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Chaptre Finance case provides crucial guidance for insolvency experts
Table of contents
- Introduction
- What is the background to the Chaptre Finance case?
- What experts did Chaptre Finance instruct to support their restructuring plan?
- What decision did the High Court reach in the Chaptre Finance sanction hearing?
- Why did the High Court find in favour of Chaptre Finance?
- Summary of Chaptre Finance case
1. Introduction
The recent High Court Chaptre Finance case is the latest in a growing number of cases, which provide guidance on how restructuring proceedings should be approached – namely akin to civil litigation. In particular, this case provides clarity for both legal representatives and expert witnesses on the importance of:
- Complying with Part 35 of the Civil Procedure Rules (CPR), which govern expert evidence.
- Cross-examining expert witnesses.
Read on to examine the finer details of the case, which highlight how important it is that insolvency experts understand their obligations under Part 35 and demonstrate compliance with the rules.
2. What is the background to the Chaptre Finance case?
Chaptre Finance plc was incorporated in 2023 to fund a biomass power plant.
The plant soon experienced technical problems and ceased to operate, resulting in Chaptre Finance encountering serious liquidity issues.
Chaptre Finance sought the sanction of a restructuring plan to raise senior financing by altering the group’s finance documents. The majority of three out of four classes of creditors voted in favour of the plan. However, only 23.6% of the fourth class of senior creditors approved the plan.
Due to the dissenting senior creditors, the court was required to consider the restructuring plan by way of a sanction hearing.
3. What experts did Chaptre Finance instruct to support their restructuring plan?
The restructuring plan was supported by two expert reports: a valuation report and an alternative analysis report. Initially both reports did not identify the author or contain a statement of independence, qualifications or experience. The reports also included a disclaimer of any duty to the court.
They were “a disavowal of the overriding duty under Part 35.3 of the CPR” such that the Judge “could not consider that the court could properly have accepted evidence from experts who had expressly disavowed any duty to the court”.
However, prior to the sanction hearing, Chaptre Finance submitted the following:
- An expert report by Mr Ojetola. The report contained a confirmation of compliance with CPR Part 35 and an overriding duty to the court. It also explained that Mr Ojetola had been the author of the Interpath Valuation Report and confirmed that the Interpath Valuation Report was accurate to the best of his knowledge and belief. It gave his curriculum vitae, which showed that he had experience in valuation work.
- An expert report by Mr Pike. This again contained confirmation that Part 35 had been complied with and an overriding duty to the court. It also explained that Mr Pike had been the author of the Interpath Outcomes Report and gave his curriculum vitae, which showed that he had experience as an insolvency practitioner.
4. What decision did the High Court reach in the Chaptre Finance sanction hearing?
The High Court accepted Chaptre Finance’s revised evidence and sanctioned the plan.
5. Why did the High Court find in favour of Chaptre Finance?
There are two key reasons why the judge found in favour of Chaptre Finance.
CPR 35-compliant expert reports
Mr Justice Miles noted that there is no reason why valuation and outcome reports for restructuring plans should not be required to comply with CPR 35 – identifying that the primary purpose of these requirements is to ensure that expert reports are a genuine product of an expert’s independent expertise.
He indicated that without the CPR 35-compliant expert reports that Chaptre Finance subsequently submitted, he might not have sanctioned the plan.
Cross-examination of experts
Mr Justice Miles placed significant weight on the decision of the dissenting senior creditors not to cross-examine the experts.
He stressed how crucial cross-examination is in an adversarial process – enabling the judge to properly examine all the evidence and the expert witness to explain or clarify their evidence. He also gave examples of numerous contested restructuring plans where cross-examination of experts had taken place and indicated that that the same should have occurred in this case.
Without cross-examination of the experts, the judge was unable to engage in a challenge to their evidence.
6. Summary of Chaptre Finance case
The Chaptre Finance case decision cements the court’s approach with regards to contested restructuring plans and schemes – that they should be pursued in line with the rules and practices of civil litigation.
Experts and legal representatives must maintain a litigation mindset from the outset of a case to allow the court to properly consider all the evidence. For insolvency experts, this of course means ensuring that they have a sound understanding of the rules governing experts under CPR 35 and have adopted these rules into their expert witness practice.
Bond Solon provides training covering all the core skills and knowledge expert witnesses require to fulfil their role compliantly and effectively. We also offer university certified training programmes that are widely regarded as the industry gold standard by instructing parties. We have trained many insolvency practitioners over the past 30 years, and the Insolvency Service is a long-standing client.
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