Restructuring and insolvency: High Court orders security for costs in restructuring plan case

In a significant first, the English High Court has ordered that security for costs be provided by the plan company, Consort, in favour of an opposing creditor, the NHS Trust. This case highlights how restructuring plans, even in the face of financial distress, may still require the company proposing the plan to provide financial security to creditors involved in the process.

Background: Consort, a contractor involved in a Private Finance Initiative (PFI) for developing hospital facilities for an NHS Trust, faced financial difficulties and proposed a restructuring plan. The plan aimed to compromise its liabilities under the PFI project agreement. However, the NHS Trust, one of the plan creditors, opposed the restructuring plan and sought security for its legal costs in challenging it. This request came in light of Consort’s expected cash flow insolvency if the restructuring plan was not approved.

High Court’s decision: The court ruled in favour of the NHS Trust, requiring Consort to provide 50% of the requested security for costs. In its decision, the court highlighted key factors:

• The restructuring plan process is not fundamentally different from ordinary litigation, and thus the court’s jurisdiction to award security for costs applies here.
• Despite Consort’s financial difficulties, its sponsors were expected to provide the necessary security, meaning Consort was not without access to funds.
• The court balanced the risk of stifling the restructuring plan with the need to protect creditors. It determined that requiring a reasonable and proportionate security for costs would not jeopardize the plan, as there was a tipping point where funders might choose to stop contributing if risks became too high.

Implications for accountants and businesses: This ruling sets an important precedent for businesses undergoing restructuring while facing creditor opposition. It underscores that even in insolvency situations, companies may still be required to provide financial security to protect creditors’ interests.

How AABRS Can Help: At AABRS, we specialize in guiding businesses through restructuring and insolvency proceedings. In cases where creditors are involved, and disputes arise, we offer the following support:

• Restructuring advice: We help businesses create feasible restructuring plans that balance the interests of both the company and creditors.
• Insolvency guidance: For businesses on the brink of insolvency, we offer advice on compliance and security for costs obligations, ensuring that restructuring efforts are not jeopardized by legal challenges.
• Creditor protection: We assist creditors in securing their rights during a company’s restructuring process, ensuring they are adequately protected through measures like security for costs.

For accountants working with clients facing financial challenges, AABRS provides the expertise needed to navigate complex restructuring scenarios while protecting both company and creditor interests.

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Source: https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2024/1702.html&query=(consort)+AND+(healthcare)