Vodafone Group Plc, Re Companies Act 2006

When confirming a reduction of capital involving payment to shareholders, the court may dispense with settling a list of creditors if no creditor could realistically establish the statutory risk of non-payment. The creditor must show a real likelihood that the reduction itself will cause the company to be unable to discharge the debt when due. The assessment must be grounded in current facts, directed to a sensible period, and go beyond the merely possible while remaining short of the probable. The causative link between the reduction and the anticipated inability to pay is essential. Reliable working-capital evidence, longer-term cash-flow forecasts, creditor analysis, refinancing evidence and relevant regulatory or market evidence may establish that the test cannot be met.

The court had sanctioned a scheme of arrangement between the Company and its shareholders under Companies Act 2006, involving the sale of the Company’s interest in Verizon Wireless, a return of value to shareholders and associated reductions of capital.

The judgment addressed the earlier application to dispense with settlement of a list of creditors under section 646. The issue was whether the evidence showed any realistic possibility that a creditor could satisfy the statutory real-likelihood test and therefore be entitled to object to the reductions.

1. Application granted. The court dispensed with settlement of a list of creditors under section 646 of the Companies Act 2006.
2. Under section 646(1)(b), a creditor must show a real likelihood that the reduction would result in the company being unable to discharge the debt or claim when due. The relevant risk must be causally attributable to the reduction of capital.
3. The approach described by Norris J in Re Liberty International Plc [2010] EWHC 1060 (Ch) was helpful. The assessment should be grounded in presently known facts, avoid purely speculative possibilities, address a sensible temporal period having regard to the liability, and require a chance beyond the merely possible but short of the probable.
4. The court treated the guidance as reinforced by Re Royal Scottish Assurance Plc [2011] CSOH 2 and Re Sportech Plc [2012] CSOH 58, particularly their emphasis on the causal link between the reduction and inability to pay.
5. The evidence was sufficient. It included a rigorously prepared working-capital statement, deliberately conservative cash-flow forecasts to 31 March 2017, a detailed creditor profile, evidence of substantial remaining equity and free cash flow, the Company’s refinancing ability, creditor consents, credit ratings and market evidence. The evidence also addressed contingent liabilities, the possible Ono acquisition and the Indian tax dispute.
6. The court was fully satisfied that no present or future creditor could satisfy the real-likelihood test within a period for which a sensible assessment could be made. The conclusions were unchanged after the later developments concerning Ono and the Indian tax dispute.
7. The court also noted that a single meeting of the scheme shareholders was appropriate because their rights were sufficiently similar for them to consult together in their common interest, applying Re Sovereign Life Assurance Co v Dodd [1892] 2 QB 573.