Re Vodafone Group plc

The court sanctioned a scheme of arrangement under sections 895 to 899 of the Companies Act 2006 and confirmed the associated reductions of capital. The principal procedural issue decided was whether the court should dispense with the statutory requirement to settle a list of creditors under section 646. The judge applied the "real likelihood" test introduced by the 2009 Regulations (as explained in Re Liberty International) and required a well‑grounded factual assessment within a sensible temporal boundary.

The court accepted the company’s evidence: an FCA Listing Rules working capital statement, independently reviewed by Deloitte and the scheme sponsors; deliberately conservative three‑year cash‑flow forecasts prepared for creditor protection; a detailed creditor profile; credit‑rating and market evidence showing no adverse reaction; and letters of no objection from most bank lenders. On that basis the judge concluded there was no realistic possibility that any creditor could satisfy the section 646 test and therefore dispensed with settling a list of creditors.

Background and parties: Vodafone Group Plc (the Company) applied for sanction of a scheme of arrangement under sections 895 to 899 of the Companies Act 2006 to implement the sale of its 45% interest in Verizon Wireless and related transactions, together with a large return of value to shareholders and a share consolidation. Verizon Communications Inc. was represented and made submissions at the sanction hearing.

Nature of the application: the court was asked to sanction the Scheme and to confirm reductions of capital required to effect the Return of Value. Separately, and central to this judgment, the Company applied for an order dispensing with the settlement of a list of creditors under section 646 of the Companies Act 2006.

Issues framed:

• whether any creditor could show a "real likelihood" that the proposed reductions of capital would result in the company being unable to discharge a debt or claim when it fell due (the section 646 test);
• what evidence would be necessary to satisfy the court that the list of creditors could properly be dispensed with, having regard to confidentiality and market sensitivity;
• the appropriate temporal horizon for forecasting and the standard of proof required of an objecting creditor (the degree of persuasion beyond the merely possible but short of probable).

Court’s reasoning and evidence relied upon: the judge adopted the analytical approach in Re Liberty International, considering (i) the need for a factual, not speculative, assessment, (ii) a sensible temporal boundary for forecasts and (iii) the required degree of persuasion. To meet concerns about confidentiality the Company produced deliberately conservative three‑year cash‑flow forecasts (to 31 March 2017) in addition to the 12‑ to 16‑month working capital statement required by the Listing Rules. Those forecasts and the working capital statement were supported by a Deloitte working capital report, private comfort letters, and confirmations from UBS and Goldman Sachs in their sponsor roles. The Company exhibited a detailed creditor profile, evidence of the ability to refinance bonds, market evidence (unchanged credit ratings and stable bond/CDS pricing) and signed bank letters of no objection. The court concluded that, on this evidence, no creditor could demonstrate the requisite causal link between the reduction of capital and any realistic inability to pay, within a timeframe in which a reasonable assessment could be made.

Subsidiary findings and postscript: the judge reviewed contingent and prospective liabilities (including pension scheme exposures and a significant Indian tax dispute affecting a group subsidiary) and accepted that the conservative forecasts had taken those contingencies into account. Two later matters — a possible acquisition (Ono) and an increased likelihood of a substantial deposit in the Indian tax dispute — were considered; the court was satisfied that the Company would still be able to finance those contingencies and that the conclusion to dispense with a creditors’ list remained justified.

At first instance the court sanctioned the Scheme and confirmed the reductions of capital. The court granted the Company’s application to dispense with settlement of a list of creditors under section 646 of the Companies Act 2006. The judge’s rationale was that, applying the "real likelihood" test (as explained in Re Liberty International and related authorities), the Company’s robust, independently reviewed and deliberately conservative forecasts, its working capital statement prepared under the Listing Rules, the creditor profile, market evidence and lender consents showed there was no realistic possibility any creditor could establish a causal link between the reduction and an inability to pay; accordingly there was no benefit in settling a list of creditors.