IN THE MATTER OF ALL SCHEME LTD AND IN THE MATTER OF PART 26 OF THE COMPANIES ACT 2006

At the convening stage of a scheme, the court determines class composition, checks that the explanatory statement is satisfactory in broad terms, and identifies any obvious defect which would inevitably prevent sanction. It does not decide the scheme’s merits.

Class composition is assessed by comparing creditors’ existing and proposed rights, including rights released by the scheme, against the rights available in the relevant insolvency comparator. Creditors may consult together where their rights are not so dissimilar that they cannot act in a common interest. Explanatory material for financially unsophisticated creditors should present the essential information concisely and comprehensibly.

SchemeCo applied for directions to convene meetings to consider two alternative schemes concerning consumer redress claims arising from guarantor-loan mis-selling and the Financial Ombudsman Service’s fee claim. The schemes were proposed against the background of the applicant’s balance-sheet insolvency and the anticipated returns in an insolvent administration.

An earlier scheme had been refused sanction by Miles J in Re Amigo Scheme Ltd [2021] EWHC 1401 (Ch). The revised proposals included a potential recapitalisation, improved creditor returns, an independent Customer Advocate and revised explanatory materials. The issues included the use of a special-purpose scheme company, class composition, the adequacy of the explanatory statement and voting rights.

1. The application was granted. The court ordered SchemeCo to convene simultaneous online meetings to consider and vote separately on the New Business Scheme and the Wind-Down Scheme.

2. The convening hearing is not the occasion for deciding the merits of a scheme. The court determines class composition, checks at a high level that the explanatory statement contains the essential information needed for creditors to form an informed view, and considers whether any obvious defect would inevitably lead to refusal of sanction: Re Noble Group Ltd [2019] 2 BCLC 505.

3. The use of a newly formed company which assumes joint liability for the relevant debts did not disclose an obvious roadblock. The releases were confined to liabilities connected with the redress and FOS fee claims, and the jurisdictional question concerning third-party releases, together with the exercise of discretion, could properly be left to the sanction hearing. The court adopted the approach taken in Re Port Finance Investment Ltd [2021] EWHC 378 (Ch).

4. Class composition required comparison of the rights affected by the schemes with the rights creditors would have in the alternative insolvent administration. The comparison included existing rights against the Amigo companies, directors and employees which would be released. Customers with redress claims and the FOS had sufficiently similar rights: all would be unsecured in an administration, subject to the same bar date and adjudication process, and rank pari passu. Differences in claim assessment, individual interests, or the distinction between borrowers and guarantors did not require separate classes. The court applied the approach in Re Hawk Insurance Co Ltd [2001] 2 BCLC 480 and Re Provident SPV Ltd [2021] EWHC 1341 (Ch).

5. At the convening stage the court did not approve the accuracy or completeness of the explanatory statement. It was sufficient that the document was relatively concise, used plain language and included question-and-answer material, flow charts and tables suitable for its intended audience. The court applied the guidance in Re Sunbird Business Services Ltd [2020] Bus LR 2371 and Re Virgin Active Holdings Ltd [2021] EWHC 814 (Ch).

6. Voting rights had to reflect the administration comparator. Customers whose payments had not exceeded the original loan amount would be net debtors in an administration and could not participate in dividends. They were therefore properly given only a nominal vote.

This was a first-instance convening application. The judgment records that an earlier scheme in the same litigation had been refused sanction by Miles J in Re Amigo Scheme Ltd [2021] EWHC 1401 (Ch).