House of Fraser (Funding) Plc, Re

This was an application under section 899 of the Companies Act 2006 for the court's sanction of a proposed Scheme of Arrangement. The court applied the established principles for sanctioning schemes (Re National Bank Ltd and Re Telewest), and concluded that: (1) the statutory majorities were obtained at the Scheme Meeting; (2) the meeting was convened in accordance with the Meeting Order; (3) the class of Scheme Creditors was properly constituted (as determined at the Convening Hearing by Birss J); (4) the statutory majority voted bona fide and fairly represented the class; and (5) the Scheme was one which an intelligent and honest member of the class might reasonably approve because it offered a better outcome than formal insolvency. The court also assumed jurisdiction under the Recast Judgments Regulation for the purposes of the hearing, was satisfied as to the Scheme's likely international effectiveness and recognition (including consideration of Chapter 15 recognition in the United States), and declared the Company’s nominated person a "foreign representative" for US purposes. For these reasons the court sanctioned the Scheme.

The applicant, House of Fraser (Funding) Plc, sought the court's sanction under section 899 of the Companies Act 2006 for a Scheme of Arrangement forming part of a group-wide "amend and extend" restructuring. The Scheme was interconditional with a parallel Scottish scheme and was designed to extend maturities, amend security and change-control provisions and thus facilitate a sale or further investment. The matter followed a Convening Hearing before Birss J at which a single creditor class was approved and a Meeting Order was made. A Scheme Meeting was held in accordance with that order, at which the requisite statutory majority (both by number and value of those present and voting) voted unanimously in favour.

The principal issues before the court at the sanction hearing were:

• whether statutory requirements had been complied with (statutory majorities, compliance with the Meeting Order and correct class constitution);
• whether the majority had acted bona fide and fairly represented the class; and
• whether the Scheme was one that an intelligent and honest creditor might reasonably approve.

The court applied the established test from Re National Bank Ltd and the further guidance in Re Telewest, taking account of prior judicial determinations at the Convening Hearing (including Birss J's reasoning). The court found that the statutory majorities were obtained, the meeting had been properly convened, no creditor contested the class constitution, and the voting creditors were acting bona fide. The Scheme was viewed as a commercially rational alternative to formal insolvency that would preserve greater creditor recovery. The court also addressed jurisdiction and international effectiveness: it assumed, for present purposes, the applicability of the Recast Judgments Regulation and was satisfied that the Scheme would achieve its intended purpose, noting US law advice on Chapter 15 recognition and declaring the Company’s nominated individual a foreign representative for US Bankruptcy Code section 101(24) purposes. The court therefore sanctioned the Scheme and made an order in the terms drafted by the Company.

The court sanctioned the proposed Scheme of Arrangement under section 899 of the Companies Act 2006. The sanction was granted because the statutory requirements had been met, the class was properly constituted and fairly represented, the statutory majority had acted bona fide, the Scheme was one that creditors could reasonably approve as preferable to formal insolvency, and the court was satisfied as to jurisdiction and international effectiveness (including recognition considerations). The court also declared the Company's nominated person to be a "foreign representative" within the meaning of section 101(24) of the US Bankruptcy Code.

Birss J conducted a Convening Hearing and made a Meeting Order (reported at [2018] EWHC 1906 (Ch)), determining that a single class of Scheme Creditors was appropriate; the sanction hearing was then before Henry Carr J on 25 July 2018. The Scottish parallel scheme and related sanctions in the Scottish courts were to be heard separately.