DX Holdings Ltd & Ors

Creditors form separate classes for a scheme of arrangement only where their rights are so dissimilar that they cannot consult together in pursuit of their common interest. The inquiry is fact-specific and involves a value judgment, including the materiality of the difference compared with the creditors’ common rights. A voting agreement securing support before the meeting does not, by itself, create a separate class. Benefits offered under such an agreement may do so where they materially affect the creditors’ interests or produce unequal treatment. Small, generally available fees which do not influence creditors’ substantive assessment of the scheme will not necessarily require a separate class.

DX Holdings Ltd and DX Secure Mail Limited applied for orders convening creditor meetings to consider schemes of arrangement under section 896 of the Companies Act 2006. The proposed classes were Senior, Second Lien and Mezzanine Creditors.

Most creditors had entered into a Lock Up Agreement requiring support for the schemes and providing fees. Two eligible creditors had not signed it and could no longer claim the fees. The central issue was whether creditors who had signed the agreement had rights sufficiently different from those who had not to require separate classes.

1. Class test. Creditors should be placed in separate classes where their rights are so dissimilar that consultation with a view to their common interest is impossible, applying Sovereign Life Assurance v Dodd [1892] 2 QB 573 at 583. Not every difference in rights requires a separate class. The assessment is fact-specific and involves a value judgment about the materiality of the difference in relation to the common rights under discussion.
2. Voting agreements. The mere fact that support for a scheme has been secured before the meeting through a voting agreement does not create a separate class. The reasoning in Re Telewest Communications PLC [2004] BCC 356; [2004] EWHC 924 (Ch) at [52]–[54] supported that conclusion. Benefits connected with the agreement may nevertheless raise a serious class issue where they produce unequal treatment or materially affect the creditors’ interests.
3. Application. The fees were available to all creditors who signed the agreement, were small relative to the common restructuring interests, and were unlikely to persuade a creditor to support a scheme which it considered substantively adverse. The payments were therefore insufficient, on the facts, to require separate classes. The court directed that the schemes proceed without new classes.
4. Class questions should ordinarily be raised at the convening hearing. The failure of dissentient creditors to attend did not confer jurisdiction, but it made it undesirable for them later to seek a different value judgment without explaining their earlier absence.

First-instance decision. The judgment records no prior appellate decision.