The UK introduced major reforms to its restructuring and insolvency regime in June 2020, including a new restructuring plan procedure. DeepOcean was the first ever test of the cross-class cram-down provisions in the new restructuring plan procedure. The group wished to shut down a loss-making part of its business while minimising disruption to the wider group.
Kirkland & Ellis pioneered the use of a restructuring plan in this context. The firm also defended hostile action brought by the group’s vessel owner creditors. This restructuring raised more difficult questions of cross-border recognition than earlier restructuring plans.
DeepOcean was a new client, but a portfolio company of existing client, Triton. The UK cable laying and trenching business of the DeepOcean group had long been underperforming. Three companies within this sub-group proposed parallel restructuring plans to achieve a solvent wind-down and avoid the negative impact of insolvent liquidation on the rest of the group. Two of the three plans were approved by the requisite majority of creditors in each class. In the third plan, while one of the two classes voted unanimously in favour, the requisite majority was (narrowly) not reached in the other class.
The court sanctioned all three restructuring plans on 13 January 2021 and handed down its reasoned judgment on 28 January 2021.
Patrick Mackenzie is a restructuring associate in the London office. He joined the firm in September 2016 as a trainee and qualified into the restructuring group in London in September 2018. Mackenzie has experience in cross-border restructurings advising sponsors, debtors, creditors and strategic investors on restructurings of stressed and distressed businesses.
He also advises investment banks, hedge funds and private equity houses in their review and diligence of European investment opportunities in par, stressed and distressed transactions. Patrick completed a secondment to the legal team at Seadrill during the period immediately prior to and after their Chapter 11 filing.
“I’ve worked with all the partners in the London restructuring team to varying degrees but have worked with Sean Lacey (DeepOcean, Galapagos), Tom Jemmett (Galapagos and other matters), Partha Kar (DIA and NMC) and Karim Kassam (DIA and other matters) most frequently since qualifying,” he says.
Reflecting on DeepOcean, he says: “Being the first restructuring plan to utilise the cross-class cram-down mechanism under the new legislation makes this transaction a real landmark in the development of restructuring law in England. That alone makes the deal memorable. Over and above that, the transaction really stands out because of the highly complex stakeholder dynamics we were trying to cater for in the restructuring plan and managing those dynamics in real time.
“Given that the structure of the restructuring plan was relatively novel, we received many questions and correspondences throughout the process and which then necessitated a number of modifications (for example, carving out certain claims relating to an ongoing project from the plan so that the company could collect remaining income) to the structure in order to be sure we were achieving the best outcome for the client.”
The DeepOcean restructuring plan
It was a ground-breaking test of new power to bind dissenting class. It was also the first solvent wind-down achieved via a restructuring plan and the first imposition of a ‘bar date’ under a restructuring plan. It enabled the remainder of the DeepOcean group to continue operations without suffering collateral financial and reputational damage from a value-destructive liquidation of the loss-making sub-group.
“I learnt a huge amount from the process, mainly about how a transaction can be managed on a short time frame and how to bring people along with you,” Mackenzie explains. “From initial planning to launching the process, we spent around two months working on various issues from designing the restructuring plan and drafting certain of the documents, agreeing a lock-up agreement with the secured creditors, to overseeing that the corporate governance of the Plan Companies and developing strategies with respect to certain excluded claims.”
The firm needed to run several workstreams in parallel and interdependent processes needed to be dual tracked to stick to the timeline. This differed to restructuring transactions where you often have a long period of commercial negotiations and implementation planning to flush out issues before you move to implementing the transaction. Mackenzie says this meant that distributing work and communication on the status of certain workstreams among the team was essential for transaction documents to be updated in real time.
“Given the sector in which the client operates there were a number of other factors that were relatively novel from my perspective including issues of maritime law, the commercial contracts and performance bonds issued under the finance documents and how those issues interacted with the restructuring plan documents,” he adds.
“Given that so much of the transaction was novel, there were a number of challenges. The first and foremost was ensuring that we had robust evidence which we could rely on to demonstrate that the plan represented a better outcome for creditors than the relevant alternative. We relied heavily on a financial model developed over a period of months with Alvarez & Marsal which formed the basis for the entire transaction once finalised.”
Beyond that, he says there were several issues with respect to oversees recognition and how the plan would deal with hostile proceedings taken by any creditor outside of the plan. This required a significant amount of contingency planning on eventual scenarios, and the firm drafted lots of decision trees and contingency strategy decks during the transaction.
“A significant amount of time went in to discussing the required expert opinion as well, showing that the restructuring plan would be capable of having substantial effect in other relevant jurisdictions; we held discussions over a period of weeks with the expert witness and reviewed draft opinions with counsel in order to ensure we could provide a clear and robust report for the court,” Mackenzie says.
“Finally, the fact that two of the key creditors in the transaction, the vessel owners, had vessels on the sea with crew aboard added a huge amount of complexity when negotiating. For instance, there would be issues relating to who owned the equipment onboard, how the crew would be protected, and what happens when the vessel is ordered back to its home port with limited notice.”
He says that several the legal mechanics of the transaction also made it unique, adding a layer of complexity to stakeholder dynamics, such as frequently having to explain concepts before being able to negotiate. The firm was also implementing the transaction under a tight timeframe owing to several factors including the availability of the courts. This meant that many decisions had to be taken in short order and required quick legal and commercial analysis to come to an informed decision.
“The transaction was also vital to the client in order to cauterise the risk the Cable Laying & Trenching Group, a sub-business of the DeepOcean group which had been underperforming for several years and primarily operated through the three English-incorporated entities which proposed the Restructuring Plan, posed to the viability of the wider DeepOcean group and therefore it was great to achieve such a positive outcome to allow the client group to continue to grow,” Mackenzie says.
“It was a great result for DeepOcean to ensure its wider business remained viable in light of the support shown by its stakeholders and we hope that they continue to go from strength to strength. It’s also a matter of great pride to have worked on the first cross-class cram-down and help to substantially develop what is possible under the new legislative regime.”
While there are yet to be similar restructuring plans, in terms of being used to implement a solvent wind down, Mackenzie is confident that DeepOcean’s case serves as a useful touchstone for other groups looking to structure the wind down of a business unit. He says the legal technology implemented on this transaction could be directly applicable in that scenario.
“More than that, this transaction was instrumental in terms of my experience as it gave me the opportunity to be the lead associate and have oversight of the entire deal, provide strategic advice to the client and lead negotiations with certain stakeholders, which were all relatively new experiences in my career at that point,” he adds.
Working remotely during the pandemic gave the team more flexibility in its approach to work and meant there was no commute, but Mackenzie says added challenges in terms of communication. “It took away some of the fun and ad hoc learning opportunities that come from being together and meant that there was less of a psychological division between ‘home’ and ‘work’,” he says. “We are now back in the office, though with increased flexibility to work from home, safe in the knowledge we all have a decent home set up by now. Early in-person meetings with clients suggest everyone values the benefits of face-to-face interactions with colleagues and clients more than ever.”
Active communication was a key part of successful teamwork over the pandemic, according to Mackenzie. “It’s very easy to go all day without speaking to team members on a transaction when everyone is focused on their workstreams and dialling in to calls and finding time to catch-up to discuss the status of certain items and how a difficult issue becomes more challenging. It really helped to have regular catch-up video calls as a team to talk about what everyone was doing and priorities for the immediate future. All of that becomes a lot more straightforward when you can pop your head round someone’s office door and ask for a chat.”
About Patrick Mackenzie
2018-present: Associate, Kirkland & Ellis
2016-18: Trainee solicitor, Kirkland & Ellis
Who’s Who: the Kirkland & Ellis team
Leading: Sean Lacey