Castle Trust Direct Plc & Ors, Re

At the convening stage of a scheme under Part 26 of the Companies Act 2006, the court does not decide the scheme’s merits or fairness. It determines jurisdiction, class composition, notice and meeting arrangements. Creditors form one class where their existing and proposed rights are sufficiently similar to permit consultation in their common interest; differing commercial interests do not themselves require separate classes.

A statutory meeting need not be physical. It may be conducted electronically if participants can come together sufficiently to consult, hear each other, ask questions and express opinions. At sanction, the court must be satisfied that the technology in fact enabled that consultation.

Three companies in the Castle Trust Group sought directions convening four linked schemes of arrangement under Part 26 of the Companies Act 2006. The schemes would release liabilities under bonds issued by two special-purpose vehicles and replace them with deposits owed by another group company on materially identical economic terms.

The companies were solvent. The application raised issues concerning creditor classes, the status of beneficial bondholders as creditors, jurisdiction over a Jersey-incorporated scheme company and EU-domiciled creditors, an outstanding condition that the deposit-taking company become a bank, and the proposed telephone and webinar meetings during the COVID-19 lockdown.

1. Application granted. The court ordered the convening of the four proposed scheme meetings. At the convening stage, the court’s function did not extend to deciding the scheme’s merits or fairness. Those matters were for a sanction hearing if the statutory majority approved the schemes.
2. Classes. The relevant inquiry was whether the creditors’ pre-scheme and post-scheme rights were so dissimilar that they could not consult together in their common interest. The court must focus on rights rather than differing commercial interests and should take a broad approach that does not confer an unjustified minority veto. Differences in interest rates and maturity dates did not require separate classes here. The scheme replicated those economic rights, and the remaining changes affected all existing holders sufficiently alike.
3. Standing and jurisdiction. Trower J proceeded, without finally deciding the point, on the basis that beneficial bondholders had contingent claims because a request to exchange their interests for definitive notes was subject to duties of rationality and good faith. They could therefore be treated as creditors for Part 26 purposes. English incorporation was sufficient for the English companies. The Jersey company had a sufficient connection because the compromised liabilities were governed by English law and almost all holders were in the United Kingdom.
4. EU jurisdiction and conditions. The court assumed, without deciding, that Article 4 of the Recast Judgments Regulation applied. Article 8(1) nevertheless supplied jurisdiction because English-domiciled creditors existed and it was expedient to determine the claims together. The fact that bank authorisation remained a condition of effectiveness did not prevent meetings being convened. Its satisfaction, and the effect of any failure, would be material at sanction.
5. Electronic meeting. A Part 26 meeting need not involve physical attendance in one place. A telephone meeting with webinar facilities could amount to a meeting if it enabled a collective coming together for consultation: participants had to be able to hear, ask questions and express opinions, with those present able to do the same. At sanction, evidence would be required that the technology worked and that participation had not been materially impaired. The suitability of electronic directions remained fact-sensitive.

not stated in the judgment.