Cape Plc & Ors, Re Companies Act 1985

A court has jurisdiction under Companies Act 1985, section 425 to sanction a scheme containing machinery for future amendment, including amendment of ancillary documents. The existence of that jurisdiction does not make approval appropriate in every case. Clarity and certainty about the arrangement, and the protection of creditors, are important discretionary considerations.

For class composition, creditors must be grouped by the similarity of their existing rights and their rights under the scheme, assessed against the realistic alternative. Differences in the likelihood of payment are insufficient where they are matters of degree and the creditors share potential future claims. A scheme is not a contract or notice for the purposes of section 2(1) of the Unfair Contract Terms Act 1977. That provision does not prevent a genuine compromise of present or future claims arising from past acts or omissions.

Cape Plc and 24 subsidiaries applied under section 425(1) of the Companies Act 1985 for orders convening meetings of present and potential asbestos-related personal injury and contribution claimants to consider a composite scheme of arrangement.

Objections concerned three matters: whether claimants with notified but unresolved claims should form separate classes from potential future claimants; whether the proposed amendment machinery in the scheme and ancillary documents was permissible; and whether the scheme was invalid or incapable of sanction because it restricted enforcement of liability for death or personal injury contrary to section 2(1) of the Unfair Contract Terms Act 1977.

1. Class composition. The relevant comparison is between creditors’ existing rights and their rights under the scheme, assessed against the realistic alternative. The test is whether their rights are so dissimilar that they cannot consult together in a common interest. Actual and potential claimants were not required to vote in separate classes. Types 2 and 3 claims were not, as a practical matter, certain to be paid in full. Differences in payment risk were matters of degree, not differences in the nature of the rights.
2. A creditor whose claim might fall within two classes could properly vote in both classes. The separate treatment of recourse scheme creditors reflected modified insurance-related rights under the Third Parties (Rights against Insurers) Act 1930, and justified separate meetings.
3. Amendment machinery. Section 425 has a wide scope. The court had jurisdiction to sanction a scheme containing provisions for future amendment of the scheme or of ancillary documents. The court’s jurisdiction was distinct from the later discretionary question whether the arrangement was fair. The long duration and foreseeable legal, medical and financial changes made flexibility potentially appropriate, while the trustee and scheme-director safeguards protected creditors.
4. Unfair contract terms. A court-sanctioned scheme is a statutory procedure, not a contract or notice within section 2(1) of the Unfair Contract Terms Act 1977. It therefore was not rendered ineffective by section 2(1), as extended by section 13. The scheme did not amend employment contracts. The Act did not prevent a genuine compromise of future claims arising from past acts or omissions.
5. Orders were made convening the meetings. The merits and fairness of the scheme remained for any later sanction hearing.