IN THE MATTER OF HOUST LIMITED

The court considered an application under section 901C of the Companies Act 2006 to convene creditor and member meetings for a proposed Restructuring Plan under Part 26A. The judge found that the jurisdictional and statutory conditions in section 901A were satisfied: the company was cashflow insolvent (Condition A) and the proposal constituted a compromise or arrangement with the purpose of returning the company to solvency and producing a better outcome than the relevant alternative (Condition B).

The court approved the proposed class composition (six classes: secured creditor, secondary preferential creditor, trade creditors, loan holders, connected party creditor and members) and declined to fragment the single class of members into separate ordinary and preference shareholder classes, applying a pragmatic test of whether the intra-class differences made consultation with a view to a common interest impossible. The explanatory materials, notice and proposed virtual meeting arrangements were held to be adequate. Accordingly the court made an order convening five meetings of creditors and one meeting of members under section 901C.

Background and parties: Houst Limited is a property management business specialising in short-term holiday lets. The company is cashflow insolvent following the impact of the coronavirus pandemic. Major liabilities included a bank overdraft and term loan secured by a debenture, and liabilities to HMRC and trade creditors. The company sought court authorisation under Part 26A of the Companies Act 2006 to convene meetings to consider a proposed Restructuring Plan.

Nature of the application: The application under section 901C sought an order convening five creditor meetings and one members' meeting to consider and potentially approve a Restructuring Plan providing for new capital, reduced secured creditor indebtedness, monthly contribution funds to pay unsecured and preferential creditors, and shareholder restructuring by allotment and conversion of shares. The proposed Plan Administrators were identified and the relevant alternative was described as a pre-pack administration.

Issues framed by the court:

• whether the statutory jurisdictional conditions in section 901A were met (Conditions A and B);
• whether the proposed class composition for voting was appropriate, including whether members should be split into ordinary and preference classes;
• whether there were any non‑merits issues that would cause the court to refuse to convene meetings;
• whether the practical steps, notice and explanatory materials were adequate and meetings could properly be convened (including virtual meetings).

Court's reasoning and conclusions: The court concluded that Condition A was met because the company was cashflow insolvent and, absent the Restructuring Plan, was likely to enter administration. Condition B was met because the proposals constituted a compromise or arrangement aimed at restoring solvency and offering creditors and members materially better returns than the relevant alternative. On class composition the judge accepted six classes as appropriate, explaining that the differences between the member sub-groups were not so great as to prevent them consulting together for their common interest and that a pragmatic approach was required. No non-merits objections were identified. Notice, the explanatory statement and the proposal to hold virtual meetings were held to be adequate. The judge ordered that the proposed meetings be convened under section 901C.

Procedural note: The court made the convening order and directed counsel to agree the precise form of order.

The application was allowed: the court made an order convening five meetings of creditors and one meeting of members under section 901C of the Companies Act 2006. The judge held that the jurisdictional requirements and Conditions A and B in section 901A were satisfied, the proposed class composition was appropriate (including treating members as a single class), there were no non-merits obstacles to convening the meetings, and the notice and explanatory materials were adequate.