Does the UK Have a New Business Judgment Test?

In an article authored for Global Restructuring Review, Howard Morris, Amrit Khosa, and Julia Kotamäki examine the recent cases of subprime lender Amigo Loans and oil company Hurricane Energy, in which the English High Court refused to sanction the proposed restructurings.

“Parties proposing schemes and restructuring plans should be careful not to exaggerate the gravity of a company’s position in their relevant alternative analysis – relevant alternatives must be supported by robust evidence,” the authors wrote. “Secondly, companies must be mindful of timing because delaying action on restructuring until an insolvency is imminent and unavoidable puts the directors on a collision course with their fiduciary duties. Finally, companies should be aware that the court will actively scrutinize whether a scheme or restructuring plan is fair with respect to any stakeholders who stand to lose out, especially where there is no burning platform.”

They added: “The active scrutiny of the English judiciary is beginning to look a lot like the U.S. judiciary’s approach in applying the business judgment test in Chapter 11 restructuring cases. However, it remains to be seen whether it will go as far.”

Read the full article.