On 30 April 2021, National Car Parks launched its proposed restructuring plan, which is the flagship new restructuring process introduced last June through the Corporate Insolvency and Governance Act 2020. Around a dozen restructuring plans have come to market so far, but the NCP plan was only the second (the first being Virgin Active) to involve landlord creditors.
The process for NCP was compressed into a two-month timetable, with the apparent urgency driven by the “cliff edge” after 30 June 2021, when the government’s various moratoria on landlords enforcing commercial rent arrears against tenants were due to end. After this was extended to 30 September 2021 for statutory demands and 25 March 2022 for forfeiture, and several offers were received for the business, NCP announced on 18 June 2021 that it was to “temporarily pause” the plan, which is where, at the time of writing, matters remain.
NCP’s landlords are left wondering whether the plan has been abandoned and if, as many of them believed, the process was flawed from the outset.
Rules of the road
The restructuring plan process allows a company in financial difficulties to impose a compromise or arrangement on its creditors. Creditors are grouped into classes with similar rights (unlike a company voluntary arrangement, where there is a single vote for all unsecured creditors) and each class votes on the plan. Plans need to be supported by 75% in value of creditors in each class before being put forward for court sanction.
If one or more classes of creditors do not vote in favour then the court can still sanction the plan through what is known as a “cram-down”, which can apply if at least one “in-the-money” class (meaning that they would receive a payment in the debtor’s insolvency) has approved the plan and the dissenting creditor class(es) would be no worse off under the plan than the “relevant alternative” (which is what is most likely to happen should the plan not be sanctioned).
NCP suffered falling revenues during lockdown and an uncertain recovery to pre-pandemic trading levels. By June 2021, it owed £126m in rent and rates. Its plan involved separating leases into different classes for varying degrees of impairment. Class A landlords saw only a small deferral of arrears. Class B were to receive 60% of their arrears and see their rents rebased to market levels. Class C were to get their units back with no arrears but an amount paid equivalent to the estimated return in administration plus 10%.
Certain features of NCP’s proposed restructuring prompted objections from landlords. When the plan was explained to creditors at a meeting in March 2021, 27 sites were excluded altogether and, of the others, 120 were class A sites, 42 were class B and 53 class C. When the plan was launched a month later, the class A sites had halved to 63 and excluded sites increased to 117.
NCP needed 75% of its class A landlords to support the plan for a cram-down of the class B and C landlords. Landlords were, therefore, alert to the possible engineering of a supporting class A vote. The other concern was that the largely unimpaired class A landlords would potentially be used to cram-down a larger body of heavily impaired landlords. The court had already expressed concern in other cases about unimpaired creditors imposing compromises on other creditor classes, particularly where they are all “in the money”. Some in the market were, therefore, doubtful whether a court would ever sanction such a plan.
NCP had very little secured debt and landlords objected to the fact that the main beneficiaries of the plan were its shareholders. Although its majority shareholder was to lend the company £120m if the plan was approved, NCP’s projections indicated that the company would then quickly return to profit and start repaying the loan. None of those profits or any equity upside would be shared with landlords who had funded the plan through rent cuts.
When launching the plan, NCP said it was exploring potential sale options to see if these could increase recoveries for creditors. Only two weeks later, the company called a halt to the process.
This was despite the fact that a Hong Kong investor, Aberdeen Worldwide Group, had offered to purchase NCP on terms that it said would provide a better return for creditors. A further bid to acquire the company followed from a US car park operator and a private equity firm, again, it was said, on improved terms for creditors. This would have made it difficult for NCP to satisfy the court that administration was the “relevant alternative” and that creditors were “no worse off” under the plan. It seemed to be the final nail for NCP before putting the plan on hold.
NCP’s decision will be welcome news for landlords who were sceptical whether the plan truly represented the best deal for them.
Given the speed and complexity of the restructuring plan process, it is important for affected landlords to organise quickly. A number of NCP’s landlords successfully formed a so-called ad hoc group in order to share resources, extract information from NCP, facilitate discussions and ultimately oppose the plan at court. The presence of a strong legal challenge from landlords who were able to hold the company to account was certainly a factor in how events have played out.
Authored by Mathew Ditchburn and James Maltby who acted for the ad hoc group of landlords in relation to NCP’s restructuring plan.