Re Card Protection Plan Limited

This is an application to sanction a Scheme of Arrangement under Part 26 of the Companies Act 2006 pursuant to section 899. The court found that the Scheme provides a single, accessible mechanism for redress for customers affected by mis-selling and reduces (but does not eliminate) the risk of the company becoming insolvent. The court accepted that there were disadvantages to customers (notably the bar date, the exclusion of pre-14 January 2005 rights, the methodology and the release of Business Partners' liability) but concluded that those disadvantages did not render the Scheme unfair or inappropriate.

The court was satisfied that procedural requirements were met, that the statutory majority at the convened meeting had voted bona fide, that directors had properly recommended the Scheme, and that the Financial Conduct Authority had been consulted and approved the Scheme. The prior authority Re La Seda de Barcelona SA was relied upon to show that release of third-party liability is not necessarily fatal to sanction. Applying the established test for sanction (as discussed in Re Telewest Communications Plc (no.2) and Re National Bank Limited), the judge concluded the Scheme was fair both procedurally and substantively and ordered sanction.

Background and parties: Card Protection Plan Limited is an insurance intermediary regulated by the Financial Conduct Authority whose core products were card protection and identity fraud protection. The Financial Conduct Authority identified flaws in the sale of those products and required redress where customers' decisions to buy had been materially affected. Approximately seven million customers may have claims arising from direct sales, sales introduced by Business Partners, or sales by Business Partners as agents. The company ceased new sales, has been fined by the FCA and its regulatory permissions were varied.

Nature of application: The company applied for an order sanctioning a Scheme of Arrangement under Part 26 of the Companies Act 2006 pursuant to section 899 to quantify, limit and extinguish its liabilities and to provide a single process for redress.

Issues framed by the court: (i) whether procedural requirements for convening and voting at the Scheme meeting had been satisfied; (ii) whether the Scheme was fair and in the interests of Scheme Creditors as a whole; (iii) whether aspects of the Scheme (the bar date, the exclusion of pre-14 January 2005 rights, the methodology dividing creditor recoveries, payment of 8% interest and the release of Business Partners) were such as to prevent sanction; and (iv) whether the Scheme sufficiently reduced insolvency risk and provided benefits to both customers and the company.

Key reasoning and findings: The judge accepted that the Scheme offered advantages: a single, straightforward mechanism for redress, a defined end date for liability, limitation of the company’s liability in most cases and release of contingent indemnities to Business Partners, thereby improving prospects for investment and finance. The judge also acknowledged disadvantages to customers but was satisfied none were fatal. Procedural compliance with the Companies Act 2006 and the court's prior directions was established, save for minor deviations waived by the court. The statutory majority approved the Scheme at a convened meeting and acted bona fide. The directors had unanimously recommended the Scheme and it had been considered and approved by the FCA. Reliance was placed on Re La Seda de Barcelona SA to support that a release of third-party liability does not necessarily prevent sanction. Applying the established test for sanction (as in Re Telewest Communications Plc (no.2) and Re National Bank Limited), the judge concluded the Scheme was fair both procedurally and substantively and sanctioned it.

Procedural posture: The convening of the Scheme meeting had been directed by David Richards J on 7 October and the meeting took place on 7 January 2014 where the statutory majorities approved the Scheme. The sanction application was heard by Mrs Justice Proudman and granted.

The application to sanction the Scheme under Part 26 and section 899 of the Companies Act 2006 is allowed. The court held that procedural requirements had been met, the statutory majority at the Scheme meeting had voted bona fide, the directors properly recommended the Scheme, the Financial Conduct Authority had been consulted and approved the Scheme, and that, applying the established test for sanction, the Scheme was fair both procedurally and substantively. The release of Business Partners' liability, the bar date and other disadvantages were considered but not fatal to sanction.