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LFI has spoken to a number of leading UK restructuring lawyers to ask what happens next after Adler’s dissenting 2029 bondholders won their appeal in the High Court – which has rendered the sanctioning of the German real estate group’s UK Restructuring Plan last year invalid.

The situation is complicated by the fact the restructuring has already been implemented, and the lawyers are uncertain as to what the next steps are: “What happens next is incredibly unclear and a mess,” said one restructuring lawyer.

However, the assumption is that, after winning a lengthy and expensive litigation, the bondholders will somehow want to continue their challenge. So far following the appeal the 2029s have simply said they ‘look forward to engaging‘ with the company.

“There is a good chance they will recover their costs from the appeal, so why not use that and bring a challenge to implementation and see if they can get a better offer from the company,” the lawyer said. “There is no real downside for them – the worst that can happen is that they just get their current offer under the amended bond.”

If they do, there are a number of key factors to consider, according to the lawyers.

The most pressing of these factors will be to determine whether this is now a matter for German law to decide – based on the fact that the bonds are governed by German law – as Adler itself is asserting, or do the bonds still have recourse under English law to mount further litigation.

The bondholders could also consider challenging the fact that Adler was able to implement the deal – which in all probability can’t now be unwound – because a stay was not put in place when the appeal was lodged. On this basis, if the egg can’t now be ‘unscrambled’, is there some sort of damages claim the 2029s can bring?

English vs German law

In an announcement after the appeal judgement was handed down, Adler said it was business as usual as its bonds have been validly amended under German law, so the restructuring is still binding and effective.

“As far as English law is now concerned the Plan never happened, in contrast with Adler’s PR which is saying the appeal has no impact on the implemented restructuring, which is pretty stark,” said a second restructuring lawyer.

If this was playing out with English law debt, the effect of this judgment would be, “as it says on the tin, to set aside the court order sanctioning,” she said, even if it took multiple consequential hearings to do this. But in this situation, she said, there is “a massive German law overlay, which makes it very fraught”, and it is now up to Germany and German law to respond to the situation.

“German law has to decide whether the effect of the English court order going away invalidates what has been done under German law pursuant to the English court order, or whether what was done under German law still stands,” she said. “After all, these are German companies, with German bonds and German securities.”

Adler’s bold statement that nothing has changed is likely to be underpinned “by a lot of German legal advice,” she said.

To stay or not to stay

One way for the bondholders to get some recoveries could be to pursue damages by challenging the fact that a ‘stay’ was not put in place, which enabled Adler to implement the restructuring despite the ongoing appeal. This would have to be challenged in a London court, lawyers said.

“If the restructuring can’t be unwound, the question is, are there some sort of damages you can bring instead?” a third lawyer said.

Normally when a Scheme or Plan sanction is being appealed, the court would be asked to order a stay on implementation until the appeal is heard, and if the company says the appeal is very urgent, it would ask for the appeal to be expediated.

“It poses the question whether what Adler has done pursuing the execution of the Plan before the appeal was resolved is still valid as a matter of English law, and the answer to that is that nobody is sure – it may be, but it’s unclear,” said the first lawyer.

“There is some law on it on that particular issue, but it has not been tested in the English courts for a very long time,” he said.

Adler would likely argue that it is valid because no-one asked for a stay. There is also a possibility that the 2029s deliberately did not ask for a stay because it would have required them to give a cross-undertaking in damages, which could have been huge if the appeal failed.

But either way, there could be enough grey area to give the argument some traction, the lawyers said.

“It’s not good for the English regime if we have sanctioned a restructuring that shouldn’t have been sanctioned, but because it was not stayed there is no way to unscramble the egg,” the second lawyer said.

“You can see why Snowden is saying (in the judgment) that parties should be raising the issue of a stay with the court. I would not be surprised if we see judges considering this as part of their inherent discretion in the future,” she said.


Sandrine Bradley
LevFin Insights


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