Can you get security for costs on sanction of a RP?

In what is believed to be a first, the court has awarded security for costs to a creditor in respect of their opposition to a restructuring plan (RP) proposed by a debtor company.

A PLC proposed a RP, following an adjudication award made in favour of an NHS Trust against the PLC. The RP sought to compromise the claims of only three creditors, one being the Trust, who objected to the RP.

At the convening hearing, the Trust was joined to the proceedings as a defendant, to enable it to apply for security for costs in respect of the subsequent sanction hearing, which it did.

The parties accepted that the Trust was entitled to apply for security for costs in the RP proceedings and the PLC accepted that it could not pay costs, if so ordered.

However, the PLC asked the court to exercise its discretion and argued against security for costs on the basis that; (i) RP proceedings are fundamentally different to other adversarial litigation; (ii) the making of such an order would “stifle” the proposal of RPs going forward; and (iii) any costs awarded would be set off against greater amounts due to the PLC from the Trust under their contractual arrangements.

While the judge was at pains to say that his decision was based on the specific facts before him, he found that, in effect, the RP proceedings were at extension of the previous adversarial proceedings between the parties.

The judge also rejected the “stifling” argument, based on the facts of the case, and placed reliance on the fact that third parties had funded the PLC through the arbitration, yet suggested that they were not prepared to do the same in respect of security for costs.

In addition, the judge rejected the set off argument, based on the contractual position between the parties, and exercised discretion to award security for 50% of the costs requested.

It remains to be seen whether this decision leads to a plethora of security for costs applications by creditors who object to the proposal of RPs.

Re: Secretary of State for Business and Trade v Abdulali and others [2024] EWHC 1722 (Ch)