Codere Finance 2 (UK) Ltd, Re Companies Act 2006

In deciding whether to sanction a scheme of arrangement, the court must first verify statutory compliance, then consider the meeting’s composition and good faith, and finally ask whether an intelligent and honest member of the class could reasonably approve the scheme. The scheme need not be the only or best fair scheme. The court gives substantial weight to an informed commercial decision by creditors, while retaining an independent supervisory role.

Fairness may require consideration of interests as well as strict rights. Benefits received by an influential creditor group should be assessed cumulatively, alongside the commercial services or new money provided in return. The court may sanction a scheme where the statutory majority is overwhelming and the scheme offers materially better expected recoveries than the realistic alternative.

Codere Finance 2 (UK) Ltd applied under Part 26 of the Companies Act 2006 for sanction of a scheme compromising claims under existing notes and implementing a wider restructuring. The court had previously ordered a single meeting after rejecting an objection that members of an ad hoc committee should form a separate class: [2020] EWHC 2441 (Ch).

The meeting approved the scheme by 249 of 250 creditors present, representing 99.99% by value, with 94.76% of all claims represented. The issues were whether the statutory requirements had been met, whether the class had been fairly represented, whether a creditor could reasonably approve the scheme, and whether the court had jurisdiction over the company and creditors and could make an order with a substantial effect.

1. Sanction granted. The statutory requirements under Part 26 of the Companies Act 2006 were satisfied. The required majority in number and 75% in value was comfortably achieved.
2. The court applied the established three-stage approach: statutory compliance; fair representation and bona fide voting without coercion of the minority to promote adverse interests; and whether an intelligent and honest member of the class, acting in that person’s interest, might reasonably approve the scheme. The scheme need not be the only or best fair scheme. The court retains an independent role but is slow to differ from an informed commercial decision by the class: Re Telewest Communications (No 2) [2005] BCC 36; Re National Bank Limited [1966] 1 WLR 819.
3. The class was fairly represented. The overwhelming approval, including approval by more than 99% in number and value even if the ad hoc committee and backstop participants were excluded, showed that collateral benefits had not distorted the decision and that there had been no coercion.
4. For fairness, the court considered interests as well as rights and assessed the cumulative benefits available to committee members. That assessment had to take account of the commercial services and new money provided in return for particular benefits, including the backstop, work fee, consent fees and Interim Notes. The expected liquidation return of 0–4.1% contrasted with the prospect of full recovery under the scheme.
5. The court had jurisdiction over the company because it was incorporated in England. The company’s accession to the notes’ governing indenture for the purpose of proposing the scheme, and the group’s forum-shopping, did not deprive the court of jurisdiction. Comparable restructuring techniques were recognised in Re Codere Finance (UK) Limited [2015] EWHC 3778 (Ch) and Re NN2 Newco Limited [2019] EWHC 1917 (Ch).
6. Assuming without deciding that the Recast Judgments Regulation applied, Article 8 was satisfied because at least 35 creditors were domiciled in England and held about 20% of the claims. The court therefore did not need to resolve the minimum number of English-domiciled creditors required.
7. The court was satisfied that the scheme would have, or at least had a real prospect of having, a substantial effect. Expert evidence concerning recognition in key jurisdictions and the high level of creditor lock-up supported that conclusion, consistent with Re Magyar Telecom BV [2014] BCC 448.
8. The scheme was sanctioned.