
Model Law
• UNCITRAL Model Law on Cross-Border Insolvency
(Original Model Law, 1997) – relates to facilitating
the recognition and enforcement of insolvency
related judgements via a provision known as
Article X (includes restructuring plans)
• UNCITRAL Model Law on Enterprise Group
Insolvency (Group Model Law, 2020) – relates to
managing and coordinating insolvencies within
corporate groups, while respecting that each
company remains a separate legal entity.
• UNCITRAL Model Law on Recognition and
Enforcement of Insolvency Related Judgements
(Judgements Model Law, 2019) – provides for
recognition of foreign insolvency related
judgements (has the effect of overturning Gibbs)

9. Article X
Also includes grounds for refusal:
Public policy
Where creditors’ rights were not
adequately protected
Where defending party did not
submit to the foreign jurisdiction
and the originating court did not
exercise jurisdiction on a basis
that is compatible with UK law
(this preserves Gibbs rule)
Other grounds: fraud, lack of
notice
Offers a route for foreign insolvency
related judgements to be recognized
in the UK (upon application).

10. Re: Prosafe SE (2021)
• HC Orders were to facilitate finalization of restructuring proposals to be implemented via a Scheme of Arrangement (SoA) under
Singapore law.
• High Court of Singapore had granted:
• A moratoria (legal authorization to debtors to postpone debt payments) to Prosafe
• Ancillary relief in the form of a stay on creditor action
• Prosafe applied to the Scottish Court of Session under CBIR to seek recognition of proceedings commenced in Singapore.
• The respondent objected. He was a creditor holding English law governed debt, which was secured and guaranteed under
English law agreements. The creditor had not submitted to the jurisdiction of Singapore as he did not approve of the proposed
SoA under which his debt would be swapped for equity.
• Prosafe responded by seeking additional relief against the creditor; restraining him from enforcing his security, repossessing
goods, instituting legal processes, appointing an administrative receiver and presenting a winding up petition.

11. Ruling in Prosafe
Relied on the decision
in Re OJSC International
Bank of Azerbaijan
(2018) and reaffirmed
the rule in Gibbs.
Prosafe application
refused.

12. Re
APCOA
Parking
Holdings
GmbH
(2014)
It is possible to change the
governing law of a debt
obligation to facilitate a
restructuring ex post.
In this APCOA, a debt
obligation which was
originally governed by
German law and subject to
the jurisdiction of the
German courts was
modified by majority
lender consent to English
law and the jurisdiction of
English courts.
This was done to enable
the debtor company to
apply for a SoA.
Note: facility agreements
typically provide that
changes to governing law
are an all-lender decision.

13. Gibbs, and
Agrokor –
juxtaposition
• Agrokor filed for protection under Croatian law so that a restructuring
plan could be agreed on.
• A settlement agreement was drawn up to restructure the group’s
debt.
• 2/3rd of the debt subject to the settlement agreement was governed
by English law, the remaining by New York law.
• Application for recognition of the SA was not made in English courts,
it was applied for in NY. NY court recognized and enforced the SA.
• Court: ‘the Gibbs doctrine belongs to an age of Anglocentric
reasoning which should be consigned to history. England is free to
continue to adhere to the Gibbs rule but that does not mean that a
US court must follow the rule in deciding whether to recognize and
enforce the decision of a court of another jurisdiction’.

14. Governance of Debt Restructuring in the UK
• Debt restructuring is governed under the Corporate Insolvency and Governance Act 2020
(CIGA 2020). This Act introduces permanent new tools into the UK corporate insolvency
and restructuring framework.
• CIGA brings in a new debt restructuring plan which includes cross-class cram down
provisions.
• In addition, the formal provisions of the UNCITRAL Model Law (enacted in the UK by
the Cross-Border Insolvency Regulations 2006, SI 2006/1030) can also be relied on
alongside various other guidelines/conventions, which although having no formal legal
status, are sometimes voluntarily chosen by parties to assist in cross-
border restructurings.

15. 3 Stages to Debt Restructuring
Negotiate a standstill
agreement
Identify where the value
lies in the borrower’s
business
Identify the DR solution,
sign and implement the
restructuring agreement

16. 1. Standstill Agreement
• Is an agreement between the borrower and its creditor restraining the creditor from
exercising its right to sue – to stop insolvency proceedings or disposing off the collateral.
• A creditor can agree to a SA provided additional security, guarantee or fees are provided
as condition precedent to foregoing enforcement action.
• SA must indicate the restructured financing arrangement between the borrower and
creditor.
• See sample of SA on Moodle.

17. 2. Value
• The second stage in DR is to prepare valuations and the information needed to show that the RP will result in a
viable borrower.
• The value of the company will dictate the shape of any RP and determine the strengths of the parties during
negotiation.
• Valuation will confirm whether the borrower is:
• Stressed
• Distressed
• Insolvent
• The determination above will help identify the most suitable RP

18. Stressed, distressed and insolvent

19. 3. Debt Restructuring Solutions and the Restructuring
Agreement
• The DRP will depend on what options are available to the company.
• They are usually 3 option: The company/borrower chooses to restructure its debt along:
• Equity preservation
• Equity dilution
• Other options
• Each of these options provide for a specific restructuring plan

20. Options and RP
Options RP
Equity preservation Covenant waiver
Debt rescheduling
New debt
Refinancing with new lenders
Equity dilution Break up/sale of non-core assets
New equity injection/recapitalization
Debt for equity swap
Transfer to NewCo
Other options Schemes of arrangement
Pre-packs

21. Equity Preservation
Applies only where the distressed position of the borrower
is temporary, and likelihood of repayment is possible
Covenant waiver There is a breach of a covenant (missed repayment of principal or interest,
leasing of collateral) – to get the creditor to agree on its waiver
Debt rescheduling B and C agree to reschedule debt by altering repayment profile. RP can take 3
forms (1) give a capital repayment holiday (2) reduce/re-adjust repayment
instalment amounts (3) extend final maturity date of the loan
New debt This is a bridging loan – B asks C to lend new money or waive some of its
existing debt or accrued interest
Refinancing with new
lenders
B gets another C to step in to support a RP.

22. Equity Dilution
Applies to put B in a better position to meet its
financial obligations but reduces debt: equity ratio of B
Break up/ sale of non-core
assets
B sells non-core assets or part of the business and uses the proceeds to pay its
debt. Secured lender must first give consent to break up plan.
New equity
injection/recapitalization
Raise additional equity. Recapitalization refers to a company changing the
proportions of its debt and equity or the make up of its share capital structure
Debt for equity swap C receives shares in the restructured borrower in return for reducing or
canceling their debt claim
Transfer to NewCo Transfer B’s good or performing assets or business to a newly formed company.
In return for reducing or canceling its debt claim, C can (1) take debt in the
NewCo (2) equity in NewCo or (3) both

23. Other Options
Schemes of arrangement SoA allows a compromise to be implemented without the agreement of all
interested parties (shareholders and creditors). The court must sanction the
SoA
Pre-packs This is a sale of the company’s business or assets or both which is arranged in
advance of the company entering administration. The purchaser is identified,
and the terms of sale are agreed before the administrator is appointed (s/he is
usually involved prior to appointment).
In pre-packs, assets are sold as seen, no warranties or guarantees given.
Utilised to obtain value from assets before publicly announcing a formal
insolvency which may devalue those assets (such as goodwill)

24. Whether all lenders must agree? CCCD Rule
Exception is the CCCD rule
– not all lenders or
shareholders must agree.
4 conditions:
Cram down of a class of
creditors/shareholders is
only permitted when the
court deems the RP to be
fair and equitable to the
dissenting class
Claims of the dissenting
class are to be paid in
absolute priority to any
junior claims
No members of the
dissenting class are any
worse off under the plan as
compared to another
alternative
The plan has been
approved by a class of
creditors who would
receive a payment or have
a genuine economic
interest in the company
CCCD is a tool to push
through a restructuring
which
lenders/shareholders are
not agreeing to.
CCCD is at the discretion of
the court

25. Application of CCCD: Hurricane Energy (2021) EWHC
1759 (Ch)
• A RP was proposed under equity dilution under which shareholders equity would be
diluted by 95%.
• Under the Companies Act, such dilution required shareholders consent, which meant that
they had a right to vote on the RP. In this case, they voted to reject the RP.
• CCCD could only be applied to counter their rejection on the basis that they did not have a
genuine economic interest in the company. In this case the shareholders had a GEI in that
the company could continue trading profitably for at least 12 months and there was no
imminent insolvency.

26. Application of CCCD: DeepOcean (2021)
• For a CCCD to succeed, the company must demonstrate that the RP which is being
objected to is enough to get the loss-making company to promulgate a solvent wind
down.
• Trower J: in exercising discretion, consider:
• Whether there were any unjustified differences in the treatment of creditors
• Whether the creditors were fairly represented at the respective plan meetings
• Whether there was anything in the formulation of the RP which caused concern as to
how it would operate in practice
• Whether the RP was likely to be substantially effective in relevant jurisdictions
outside England and Wales

27. Application of
CCCD: Amicus
Finance
(2021)
• Under the RP proposed:
• The company would exit administration and continue
trading
• Shareholders were allowed to retain all of their equity
• Creditors were required to take a large haircut and
would not get any benefit from the company’s
continued trading
• A secured creditor class tried to block the RP but could not
convince the court that it would be worse off under the RP
than it would under insolvency – ‘no worse off test’
• Court exercised its power to cram down the dissenting
creditor. The company had shown that on the balance of
probabilities no member of the dissenting class would be
any worse off under the plan if compared with what they
would get on insolvency
• Court needed to be satisfied that that the RP proposed a
fair outcome for creditors

28. Smile
Telecoms
(2022)
• Only one creditor class was allowed to vote in a
restructuring plan, court sanctioned the RP.
• Under the RP, only the super senior lender received 100%
of the company’s equity.
• Principle guiding exclusion of the rest: Whether the
creditors have a genuine economic interest in the
company. This is to be established by showing that a
creditors who is well ‘out of the money’ has no genuine
economic interest in the company.