House of Fraser (Funding) Plc, Re

When sanctioning a scheme of arrangement, the court must be satisfied that the statutory requirements have been met, that the class was fairly represented and acted bona fide, and that the scheme is one which an intelligent and honest member of the class, acting in that member’s interests, might reasonably approve.

The court should be slow to differ from the commercial judgment of creditors unless there is a defect, impediment, improper representation or other reason to doubt that the meeting considered the interests of the class. Issues concerning class constitution should ordinarily be determined at the convening hearing. The court may proceed on an assumption about unresolved jurisdictional questions where it is unnecessary to decide them.

House of Fraser (Funding) Plc applied under section 899 of the Companies Act 2006 for sanction of a scheme restructuring its financial obligations. The scheme was interconditional with a parallel Scottish scheme and was intended to avoid an imminent default and likely insolvency.

The scheme had been approved unanimously by the creditors voting at the scheme meeting, representing 87.77% by value of all creditors entitled to vote. The class had been constituted at an earlier convening hearing by Birss J in [2018] EWHC 1906 (Ch). The issues were statutory compliance, class representation and bona fides, fairness and commercial appropriateness, jurisdiction, recognition and international effectiveness.

1. The court sanctioned the scheme under section 899 of the Companies Act 2006. The statutory majorities had been obtained: 55 creditors voted in favour, representing 100% by number and value of those present and voting, and 87.77% by value of all creditors entitled to vote.

2. The meeting had been convened in accordance with the meeting order. The class had properly been constituted at the convening hearing. Following Re Hawk Insurance Company Ltd. [2002] BCC 300 and Re Global Garden Products Italy SpA [2017] BCC 637 (Ch), it was not ordinarily appropriate for the sanction judge to revisit the class constitution in the absence of a creditor challenge, particularly where the issue had received full consideration earlier.

3. The creditors voting constituted a fair representation of the class and had acted bona fide. The unanimous vote, high turnout and absence of objection supported that conclusion.

4. The scheme was one which an intelligent and honest creditor, acting in that creditor’s interests, might reasonably approve. It offered an alternative to formal insolvency, in which recoveries would have been substantially lower. Applying the principles stated in Re Telewest Communications (No.2) Ltd. [2005] 1 BCLC 772 and the commercial approach recognised in Re Apcoa Parking Holdings GmbH [2015] Bus LR 374, the court was slow to differ from the creditors’ assessment of their own interests.

5. The court assumed, without deciding, that the Recast Judgments Regulation applied and that the scheme creditors were defendants for jurisdictional purposes. On that assumption, the court had jurisdiction. It was also satisfied that the scheme would have substantial effect, applying Re Magyar Telecom BV [2014] BCC 448, given the company’s English incorporation, the location of its assets, the location of most creditors and the English governing law of the debt.

6. The court declared that Mr Elliott was a foreign representative within section 101(24) of the US Bankruptcy Code, enabling recognition of the scheme in the United States under Chapter 15. An order was made in the terms of the draft order.