The Plan Company is a subsidiary of Adler Group S.A. (the “Parent”) which is one of the biggest property managers and developers in Germany (the Parent together with its subsidiaries, the “Group”).  The six creditor classes affected by the Plan are all holders of unsecured notes maturing at different times, ranging from 2024 to 2029. 

The Plan provides for an injection of significant new capital into the Group to facilitate the repayment of debts maturing in 2023 and 2024.  In addition, security will be granted to all noteholders, with the holders of notes maturing in 2024 being given priority over the other noteholders.  The holders of notes maturing in 2024 will also see the maturity date of the notes extended.  Unlike most of the restructuring plans previously considered by the English Courts which were designed to save the relevant plan companies as going concerns, the Plan contemplates that the Group’s business operations will be wound down and its assets sold by the end of 2026 in order to repay the Group’s debts in full.

The Plan Company and the AHG agreed that the relevant alternative to the Plan would be an immediate formal liquidation of the Group.  The key issues which were in dispute between the parties included:

• whether the Plan, which provides for noteholders to receive payment in order of the maturity dates of their notes, was in substance a liquidation plan.  If so, was it fair for holders of later-dated notes to bear a greater insolvency risk than holders of earlier-dated notes given that in a formal liquidation of the Group, the holders of the later-dated notes would have the benefit of ranking equally with, and receive payment at the same time as, earlier-dated noteholders;
• the current and future valuation of the Group’s property assets and the feasibility of forecasting movements in the German property market through to 2029.  This was particularly relevant to the question of whether the Plan and the sale of the Group’s property assets would realistically enable the Group to repay its debts in full;
• the fairness and effectiveness of the mechanisms available under the terms of the Plan for noteholders to enforce their rights should the Group’s estimates of the present and future values of its property assets be overinflated.  In such a case, the Group might be unable to raise sufficient funds from the sale of its property assets to repay later-dated noteholders in full (such that later-dated noteholders would receive lower returns than earlier-dated noteholders);
• the effectiveness under German contract and bond law of the substitution of the Plan Company as the issuer of the notes (which was effected in order to satisfy the jurisdictional requirements of the English Court in relation to the Plan).

After several days of intensive cross-examination and given the urgent need for a decision due to the impending maturity of certain debts of the Group, Mr Justice Leech sanctioned the Plan and indicated that his written reasons would follow in the near future. This is the first time full argument has been heard on a number of the issues before the Court in this case and we await the judge’s written decision with interest.  The AHG has indicated that it is considering an urgent appeal of the sanction order.

Stay tuned for our update once the written judgment has been handed down.

Authored by Patrick Dunn