Re Sunbird

This is a renewed convening application under Part 26 of the Companies Act 2006 for a scheme of arrangement providing a debt-to-equity conversion and a conditional rights issue. The court concluded that, taking the restructuring as a whole (including the Rights Issue and a Deed of Novation in respect of intercompany debt), the creditor 21st Century should remain in the same class as the other financial (non-trade) Scheme Creditors because its commercial interests were sufficiently aligned to permit consultation on a common interest. The court held that an insolvency analysis prepared for the board and accompanied by a disclaimer from the adviser did not prevent the court deciding the class question at convening, although adequacy and accuracy of the Scheme Document could be challenged at sanction. The court therefore ordered that a single meeting of Scheme Creditors be convened and gave directions on timing of circulation and the sanction hearing.

This was a renewed application by Sunbird Business Services Limited for an order to convene a single meeting of its financial creditors to consider a proposed scheme of arrangement under Part 26 of the Companies Act 2006. The New Scheme proposed conversion of about US$15.9 million (plus accrued interest) of debt into A1 Ordinary Shares at a conversion rate of one share per US$0.33, together with a fully underwritten Rights Issue to raise US$3 million at US$0.20 per new A1 Ordinary Share. The application followed an earlier dismissal by the same judge of a substantially similar Original Scheme ([2020] EWHC 2493 (Ch)).

The main issues were:

• class composition: whether 21st Century Group Holdings Limited, which held debt against both the Company and the subsidiary Sunbird Business Services Africa Limited (SBSAL) and had entered a Deed of Novation, should form a separate class;
• the form and adequacy of the Scheme Document, in particular the Insolvency Analysis and Valuation Report prepared for the board and the fact that the corporate finance adviser (JCK) disclaimed responsibility to third parties; and
• timing: whether there should be at least 28 days between circulation of the Scheme Document and the court meeting.

The court applied established Part 26 principles: class constitution is determined by comparing existing rights and new rights under the scheme and whether differences make it impossible for creditors to consult together in their common interest. The restructuring as a whole (including collateral arrangements conditional on the scheme) must be considered. The judge accepted that 21st Century had different rights in respect of SBSAL, but concluded on commercial analysis that 21st Century was effectively foregoing strategic leverage against SBSAL under the Deed of Novation and thereby aligning its interests with other Scheme Creditors. The court considered that the Insolvency Analysis and director evidence provided a sufficient basis at the convening stage, and that JCK's disclaimer did not prevent determination of class composition; any factual inaccuracies could be challenged at sanction. The court therefore ordered a single meeting of Scheme Creditors, required not less than 21 days' circulation between the Scheme Document and the meeting, and directed the sanction hearing to be listed at least one week after the meeting. The Opposing Creditors reserved rights to challenge the Scheme Document at sanction.

The court made an order to convene a single meeting of the Scheme Creditors and gave directions on circulation and timing. The judge found that, although 21st Century had different existing rights in respect of SBSAL, those differences did not prevent it consulting with other Scheme Creditors because its commercial interests were aligned by the Deed of Novation and the wider restructuring. The court also held that the Insolvency Analysis and supporting director evidence were sufficient to decide the class issue at convening despite the adviser’s disclaimer; challenges to accuracy and adequacy may be pursued at sanction.

The application renews a previous scheme proposal; the court had earlier dismissed the Original Scheme for materially defective information and procedure (see Snowden J, [2020] EWHC 2493 (Ch)). This judgment concerns a renewed convening application rather than an appeal.