Sunbird Business Services Ltd, Re

In determining the composition of classes for a scheme under Companies Act 2006 Part 26, the court must compare creditors’ existing and proposed rights and ask whether differences make it impossible for them to consult together in their common interest. The analysis is commercial as well as legal. The court must consider the scheme in the context of the wider restructuring, including legally or commercially interdependent arrangements conditional on the scheme. Insolvency does not automatically eliminate class differences, but the court should avoid creating unnecessary separate classes. The court retains discretion at the sanction stage to refuse approval despite a favourable class vote.

Sunbird Business Services Limited sought an order convening a single meeting of its financial creditors to consider a renewed scheme of arrangement under Part 26 of the Companies Act 2006. The proposed restructuring involved debt-for-equity conversion, a rights issue and a consensual novation of a subsidiary debt owed to 21st Century Group Holdings Limited.

Opposing creditors argued that 21st Century’s additional rights required a separate class, that the scheme materials were inadequate, and that more time was required before the meeting. The central issues were whether the creditors could consult together in a common interest and whether the meeting should be convened on the proposed timetable.

The court ordered that a single meeting of the Scheme Creditors be convened.

1. Class composition. The starting point was a comparison of the creditors’ existing rights, which were to be released or varied, and their rights under the proposed scheme. The question was whether differences in those rights made it impossible for the creditors to consult together with a view to their common interest, applying the principles summarised in Re Noble Group Limited (convening) [2018] EWHC 2911 (Ch) and the authorities there identified.
2. The analysis required respect for separate corporate personalities, so 21st Century’s rights against the subsidiary were legally different from the rights of creditors owed money by the company. However, the question whether those differences required separate classes had to be assessed commercially.
3. The New Scheme, the Rights Issue and the Deed of Novation were legally and commercially interdependent and formed part of the overall restructuring. The additional rights given to 21st Century reflected its surrender of commercial leverage arising from its separate claim against the subsidiary. It could therefore consult with the other creditors about the viability of the restructuring and the proposed allocation of ownership. The creditors could consult together in a common interest.
4. The court rejected the proposition that insolvency made a single class inevitable. The risk of liquidation was not a solvent for all class differences. Equally, the court should not identify differences too readily and create excessive classes carrying inappropriate veto rights. The court’s discretion at the sanction stage remained an important safeguard.
5. The absence of third-party responsibility by JCK for the insolvency analysis did not prevent the court deciding the class issue at the convening stage. The issue turned principally on the group’s structure, there was other supporting evidence, and the accuracy of the analysis had not been specifically challenged. If material inaccuracy were later shown, the class issue could be reopened at sanction.
6. The revised scheme materials demonstrated the value of the Practice Statement process. The meeting was convened, with at least 21 days between circulation of the scheme document and the meeting, and the sanction hearing to be listed at least one week after the meeting.