Re DX Holdings Ltd

The court considered applications under section 896 of the Companies Act 2006 for orders convening meetings of creditors to consider schemes of arrangement. The principal issue was whether creditors who had entered into a Lock Up Agreement and would receive fees formed a separate class for voting purposes. Applying the test in Sovereign Life Assurance v Dodd and the authorities including Re Telewest Communications, the judge held that a mere voting or lock‑up agreement does not automatically create a separate class. The advantages given were available to all creditors who chose to accept them, were unlikely to have materially altered a creditor's substantive view of the scheme, and were small in relation to the common interests (0.5% immediate fee and a contingent 2% fee). For those reasons the court declined to subdivide the three creditor classes and directed that meetings proceed.

Background and parties: DX Holdings Limited and DX Secure Mail Limited (the Scheme Companies) applied for orders convening creditor meetings to consider schemes of arrangement under section 896 of the Companies Act 2006. The Co‑ordinators' Committee represented consenting lenders. There was no appearance by dissentient lenders at the hearing.

Nature of the application: Orders to convene meetings of three classes of creditors (Senior, Second Lien and Mezzanine) and a question whether certain creditors who had entered a Lock Up Agreement and would receive fees constituted separate classes.

Issues framed:

• Whether the existence of a Lock Up Agreement that afforded fees to signatories produced a distinct class of creditors such that further subdivision of the three proposed classes was required; and
• Whether the Scheme should be allowed to proceed to the sanction stage without creating new classes.

Court’s reasoning and decision: The applicable legal test is whether differences in rights are so dissimilar as to make it impossible for the members to consult together with a view to their common interest (Sovereign Life v Dodd). A pre‑meeting voting agreement alone will not normally create a separate class; however, unequal treatment in the form of benefits available only to some could. The judge found that: (i) the fees had been offered to all eligible creditors; (ii) evidence showed it was unlikely that the fees would have induced a creditor to approve a scheme that was substantively adverse to its interests; and (iii) the fees were small relative to the common interests (a 0.5% immediate fee and a possible 2% contingent fee). The question was fact specific and, on the facts here, no separate class was required. The court therefore directed the convening of the meetings and allowed the scheme to proceed to the sanction stage. The Practice Statement warning that class issues should be raised early was noted, and the absence of dissenting creditors at the hearing was recorded.

The court made the orders to convene meetings of the three creditor classes and refused to subdivide the classes to isolate creditors who had entered Lock Up Agreements. Rationale: the benefits in the Lock Up Agreement did not make the rights of signatories so dissimilar as to prevent consultation with a view to common interest — the benefits were available to all, unlikely to alter substantive voting, and small in relation to creditors' common interests — so the scheme may proceed to sanction stage.