The Adler Restructuring Plan: Competing Valuation Evidence; The Pari Passu Principle; And Retention Of Equity

• Published date: 12 July 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy, Real Estate
• Law Firm: Mayer Brown
• Author: Ms Alexandra Wood and Devi Shah

The Court¹ exercised its discretion to sanction a restructuring plan proposed by AGPS BondCo PLC (the Company) (part of the Adler real estate group) to amend indebtedness arising under six series of senior unsecured notes governed by German law, which matured on different dates through to 2029.

Sanction was opposed, with both the Company and the opposing ad hoc group of plan creditors adducing detailed valuation evidence. The Court's careful analysis of this competing evidence will be of interest to those looking to challenge other restructuring plans.

The Court found that it was appropriate to sanction the plan, which provided for the shareholders to retain a significant stake in the Company (and hence any upside) if the plan succeeded, even though they provided no support for the plan and no additional funding.

It was common ground that the relevant alternative to the plan was a formal insolvency process in which the claims of plan creditors would rank equally for payment. However, with one exception, the terms of the plan preserved the notes' existing staggered maturity dates. The Court found that this preservation did not constitute a departure from the pari passu principle as it was satisfied, on the evidence, that if the plan was implemented, it was likely that plan creditors would be paid in full.

At the time of writing, permission to appeal had been sought from the Court of Appeal.

Background

The group's business consists of the purchase, management and development of income-producing, multi-family residential real estate in Germany. The current domestic and global economic downturns, and decreased business confidence, had caused a sharp downturn in the demand for residential and commercial real estate in Germany. This had a significant adverse impact on the group's business. The group's financial difficulties had recently become acute and the group did not have sufficient funds to repay certain notes which fell due imminently.

The key terms of the proposed restructuring plan included: extension of the maturity of one set of the senior unsecured notes (to alleviate liquidity pressures), with other maturity dates remaining unchanged; and the introduction of new money. If the plan was implemented, the group intended to execute an orderly wind down and sale of its assets. Sanction of the plan was opposed by an ad hoc group of noteholders who asserted that the plan was, in essence, a "liquidation plan", which was not an attempt to rescue the business...