Re Co-operative Bank plc

The Bank sought an order under section 896 of the Companies Act 2006 to convene a single class meeting of holders of seven varieties of subordinated dated notes (the "Dated Notes") to consider a proposed scheme of arrangement forming part of a broader Liability Management Exercise to recapitalise the Bank. The court applied the established test for class composition — whether the least number of classes necessary can consult together with a view to their common interest (Sovereign Life v Dodd and later authorities, including Re Hawk) — and concluded that a single class was appropriate.

The court's conclusion turned on the economic comparator of the realistic alternative to the Scheme (principally insolvency or resolution under the Banking Act 2009) and on the similarity of rights both going into and coming out of the Scheme: all holders would rank pari passu in an insolvency and, under the Scheme, would receive the same package (pro rata participation in new Tier 2 notes, an entitlement to 45% of the equity by subscription and an opportunity to subscribe for a further 25% equity through an underwritten open offer), with differences identified (underwriting fees, a one‑off nomination right for the LT2 sub‑group, timing of access to negotiation information, and euro/sterling conversion mechanics) insufficient to make separate classes necessary.

The court also held, on the facts of this case, that beneficial holders could vote in place of trustees because their position amounted to contingent creditors who had a defined mechanism to require issuance of definitive notes; therefore beneficiaries could be treated as creditors for voting purposes. The application for a single class meeting was granted.

Background and parties. The Co-operative Bank Plc (the "Bank") applied for an order under section 896 of the Companies Act 2006 to convene a single class meeting of holders of seven forms of subordinated dated notes to approve a scheme of arrangement that formed part of a wider Liability Management Exercise to raise capital. The Bank faced a material capital shortfall against Basel III requirements and risked regulatory intervention or insolvency absent recapitalisation. The LT2 Group was a sub‑group of noteholders who had negotiated elements of the proposed arrangement; The Law Debenture Trust Corporation plc appeared for trustee interests.

Nature of the application. The relief sought was an order convening one class meeting for all holders of the Dated Notes pursuant to section 896 Companies Act 2006. The court's task at this preliminary stage was to determine whether a single class was appropriate; fairness and the overall merits would be addressed at a later sanction hearing.

Issues framed. The court identified two principal issues: (i) whether the seven varieties of Dated Notes should be treated as a single class for convening purposes, applying the established test as to similarity of rights and the realistic alternative (comparator) for creditors; and (ii) whether beneficial owners could vote in place of trustees, given the trust arrangements.

Court's reasoning on class composition. The judge adopted the economic comparator of potential insolvency/resolution under the Banking Act 2009 and concluded that all holders shared a realistic prospect of receiving nothing in insolvency and would rank pari passu among themselves. The court examined differences arising from (a) underwriting arrangements (4% fee for the LT2 Group, 2% for sub‑underwriters), (b) a one‑off right for the LT2 Group to nominate two directors, (c) disparity in timing of information access, and (d) one series being denominated in euros with a conversion date. Each difference was analysed and found insufficient to render the rights so dissimilar as to require separate classes, with supporting authority from Re Telewest and Re Hawk. The underwriting fee amounts were held to be commercially reasonable and not decisive; the nomination right was attenuated and subject to shareholder vote; information disparities were not decisive given the sophistication of creditors; and currency conversion mechanics did not create a class‑based disadvantage on the evidence.

Court's reasoning on voting by beneficial holders. The judge considered authorities (including Castle Holdco and Gallery decisions) and concluded that, in the particular factual context where beneficiaries had an absolute right to require issuance of definitive notes, they could be treated as contingent creditors and thus as creditors for voting purposes. That justified allowing beneficial holders to vote in place of trustees for the convening resolution.

Procedural and contextual observations. The judge emphasised that the sanction hearing could revisit class composition but that the modern approach, following Re Hawk, places primary weight on the convening stage. No substantive objections were before the court. The application to convene a single class meeting was acceded to.

The court granted the Bank's application to convene a single class meeting of all holders of the Dated Notes under section 896 Companies Act 2006. The rationale was that, applying the established test for class composition and using the realistic comparator of insolvency or regulatory resolution, the rights of the various noteholders were not so dissimilar as to prevent them consulting together. On the facts, differences identified (underwriting fees, a one‑off nomination right, information timing and currency conversion) did not require separate classes. The court also held that the beneficial owners could vote in place of trustees as contingent creditors for the convening vote.