The JPLs’ application for sanction was supported by the Afiniti Limited, acting by its directors whose management function continued under the ‘light touch’ provisional liquidation, and by its secured creditors. The JPLs’ application for sanction was opposed by Afiniti’s founder and former director, Mr Chishti.
The restructuring transaction involved, inter alia, a disposition of shares and assets via direct and indirect means to a newco structure owned by the secured creditors. The transaction was opposed by Mr Chishti on, amongst other bases, the basis that the JPLs should not rely on a valuation report that showed value breaking in the secured debt. He contended that the value broke in the unsecured debt and that the liquidity position was not as constrained as contended by Afiniti, its secured lenders and the JPLs. He sought either an adjournment for a valuation trial or a refusal of the relief applied for, which he said could not be granted without a further testing of the valuation, following disclosure and cross-examination (to a great or lesser extent, depending on the test to be applied).
Martin J rejected these arguments and granted the relief applied for by the JPLs. He held that the test for sanction in a ‘type 1 case’ concerning the power of compromise was focused on what was in the best interests of creditors as a whole, and that the test for sanction in a ‘type 2 case’ concerning the power of sale was focused on the JPLs’ genuine and rational belief that proper value had been obtained. In the case at hand, the restructuring had been preceded by a strategic equity process and a refinancing process conducted by Moelis. No equity finance had been raised, and one refinancing offer had been received for part of the secured debt, the remainder to be subordinated. Against this background, Martin J considered that the JPLs could rely on the valuation report, and he further held that none of the criticisms of the valuation report advanced by Mr Chishti were persuasive. Given, he held, that the liquidity position was critical and would not allow time for a valuation trial, he said that the Court would not entertain a game of ‘brinksmanship’ with the company, and he considered that both the type 1 and type 2 tests were met.
Adam Al-Attar KC acted for the JPLs (Charles Thresh and Mike Morrison, Teneo Bermuda), instructed by Walkers Bermuda (Kevin Taylor, Steven White and Devon Luca)
Tom Smith KC acted for Afiniti Limited, instructed by Conyers Dill & Pearman
Felicity Toube KC acted for Mr Chishti in relation to the English and Bermudian law position, instructed by Carey Olsen Bermuda and Michelmores London. Matthew Abraham and Charlotte Ward also acted in relation to the English law position only.
The full judgments are here:
Afiniti Inc Sanction Ruling – 20th November 2024
Afiniti Ruling on Injunction – 26th November 2024
Afiniti Leave to Appeal Reasons for Refusal – 21st March 2025
