Navigating The Allocation Of Plan Benefits And Stakeholder Contributions In UK Part 26A Restructuring Plans

In the UK, some commentators sounded the death knell to the restructuring plan, suggesting that the process would become overly challenging and complex post Adler, Petrofac and Thames Water, highlighting the current landscape as an inflection point that may take restructuring plans out of the reach of companies that would benefit from them the most. However, it was always envisaged that case law would develop the approach that the court should take when exercising its discretion to sanction a restructuring plan. The trilogy of Court of Appeal cases and the principles they establish are part of the natural evolution of restructuring plans and represent a development that the market must embrace when structuring a restructuring plan and preparing the evidence that the court expects to see from the plan company's legal and financial advisers.

With careful consideration of the Thames Water and Petrofac principles, and a clear explanation to the court as to why the respective contributions of stakeholders justify the allocation of the benefits under the restructuring plan, it is possible to navigate the new allocation driven criteria.

This GT Advisory examines how companies might navigate the allocation of restructuring benefits with reference to each class of stakeholders' respective contributions to the restructuring plan. We will analyse the Argo Blockchain restructuring plan (Argo) as a case study, focusing on how the court evaluated stakeholder contributions, reiterated that the "gifting principle" remains good law and highlighted the approach to stakeholder engagement.

Greenberg Traurig advised Growler Mining Tuscaloosa, LLC in formulating and implementing the restructuring plan. Growler is now the majority stakeholder of Argo with an effective equity ownership of 87.5%.

Approaching the Allocation of the Plan Benefits by Reference to Stakeholders' Contributions

Companies must demonstrate to the court that the benefits of the restructuring plan have been allocated fairly across all classes of plan creditor, proportionate to their contributions toward creating or preserving those benefits.

This requires: (i) an analysis to determine the benefits created or preserved by the restructuring plan (the "restructuring surplus" or the "restructuring benefits"); and (ii) an analysis of the contributions made under the restructuring plan by each of the stakeholder classes.

Importantly, this is more than a mathematical assessment based on desktop valuations. The plan company must demonstrate to the court that the restructuring plan is fair and that its terms include a fair and reasonable allocation of the restructuring benefits having regard to the contributions by each class. In other words, the court will assess whether any class is getting "too good a deal" or "too much unfair value" under the terms of the restructuring plan (as per Adler, Thames Water and Petrofac).

As part of that exercise, the court will also consider the genesis of the restructuring plan and (as per the decision in River Island) whether it is a genuine attempt to formulate a fair and reasonable solution to a critical problem or an attempt to impose an arbitrary compromise upon creditors with a view to extracting advantage in a critical situation.

A three-stage approach is required:

• Stage 1 - the identification and calculation of the restructuring benefits.
• Stage 2 - the identification and valuation of the contributions made by the relevant stakeholders to the generation (or where relevant, preservation) of the restructuring benefits.
• Stage 3 - an analysis of the plan benefit allocations, compared to the relevant stakeholder's contribution.

1. Identification and calculation of the restructuring benefits

The benefits created or preserved by the restructuring plan are calculated by identifying the difference between the day one post-restructuring plan equity value of the plan company compared to the value of the plan company in the relevant alternative.

In Argo, the company's financial advisers calculated the restructuring surplus with reference to the post-Petrofac approach that Greenberg Traurig developed in the River Island Plan Benefits Report, namely:

• The day-1 post-sanction enterprise value of Argo was calculated to be approximately $32.9 million (taking into account the contributions made by each class of Plan Participant under the terms of the restructuring plan), less;
• The pre-sanction enterprise value of Argo of approximately $8 million (established by reference to the relevant alternative of an administration leading to an orderly wind down), which results in;
• The restructuring surplus, which was calculated and accepted by the court as being $24.9 million, being the difference between the day one equity value of Argo post-restructuring as against the value of Argo in the relevant alternative, as per the Court of Appeal's approach in

2. Identification and valuation of contributions being made by the relevant stakeholders

Having identified the quantum of restructuring benefits, it is necessary to consider the contributions made by each stakeholder class that helped to generate (or preserve) those benefits. There are several ways in which stakeholders can contribute to the generation of the restructuring surplus, and this is perhaps the most challenging part of the exercise.

Contribution of Assets

Conditional on the sanction of the Argo restructuring plan, Growler transferred to Argo 100% of the common shares of Growler USCo Inc. (a wholly owned subsidiary of Growler), which owns $18.4 million of assets, including over 4,000 state-of-the-art crypto miners and other related crypto assets. The court accepted that this contribution was to be taken at face value as set out in the plan benefits report.

However, Growler also put forward an argument to suggest that an alternative valuation methodology may be more appropriate than that used by the company's financial advisers, who adopted a "break-up" or "liquidation" valuation approach towards the Growler-contributed assets. Growler suggested that instead, a going concern valuation of those assets (which were fully operational and income producing) would be more appropriate than the adopted methodology.

Whilst the Growler valuation evidence was not CPR Part 35 compliant and was not relied on by the court, it does indicate that there are competing approaches as to how to value the contribution of assets into a company via a restructuring plan.

Contribution Via Debt Write-Off

The write-off of debt is a "contribution" that should be taken into account in the analysis of allocation of the restructuring benefits. This is the case even if that debt is "out of the money" in the relevant alternative.

However, not all write-offs are equal. The court can "weigh" the relative importance of contributions and is not limited to looking just at the numerical face value of the plan creditors' contributions.

• Write-off of secured debt: The court has established that the fact the debt being written off is secured is a relevant factor. In Argo, the Growler Facility was the only secured debt instrument being written off and, in the relevant alternative (being an administration followed by an orderly wind down), Growler was the fulcrum creditor. In Argo, the court accepted that it was fair for the Growler Facility (as a secured loan that would have recovered in full in the relevant alternative) to be given face value in the restructuring benefits analysis.
• Write off of "out of the money" debt: The compromise of secured debt may be a greater contribution than the write-off of "out of the money" debt, although any such write off may still nevertheless constitute a "contribution" to the restructuring benefits, even if that write off is imposed on the relevant class by way of the cross-class cramdown. It is critical, however, that a compromise of debt that is "entirely under water" is consistent with the Court of Appeal's conclusion that even "out of the money" creditor interests should be assessed other than by reference to the relevant alternative.
• Contribution to the business post-restructuring: The court in River Island held that those creditors who have historically contributed significantly to the financial predicament but who also have the least to contribute to the transformed business should derive proportionately less benefit from the value preserved or generated by the restructuring plan. This further evidences that not all write-offs are equal. If a creditor is contributing more to the business post-sanction of the restructuring plan, this go-forward contribution may justify better treatment under the restructuring plan.
• Market trading as a benchmark for assessing the noteholders' contributions: In Argo, evidence was adduced that the notes were trading at approximately 10% of their face value. The court held that this was an appropriate valuation to use given that it would be possible to buy out the noteholders entirely for the $40 million face value price. The use of the trading price to determine the value of noteholder contribution is a key takeaway from the Argo restructuring plan and demonstrates the court's case-by-case approach to the new wave of restructuring plans.

Contribution Via New Money

• When considering the differential treatment of stakeholder classes, the court will weigh more heavily the value of plan participants' respective contributions that generate restructuring benefits when assessing fair sharing of those benefits.
• In Petrofac, the Court of Appeal was unpersuaded by the plan company's evidence to show that the new money carried sufficient risk to justify a blended debt and equity return of over 250% of the new money provider's contribution. This decision highlights that it is for the plan company to discharge the evidential burden to show that the allocation of plan benefits is justified such that no class is extracting "too much unfair value" when compared to the contributions to the restructuring benefits by the other stakeholder classes.
• New money is a more important contribution than the writing off of an existing unsecured debt. In Argo, Growler was the "white knight" new money provider (in the sense that Growler had no existing exposure to the company at the time it entered the fray) who drove the restructuring and made a substantial contribution to the restructuring plan on several levels, all of which were duly noted in the plan benefits report and recognised by the court.
• When assessing whether new money is getting "too much unfair value," or if a better and fairer plan was available, it is highly relevant that there has been a robust and competitive sale and/or capital raising process. That was the case with the Argo restructuring plan, in which Growler's involvement only arose following an extensive marketing and capital raising campaign, led by Argo's financial adviser, over a period spanning nearly two years.

Shareholders Completely "Out of the Money" and Could Have Been Allocated a De Minimis Share

In Argo, the shareholders were entirely "out of the money" and did not have any interest in the pre- restructuring capital stack. Accordingly, the court held that the shareholders had no economic interest in the valuation of the plan company immediately post-sanction of the restructuring plan.

The court held that it would therefore have been fair in those circumstances to have provided a de minimis share of the restructuring benefits to the shareholders as a class on the basis that they have a "merely fanciful interest" in the company.

Contribution Via Extinguishment of Pre-Emption Rights

The Argo shareholders had statutory rights of pre-emption under section 561(1) of the Companies Act 2006 which would have prevented the allotment of equity to Growler and the noteholders according to the terms of the restructuring plan. That is, in and of itself, a ransom right.

It was considered in Argo that the "overriding" of pre-emption rights might still be said to be a "contribution" the shareholders made to the restructuring benefits, albeit a minimal one as there was no indication that any shareholder would have wished to exercise their rights of pre-emption.

Soft Contributions

There may also be other non-financial benefits that should be considered. In Argo, the court acknowledged that Growler was a specialist cryptocurrency mining company and, according to the post-restructuring business plan, it is evident that Growler will contribute its expertise to Argo's business as majority stakeholder of the company.

A plan benefits report, by its nature, cannot quantify and cannot reflect certain types of contributions, and so Argo's financial advisers did not give these "soft" contributions a value. However, those more intangible contributions may often be a factor for the court when considering overall fairness of the restructuring plan.

Growler also provided a non-legally binding indication that it would backstop Argo's contested and contingent tax liabilities by providing additional financial support once the final amount due is ascertained. This was also not given a value in the plan benefits report but was another example of a "soft" contribution that may reinforce the court's prima facie conclusion that the distribution of the benefit is fair.

The NASDAQ Criteria and the "Gifting" Principle

The ultimate allocations in Argo also needed to reflect the need to ensure that Argo would meet all continued listing requirements following completion of the restructuring plan, including satisfying the requisite floors for the number of publicly held shares at a stated market value and total number of shareholders.

Once the NASDAQ criteria were applied, Growler's allocation of the restructuring benefits (by way of equity interests in Argo post-restructuring) was 87.5%, the noteholders were allocated 10% of the equity, and the shareholders retain their interest but were diluted to 2.5%.

The consequences of this were:

• Growler's 87.5% allocation was less than its actual contributions to the restructuring plan, notwithstanding that it was taking the "lion's share" of the restructuring benefits.
• The shareholders and the noteholders received a larger share of the restructuring benefits than their contributions justified.
• Accordingly, the additional equity received or retained by the noteholders and shareholders was deemed by the court to come out of Growler's "share" of the equity and was akin to a "gift" from Growler to those stakeholders.

The "gifting principle" was a helpful factor when it came to considering the overall fairness of the restructuring plan. Several noteholders had complained about the departure from the "absolute priority rule" inherent in a U.S. Chapter 11 and objected to the fact that that shareholders were retaining anything at all in circumstances where the noteholders are not made whole.

The fact that the noteholders had themselves received a "gift" from Argo might be part of the answer to that complaint, along with the departure from the absolute priority rule inherent in English restructuring plans.

The Importance of Stakeholder Engagement

A further element in the evolution of restructuring plans (which was a core element of Argo) is that it is critical to ensure that adequate steps have been taken to involve and engage with stakeholders, and to be able to demonstrate to the court whether any alternative proposals have been properly considered.

The court will wish to be satisfied of a plan company's proper engagement with stakeholders to show that there has been a genuine attempt to negotiate. This engagement is required before "the starting gun" of a practice statement letter is fired and must continue during the restructuring plan process.

This may be a key element in the preparation of future restructuring plans, particularly now that the new practice statement, which came into force on 1 January 2026, requires evidence from plan companies on this very issue.

From the outset, Argo was mindful of the interests of retail investors who could not be "organised" (in the sense of an ad-hoc creditors committee or equivalent) or prepare for a detailed challenge of the restructuring plan. Accordingly, Argo appointed and funded a "retail advocate" to engage with the plan company, to negotiate the terms of the restructuring plan, and provide a voice for retail investors. The retail advocate was to cast a "critical eye" over the plan and identify key matters to assist the court on the question of fairness.

The retail advocate provided a conduit for retail investors' concerns and was represented by counsel at both court hearings. Direct noteholder feedback also came via a "town-hall" style meeting, with that feedback being included in a supplemental witness statement to assist the Court to reach the conclusion that Argo had properly engaged with retail investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.