Re Castle Trust Direct Plc

The court granted an order to convene four linked scheme meetings under Part 26 of the Companies Act 2006 to consider schemes converting bond liabilities into deposits owed by Castle Trust Capital Plc (CTC). Key legal principles applied were: (a) Part 26 meeting convening is concerned with notice, jurisdiction and class constitution rather than the merits of the scheme; (b) class composition is governed by the similarity of creditors' legal rights pre- and post-scheme and should be approached broadly to avoid unjustified minority vetoes; (c) beneficial holders registered through a nominee may be treated as "creditors" for Part 26 purposes where they possess contingent contractual rights (the court proceeded on the basis that that approach was probably correct but did not finally decide the point); and (d) the court may assume for convenience that the Recast Judgments Regulation applies and may exercise jurisdiction for foreign companies where Article 8 applies (and a sufficient connection to England exists).

The court also held that, for the purposes of Part 26, a "meeting" may be conducted by electronic means (here telephonic access plus webinar) provided the arrangement produces a sufficient "coming together" to enable consultation; the adequacy of that approach will be tested at the sanction stage by evidence of how the technology operated. The court was satisfied that conditionality (notably CTC obtaining full bank authorisation) did not preclude convening meetings where conditions are highly likely to be satisfied.

Background and parties. Three companies in the Castle Trust group applied for orders convening four linked schemes of arrangement under Part 26 CA 2006. The scheme companies were Castle Trust Direct Plc (CTD), Castle Trust Income Housa Plc (Housa) and Castle Trust Capital Plc (CTC). CTD and Housa had issued bonds (Fortress Bonds and Income Housas) the beneficial interests in which were held by investors through a nominee (Castle Trust Capital Nominees Ltd). CTC funds its mortgage business in part by borrowing from CTD and Housa and had on-sold the beneficial interests to bondholders.

Nature of the application and relief sought. The companies sought directions to convene scheme meetings and, in light of the COVID-19 pandemic, sought permission for meetings to be conducted by telephone and webinar facilities so that predominantly elderly bondholders could participate remotely. The substantive scheme proposed conversion of bond claims into cash deposits with CTC on economically equivalent terms, subject to conditions including CTC obtaining full bank authorisation.

Issues framed by the court. The court identified the principal issues as notice and Practice Statement compliance, class constitution, whether the beneficial holders were properly treated as "creditors" for Part 26, international jurisdiction and recognition (including the relevance of the Recast Judgments Regulation and Article 8), conditionality of the scheme (particularly bank authorisation), and whether a "meeting" under Part 26 may lawfully be held by electronic/telephonic means.

Reasoning and findings. The court found that notification carried out complied with the Practice Statement and no creditor responses raised class issues requiring denial of convening orders. Applying established authorities on class composition, the court concluded that differences of maturity and interest rates between bond issues did not make it impossible for the relevant groups to consult together; the court should adopt a broad approach to classes and focus on creditors' rights rather than commercial interests. On the nominee/beneficial holder point, the court accepted the argument (without finally deciding it) that a contractual right to request definitive notes could give rise to a contingent claim and therefore supportive of treating beneficial holders as creditors for Part 26 purposes. On international jurisdiction the court proceeded on the usual assumption that the Recast Judgments Regulation could apply and concluded Article 8 provided an exception so that English jurisdiction was appropriate given the strong English connection (English law governing liabilities and most creditors domiciled in the United Kingdom). The court accepted that the existence of outstanding conditions (CTC bank authorisation) did not prevent convening meetings where the conditions were likely to be satisfied by the sanction stage but noted conditionality would be a relevant consideration at sanction.

Electronic meetings. The court held that the word "meeting" under Part 26 can extend to meetings conducted by electronic means where the technology produces a sufficient "coming together" to enable consultation (participants must be able to hear, ask questions and express views in circumstances in which others can likewise participate). The court directed that remote meetings could be convened in the circumstances of the COVID-19 pandemic but emphasised the sanction hearing would require evidence that the technology operated effectively and did not impair participation.

Disposition. The court ordered the convening of the four scheme meetings and indicated it would settle detailed directions for remote conduct of the meetings.

The application to convene the four linked scheme meetings under Part 26 was granted. The court concluded that the companies had provided adequate notice, that the proposed classes of creditors were properly constituted, that beneficial holders could be treated as creditors for the purpose of Part 26 (provisionally), and that English jurisdiction and recognition were established (Article 8 exception assumed applicable). The court also held that a "meeting" under Part 26 can be achieved by electronic means (telephone and webinar) provided the means permit a genuine coming together sufficient for consultation; the adequacy of the electronic meeting will be scrutinised at the sanction hearing.