Welcome Financial Services Ltd, Re Companies Act 2006

A scheme of arrangement under Part 26 of the Companies Act 2006 may compromise claims made by a customer in the capacity of creditor, including contingent statutory liabilities arising from a pre-existing credit agreement. It cannot compromise claims made in the customer’s capacity as debtor, even where the same customer also has a creditor claim. The court must examine the nature of the claim and the capacity in which it is advanced, rather than the form of relief sought. A scheme’s broad wording cannot extend the court’s jurisdiction beyond Part 26. Claims arising after the scheme date may nevertheless be within the scheme where they result from an obligation incurred before that date.

Welcome Financial Services Ltd and the scheme supervisors sought declarations concerning the construction of a scheme of arrangement made under Part 26 of the Companies Act 2006. The scheme restructured Welcome’s business and imposed a moratorium and bar date for claims. Customers later sought to pursue claims arising from credit agreements, including Consumer Credit Act claims, insurance claims, overpayments, uncashed cheques and charges.

The central issues were whether each claim was made by the customer as a creditor, whether it was a scheme liability arising from an obligation incurred before 2 March 2011, whether it was an excluded liability, and how claims brought within specified exceptions to the moratorium should be treated.

1. CCA claims. Claims seeking non-pecuniary relief, such as declarations of unenforceability or unfairness while the customer remained a debtor, were not claims made in the capacity of creditor and fell outside the scheme. The same applied to non-monetary consequential relief. A declaration sought after the agreement had been discharged, where its only purpose was to generate repayment, was instead a creditor claim.
2. The nature of the claim, rather than the form of the relief sought, determined the customer’s capacity. A claim could not be converted into a debtor claim merely by seeking declaratory relief. Conversely, the scheme’s wide definition of liability could not confer jurisdiction beyond Part 26. The distinction followed Re Lehman Brothers International (Europe) [2009] EWCA Civ 1161.
3. Monetary CCA claims, non-PPI claims, overpayment claims, qualifying uncashed-cheque claims and charges claims were scheme liabilities where they arose from obligations incurred before 2 March 2011. Applying the approach in In re Nortel GmbH [2013] UKSC 52, entering into a credit agreement created the relevant legal relationship and statutory vulnerability, even where the complained-of conduct occurred later.
4. Claims based on PPI liabilities were excluded under the scheme. Other creditor claims were not excluded under Schedule 3. Charges imposed after 2 March 2011 under pre-existing agreements still arose from pre-existing obligations and were scheme liabilities.
5. Insufficient individual notice could not be reopened after the scheme had been sanctioned. Notice complying with the convening order was sufficient, and the sanctioned scheme was binding under Part 26.
6. Where proceedings were properly brought within an exception to the moratorium and the creditor obtained judgment, the judgment sum could be set off against sums owed to Welcome. Any balance owed to the customer was to be treated as an ascertained scheme claim for distribution purposes. A declaration was made accordingly.