Cross class cram down
M&A / Merger ModelThe court's power to bind an entire class that voted against a restructuring plan, available only where the statutory conditions are met.
Also written: cross-class cram down, cram down, cramdown
Ordinary cram down binds a dissenting creditor inside a class that approved. Cross class cram down goes further and binds a whole class that voted no, which is what removes the veto a junior class otherwise holds over a restructuring.
Under Part 26A two conditions must be satisfied. No member of the dissenting class may be worse off under the plan than they would be in the relevant alternative, and the plan must have been approved by at least one class that would receive a payment, or hold a genuine economic interest in the company, in that relevant alternative.
The second condition is the guard against abuse. Without it a company could assemble approval from classes that are worthless anyway and use that to bind the class actually holding the value. Requiring an in the money class to have voted yes means somebody with real money at stake has endorsed the outcome.
The comparison with the US is the useful half of an answer. Chapter 11 also allows cram down, but a crammed down plan must be fair and equitable, which for an unsecured class means the absolute priority rule: nothing junior is paid until that class is paid in full. Part 26A contains no such rule, and works from the no worse off test plus judicial discretion instead.
Worked example
Unsecured noteholders would recover nothing if the company went into administration. Under the plan they receive 13% of their claim in new equity, and they vote against it. Illustrative figures.
They are not worse off than in the relevant alternative, and the senior secured class, which is in the money in that alternative, approved. The court can bind them. In a crammed down US plan, leaving anything with a junior class in that position would be far harder.