IN THE MATTER OF HOUST LIMITED

For a restructuring plan convening application, the company must establish the jurisdictional requirements in Part 26A of the Companies Act 2006, including financial difficulties affecting, or likely to affect, its ability to continue as a going concern and a compromise or arrangement directed to addressing those difficulties.

Class composition requires a pragmatic assessment of whether creditors or members have rights so dissimilar that they cannot consult together in a common interest. Differences between ordinary and preference shareholders do not necessarily require separate classes where their rights arise in the same shareholder capacity and the plan treats them similarly. The court must also be satisfied that notice, explanatory material and meeting arrangements are adequate.

Houst Limited applied under section 901C of the Companies Act 2006 for an order convening six meetings to consider a proposed restructuring plan. The company, which provided property-management services for short-term holiday lets, was cash-flow insolvent following the coronavirus pandemic and proposed a compromise with creditors, together with changes affecting its members.

The proposed classes comprised the secured creditor, HMRC as secondary preferential creditor, trade creditors, loan holders, a connected-party creditor and the members. The central issues were whether the statutory jurisdiction and conditions were satisfied, whether the proposed classes were properly constituted, and whether any procedural or practical matters justified refusing to convene the meetings.

1. Jurisdiction and statutory conditions. The company was incorporated in England and Wales and was therefore liable to be wound up under the Insolvency Act 1986. Part 26A of the Companies Act 2006 consequently applied. Condition A in section 901A was satisfied because the company was cash-flow insolvent and, absent the plan, was likely to enter administration. Condition B was also satisfied. The proposal constituted a compromise or arrangement because creditors would relinquish existing rights in return for new rights, while members would remain members on changed terms. Its purpose was to return the company to solvency and provide creditors and members with more than administration was expected to produce.
2. Class composition. The proposed six classes were justified by material differences in rights and treatment. The secured bank creditor, HMRC, trade creditors, loan holders and the connected-party creditor occupied materially different positions. The members could remain in one class. Although ordinary and preference shareholders had different rights, those rights arose in their capacity as shareholders and the plan treated them in a broadly similar way. Applying the required degree of pragmatism, the differences did not make it impossible for them to consult together in a common interest.
3. Other matters and practicalities. No non-merits issue was identified which might later justify refusing sanction. The affected creditors and members had received adequate notice, the explanatory statement communicated the relevant matters comprehensibly, and virtual meetings were unobjectionable.
4. Order. The court ordered the proposed meetings to be convened for 28 June 2022.