Co-Operative Bank Plc, Re

At the convening stage of a scheme of arrangement, the court must identify the least number of classes necessary to ensure that creditors whose rights are sufficiently similar can consult together in their common interest. The comparison should reflect the economic reality facing the creditors, including the realistic insolvency alternative. Different instruments, currencies, maturity dates or special arrangements do not necessarily require separate classes. The court must examine both the rights surrendered and the rights received under the scheme. A beneficial owner under a trust may qualify as a contingent creditor where it has an absolute, defined mechanism to require the company to issue notes directly.

The Co-operative Bank sought an order under section 896 of the Companies Act 2006 convening a single meeting of holders of seven forms of dated notes to consider a recapitalisation scheme. The notes differed in currency, interest and maturity. A subgroup had negotiated the transaction, received underwriting fees, had director-nomination rights and initially had greater access to information.

The Bank proposed that beneficial owners, rather than trustees, should vote. The central questions were whether the noteholders could properly constitute one class and whether the beneficial owners could be treated as creditors for the statutory voting process.

1. The application was granted. A single class meeting was ordered for all holders of the seven forms of Dated Notes.

2. The applicable class principle, established in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573, is to identify the least number of classes necessary to ensure that persons whose rights are not so dissimilar that they cannot consult together in a common interest vote in the same class. The concern that excessive fragmentation may give a minority a disproportionate veto was reinforced by Re Hawk Insurance Co Ltd [2001] 2 BCLC 480 and Re UDL Holdings Limited [2002] 1 HKC 172.

3. The proper comparator was the realistic insolvency outcome. The holders would have no practical prospect of a return and would rank pari passu among themselves. Their common economic position therefore supported a single class despite differences in the instruments.

4. The court examined the rights going into and coming out of the Scheme. The underwriting arrangements, underwriting fees, one-off director-nomination rights, temporary information advantage and sterling/euro distinction did not create such different interests as to prevent consultation in one class. The approach was consistent with the reasoning in Re Telewest Communications Plc [2004] EWHC 924 (Ch).

5. Beneficial owners could vote in place of the trustees. Following the reasoning in In the matter of Castle Holdco 4 Limited [2009] EWHC 3919 (Ch), In the matter of Gallery Capital SA and In the matter of Gallery Media Group Limited [2010] WL 4777509 and Re T&N Limited and others [2005] EWHC 2870 (Ch), they were contingent creditors because they had an absolute and defined right to require the Bank to issue definitive notes directly. The conclusion was expressly case-specific.

First-instance decision. No prior appellate history was stated in the judgment.