Co-Operative Bank Plc, Re

A company may withdraw or materially modify a proposed scheme of arrangement before court sanction, since the scheme has no legal effect until sanctioned, subject to the court’s control of timing and fairness. Commercial reliance on the original proposal does not itself create a contractual, equitable or tortious bar. Equity intervenes only on a principled basis, and fairness alone is insufficient. Promissory estoppel requires a clear and unequivocal representation. Where a modification addresses a material defect, preserves the essential class structure, and permits a fair and effective process, the court may allow the modified scheme to proceed.

The Bank proposed a scheme under Companies Act 2006, section 896, concerning seven series of subordinated debt securities. After directions had been given for a single meeting of all scheme creditors, a defect emerged in the open-offer mechanics: minimum allocations could enable small holders to obtain a disproportionately valuable discounted subscription, undermining the intended broadly pro rata distribution.

The Bank and a substantial group of noteholders supported modifications. Smaller noteholders objected on grounds including reliance, lateness, contractual and equitable impediment, estoppel, tortious duty, notification and possible regulatory breaches. The central issue was whether the Bank could withdraw the original proposal and put forward only the modified scheme, and whether the timetable allowed a fair process.

1. The modified scheme was permitted to proceed. The Bank was entitled, subject to the court’s control and eventual sanction, to withdraw the original scheme and propose the modification. The court accepted that the modification addressed a genuine defect and more closely achieved the intended broadly pro rata allocation.
2. A proposed scheme is only a proposition until sanctioned and has no legal effect. The Bank could ordinarily withdraw or replace it, subject to timing and the court’s discretion. The court referred to Re Savoy Hotel Ltd [1981] Ch 351 and Kempe Ambassador Insurance Co [1998] 1 BCLC 234.
3. No tortious duty of care, contractual bar or equitable impediment prevented modification. The lock-up documentation expressly contemplated termination if the Bank decided not to proceed or to proceed on materially different terms.
4. Equity is concerned with fairness but acts only through recognised principles. No fiduciary duty of the asserted kind was established. The Bank’s duty of good faith and transparency was not breached, and the Board’s reasons disclosed no improper purpose.
5. Neither estoppel by convention nor promissory estoppel was made out. The noteholders had calculated and accepted risks, but there was no clear, unambiguous and unequivocal representation encouraging reliance. The court relied on Sabrina Soon Duck Park Kim v Chasewood Park Residents Limited [2013] EWCA Civ 239.
6. The modification could be fairly explained, introduced no additional class problem, and left time for proper voting and consideration at the sanction hearing. Regulatory issues remained open, with liberty to apply if an impediment emerged. Ultimate fairness remained for the sanction hearing.