In sanctioning Chaptre Finance plc’s second Part 26A restructuring plan, the English High Court has emphasised the importance of the parties adhering to the Court’s evidential and procedural requirements when a restructuring plan is opposed.

Significantly, Mr Justice Miles’ guidance was given in circumstances where the Court accepted the plan company was facing an acute liquidity crisis and on the verge of collapse, and the opposing creditor argued it was subject to budgetary and timing constraints in preparing its opposition.

In this case, the opposing creditors filed expert evidence that did not meet the standards required in Part 35 of the CPR, and opposing counsel did not cross examine the plan company’s expert witnesses. Both of these factors led to the Court discounting the opposing creditors’ evidence. The Court accepted the plan company’s evidence on the relevant alternative and valuation. Resultantly, the opposing creditors were found to be out of the money, and their views were given no weight on how the economic benefits of the restructuring were shared.

The Court also highlighted flaws in the original reports filed by the plan company’s experts, which did not identify the authors or their expertise, and expressly disavowed a duty to the Court. The Court’s provisional view was that it could not have properly accepted that evidence, and without that evidence the plan company would have struggled to satisfy the no worse off condition.

Key findings from the judgment are below:

• Proper case management of proceedings for restructuring plans (like other proceedings) requires the parties to identify points of dispute as early as possible. It also requires them to serve properly prepared evidence complying with the rules. In this case the opposing creditors had been raising objections in correspondence since September 2024. Their objections were only properly articulated for the first time in the documents sent on 7 November. This added to the burden on the parties and the court of preparing for the hearing on 11 November.
• The Part 35 requirements for expert evidence are not to be regarded as a formality. They place experts under stringent obligations and require them to ensure that their reports are a genuine product of their independent expertise.
• Dissenting creditors are entitled to argue (without serving their own evidence) that a plan company’s expert evidence is flawed, by reason of manifest errors (of calculation or logic), obvious internal inconsistencies, or a lack of any supporting reasoning and these would be points of submission. But if serving and relying on evidence, the evidence must meet the Part 35 formalities, even if the restructuring plans are urgent.
• The opposing creditors in this case chose not to cross-examine the plan company experts on their evidence. The general rule is that a party is required to cross-examine an opposing expert witness whose evidence he or she wishes to submit should not be accepted; this is partly a matter of fairness; but it also enables the Judge to make a proper assessment of all the evidence; it gives the witness the opportunity to explain or clarify the evidence. This is not an inflexible rule and there may be grounds to relax it. There are also cases where it may not apply, including where the expert’s views contain a bare assertion of opinion with no supporting reasoning (rather than reasoning which is open to criticism); where there is an obvious mistake on the face of the report, or it is obviously illogical or inconsistent; where it is contrary to the facts on which it is based; or where it fails to comply with Part 35.
  • The reasons for the general rule apply with real force in restructuring cases, where the expert evidence is often complex and technical. Quoting Snowden LJ in Smile Telecoms, it was not “realistic, appropriate or fair to judges hearing complex scheme or plan cases, who already carry a heavy burden, to expect the court itself to descend into the fray.” 
  • Mr Justice Miles highlighted that he would have been sympathetic, in light of the service of the expert reports on 8 November, to an application by the opposing creditors for more time to prepare to cross-examine. 
• A party’s decision to constrain their budget cannot justify a departure from the usual requirements concerning the early identification of contentious issues, the service of properly compliant evidence or the cross-examination of witnesses.

If you would like to discuss this judgment or any other matters in relation to English restructuring plans, please get in touch with your usual Weil contact.