House of Fraser (Funding) Ltd, Re

For scheme-class purposes, the relevant comparison is the position creditors would face if the scheme failed. Where insolvency would accelerate debts to a common maturity and creditors rank pari passu, existing differences in maturity may not create a relevant difference. Differences in interest rates can still matter, particularly where insolvency would produce a near-full recovery and the scheme would extend the debt substantially. The court must assess the evidence realistically. Expert evidence supplied on a non-reliance basis cannot support the application unless the expert’s duty of care is extended so that the company and court may rely on it. In urgent cases, shortened notice may be sufficient when account is taken of financial distress, the scheme’s complexity, the nature of the creditors and the notification methods used.

House of Fraser (Funding) Limited applied under Part 26 of the Companies Act 2006 for an order convening a single meeting of scheme creditors. The proposed scheme formed part of an interconditional restructuring involving a parallel Scottish scheme, company voluntary arrangements, a proposed sale and further investment. It sought principally to extend maturity dates, amend security and change-control provisions, and align two financial instruments.

The court considered whether the creditors under the senior facilities agreement and the notes could vote as one class, whether the evidence of likely insolvency returns was usable, and whether 12 days’ notice of the convening hearing was sufficient.

1. Application granted. The court approved the convening process for a single class of scheme creditors and directed that the matter proceed to an approval hearing.
2. The appropriate comparator for class analysis was insolvency, because failure of the scheme was likely to lead to an insolvency process within about a month. In that event, the different maturity dates would accelerate and become common. The maturity differences therefore did not create a relevant difference between the creditors.
3. The intercreditor agreement provided for pari passu ranking and shared security enforcement. Those features supported treating the creditors as a single class.
4. Interest-rate differences could be relevant to creditors’ rights. If insolvency produced only a low return, the difference between the rates under the notes and the senior facilities agreement was insufficient to fracture the class, given the approximately 18-month extension. A materially different conclusion might be possible if insolvency produced a near-full recovery.
5. Evidence produced on a non-reliance basis could not be relied upon by the court. The KPMG report became usable only after KPMG extended its duty of care to the company for the purposes of advancing the scheme. The resulting evidence showed likely returns of about 16 pence in the pound in administration and 6 pence in liquidation.
6. Applying the principles described by Snowden J in Re Inda Kiat International Finance Company BV [2016] EWHC 246 Ch, 12 days’ notice was sufficient. The case was urgent, the scheme was not unduly complicated, the creditors were institutional and accustomed to acting quickly, and market notification mechanisms had been used.