Mass tort restructurings in the UK (England and Wales)

Two rapidly developing fields of private law – corporate restructuring law on the one hand and collective redress for civil wrongs on the other – may intersect. The two distinct legal spheres intersect when a financially distressed but economically viable corporate defendant initiates a restructuring procedure to resolve its mass tort liability with as much finality as possible. In these so-called mass tort restructurings, the dynamics of mass tort resolution fundamentally change. The corporate defendant then shapeshifts into a distressed debtor. Mass tort claimants, in turn, morph into a large class of creditors amidst several other stakeholder classes. Where the initiative in collective redress lies with mass tort claimants, the initiative in corporate restructurings typically lies with the debtor, and more specifically with its managers, who may be permitted to continue to run the business during negotiations on a restructuring plan (‘debtor-in-possession’ procedures). 

My recent paper considers the ways in which corporate restructuring law and collective redress for civil wrongs may intersect in the United Kingdom (England and Wales). Mass tort restructurings are already common in the US, a pioneer in both the development of corporate restructuring law and of mechanisms for collective redress for civil wrongs. There, Chapter 11 bankruptcy has provided an alternative to federal collective redress procedures such as the Rule 23 class action and multidistrict litigation ever since asbestos claims overwhelmed court dockets across the nation in the 1980s-1990s. In most mass tort cases that shift into Chapter 11 bankruptcy, a Chapter 11 plan of reorganization not only imposes a hard cap on the funds available for distribution to established tort claims, but also contains terms designed to limit the debtor’s liability by settling the validity and the quantum of all potential tort claims outside of any collective redress procedure. Two recent controversial mass tort cases that have yet to reach a final outcome – Purdue Pharma (opioids) and Johnson & Johnson (talc products) – have been capturing headlines for years.

Mass tort restructurings are of course not a strictly North American phenomenon. Jurisdictions with a mature market economy, developed private law system and sophisticated legal services market in particular may witness attempts by distressed debtors to resolve their mass tort liability in formal restructuring procedures. While such restructurings might not reach the same scale as in the US due to unique institutional features of the American litigation landscape, the legal processes are similar at their core.

England and Wales offers an important example. The English jurisdiction has already witnessed several corporate restructurings affecting thousands of tort claims, including mass asbestos claims in Cape plc (2006) and mass financial services claims in Amigo Loans (2019). At the same time, England and Wales has yet to reach a stage where corporate restructuring procedures constitute a full-blown and frequently used alternative to every English collective redress procedure for settling or otherwise resolving mass tort claims. The three primary English collective redress procedures are the representative action and group litigation for generic mass tort claims and collective proceeding orders for specifically mass competition law claims. Yet most of the presently documented mass tort restructurings arose in the financial services sector. Moreover, all these cases have been resolved under the so-called Scheme of Arrangement, a company law procedure that requires the majority consent of every affected stakeholder class, including a class of mass tort claimants. The Part 26A Restructuring Plan, as introduced by the Corpo­rate Insolvency and Governance Act 2020, includes new possibilities for over­riding dissent by stakeholder classes, which could in principle include a class of mass tort claimants as well. However, the Part 26A Restructuring Plan has yet to enter the mass tort scene. Against this background, the article examines some intersections between English collective redress and restructuring procedures that have already arisen but also identifies significant intersections that may occur between these two sets of laws in future mass tort cases. 

English law offers a unique perspective on the benefits and risks of mass tort restructurings because of the flexible fairness review that courts adopt in mass tort cases as part of their unfettered discretion in sanctioning any Scheme of Arrangement or Part 26A Restructuring Plan. This discretionary approach may avoid the pitfalls of strictly applying standard statutory rules in mass tort cases, but it has its own potential drawbacks as well. English law thereby also contributes to a broader policy debate on the fair and appropriate rules to govern mass tort restructurings in general. The EU, where collective redress and restructuring laws are still developing mostly independently of each other since the adoption of the Representative Actions Directive (2020) and the Preventive Restructuring Directive (2019) respectively, may draw many lessons from the English context of mass tort restructurings.

The full paper can be accessed here.

Arwin Tavakolnia is a PhD fellow in private law at the University of Amsterdam.