Re Sunbird Business

This is an application under Part 26 of the Companies Act 2006 for sanction of a scheme of arrangement to convert about US$15.9 million (plus accrued interest) of the Company’s long-standing debt into A1 Ordinary Shares and to enable a fully underwritten rights issue of US$3 million. The central legal issues were whether the explanatory statement and supporting financial information satisfied section 897 CA 2006 and the Practice Statement so that creditors were "properly consulted" and could make an informed decision.

The court applied the established principles (Re Telewest and related authorities) that the court must ensure statutory compliance, fair representation of the class and that the arrangement is one which an intelligent and honest member of the class might reasonably approve, while recognising creditors are generally best placed to judge commercial risks. The court found significant defects and inconsistencies in the financial information and that certain third‑party reports (an insolvency analysis and valuation review by JCK) were prepared on a limited basis and accompanied by disclaimers. Nevertheless, the court concluded that the Scheme Creditors had been properly consulted, the limited nature of JCK’s work was disclosed and the factual setting (including release of lock‑ups and the same creditor constituency voting again) meant the defects were not such as to have materially affected the creditor vote. The court therefore sanctioned the Scheme.

Background and nature of the application

• The Company is a holding and finance company for a group operating flexible office space in African jurisdictions. The Company sought sanction of a scheme under Part 26 CA 2006 to implement a debt‑to‑equity conversion and enable a US$3 million rights issue to provide working capital.
• The Original Scheme was refused sanction on 18 September 2020 because the explanatory information was inaccurate and incomplete; the Company returned with a revised Scheme Document and related materials and the court ordered a single creditors' meeting.

Parties and procedure

• The Scheme was approved at the creditors' meeting on 20 November 2020 by the required majorities (24 of 30 creditors by number, holders of 86% in value of Scheme Debt voting in favour). Two principal opposing parties were Mr Rupinder Bains and associated creditors and Beach Resorts Investments Limited, who challenged the adequacy and accuracy of the Scheme Document and supporting reports.

Issues framed

1. Whether the Scheme Document and its financial information complied with section 897 CA 2006 and the Practice Statement so as to constitute "proper consultation" enabling creditors to make an informed decision.
2. Whether material inaccuracies, inconsistencies or the limited scope of independent reports meant the court would be sanctioning a scheme that could achieve no substantial purpose (i.e. would be acting in vain because the company would not survive even if the Scheme were implemented).
3. Whether disclosure of directors' and connected persons' interests was adequate.

Court’s reasoning and findings

• The court reviewed legal principles from Re Telewest and older authorities, and the statutory requirements in sections 896–897 CA 2006 and the Practice Statement emphasising the need to provide creditors with information reasonably necessary to decide how to vote.
• The court identified a number of material deficiencies and inconsistencies in the financial information (examples included discrepant figures for a Kenya leasing facility, apparent accounting errors or non‑existent intercompany loans involving TFA Kenya and related entities, ambiguous treatment of certain receivable/prepayment items and limits in JCK’s verification work). The JCK insolvency analysis and valuation review had limited scope, did not constitute an audit and included prominent disclaimers of responsibility to creditors.
• The court accepted that the overall quality of the accounting records and the supporting materials was poor and that the Scheme Document was imperfect. However, the court concluded that Scheme Creditors were adequately warned of the limitations, JCK’s reports were made available, lock‑up agreements had been released, and the same creditor constituency that had considered and rejected the earlier scheme again approved the revised scheme by a substantial majority.
• The court also gave weight to the fact that the opposing creditors had not used opportunities to raise and canvass their concerns with other creditors at the meeting and had chosen limited engagement at the sanction hearing, which reduced the persuasive force of their objections.
• Balancing the imperfections against the commercial judgment creditors are entitled to make, the court held that the defects were not of such magnitude as to have materially altered the outcome at the meeting and therefore sanctioned the Scheme.

Wider context: the judgment recognises the need for practical flexibility in Part 26 cases involving smaller or medium‑sized companies where perfection in audited or fully verified information may not be attainable, but emphasises that disclosure of limitations and appropriate access to advisers' work products are important safeguards.

The court sanctioned the scheme. Although the Scheme Document and supporting financial material contained significant inaccuracies and deficiencies and JCK’s work was limited and disclaimed responsibility, the defects were not of such materiality as to have affected the reasonable commercial judgment of the Scheme Creditors who had voted in favour; relevant limitations had been disclosed, lock‑ups were released, and the Scheme would not be sanctioned in vain.