Re All Scheme Ltd

This is a sanction hearing under Part 26 of the Companies Act 2006 of two alternative schemes of arrangement (the New Business Scheme and the Wind Down Scheme) proposed by ALL Scheme Limited to address substantial redress liabilities arising from guarantor lending by Amigo Loans Ltd. The court applied the established three-stage test for sanction (compliance with statutory requirements; bona fides and absence of coercion by the statutory majorities; and whether an honest, intelligent and reasonable member of the class might reasonably approve the scheme) with particular attention to the correct comparator (a distributing administration) and to the adequacy of the explanatory statement under s.897 CA 2006.

The judge was satisfied that the convening order and voting arrangements had been properly followed, that the explanatory statement fairly explained the effect of the proposals and the relevant comparator, and that the class vote was representative (turnout about 15%). The court accepted the use of a special purpose vehicle (SchemeCo) to interpose liability and concluded there was sufficient certainty as to conditional elements (the New Business Conditions) for the scheme to operate. The appointment of an independent customer advocate and the operation of a creditors' committee were material factors supporting sanction.

Background and parties: ALL Scheme Limited (SchemeCo), a new special purpose company and subsidiary of Amigo Holdings PLC, promoted two alternative schemes (New Business Scheme (NBS) and Wind Down Scheme (WDS)) under Part 26 CA 2006 to address estimated redress liabilities of £347.5m arising from guarantor lending by Amigo Loans Ltd (ALL). If neither scheme were sanctioned the board had undertaken to place ALL into administration. The Financial Conduct Authority did not oppose the sanction application.

Nature of the application: Sanction of the NBS (primary) or, alternatively, the WDS, binding customer creditors (borrowers and guarantors) and the Financial Ombudsman Service. The NBS provided for a Scheme Fund, a bar date for claims, an adjudication process, set-off mechanics and two alternative implementation routes (Preferred Solution and Fallback Solution) depending on the fulfilment of New Business Conditions (FCA permission to restart lending and a substantial share issue diluting existing shareholders).

Procedural posture: Convening hearing before Snowden LJ who approved single-class virtual meetings and the explanatory statement distribution. Scheme meetings were held 12 May 2022; statutory majorities under s.899 CA 2006 approved both Schemes. Sanction hearing before Mr Justice Trower on 23 May 2022.

Issues framed by the court:

• Whether statutory and procedural requirements (including s.897 explanatory statement and convening order directions) were complied with;
• Whether the meetings and votes were representative and the statutory majorities acted bona fide;
• Whether the correct comparator had been identified and adequately explained to creditors;
• Whether conditional elements (New Business Conditions, Share Issue) or the interposition of SchemeCo were fatal uncertainties or unfair blots on the scheme; and
• Whether the scheme was one which an honest, intelligent and reasonable member of the class might reasonably approve.

Court’s reasoning: The judge found that the convening order directions were complied with, that the explanatory statement met the s.897 requirement to explain the effect of the arrangement and the relevant comparator (distributing administration), and that turnout (c.15%) was reasonably high for a consumer scheme. The independent customer advocate and a randomly selected creditors' committee meaningfully assisted creditor representation and negotiation of terms. The judge accepted the special purpose vehicle structure as commercially justified and not inherently objectionable. Conditionality in the NBS (the New Business Conditions) did not render the scheme uncertain in operation because the scheme would be effective in any event and creditors had been properly informed of the alternative outcomes; the FCA’s engagement supported the realistic prospect of satisfying the regulatory condition. On balance the NBS was a scheme an honest, intelligent and reasonable creditor could approve and sanction was granted for the NBS.

The judgment noted that the WDS was an alternative but, as the court sanctioned the NBS, detailed adjudication of the WDS was unnecessary. The judge observed the rarity and seriousness of binding creditors’ rights and emphasised scrutiny where class representation or information deficiencies exist; he concluded those deficiencies had been addressed in the present process.

This was a first-instance sanction hearing. The court granted the order sought in relation to the New Business Scheme. The judge concluded that statutory requirements (including s.897 explanatory statement and the Convening Order) had been met, that the statutory majorities had acted bona fide and were representative, that the correct comparator was a distributing administration and had been adequately explained, and that conditional elements and the special purpose vehicle structure did not render the scheme unfair or uncertain. On that basis the NBS was a scheme that an honest, intelligent and reasonable creditor could reasonably approve, and sanction was given.