In the matter of Morses Club Scheme Limited

At a scheme-sanction hearing, the court must address four questions: statutory compliance; fair representation and bona fide voting for proper purposes; whether an intelligent and honest person acting in their own interests might reasonably approve the scheme; and whether any other blot or defect exists. Creditor approval is important but never determinative. The court may sanction a scheme where its funding and commercial effectiveness are sufficiently certain and there is a reasonable prospect that relevant funding conditions will be achieved. A scheme may properly compromise selected categories of creditors where there are good commercial reasons for doing so.

Morses Club Scheme Limited, a wholly-owned subsidiary established to implement the scheme, sought sanction under Part 26 of the Companies Act 2006. The scheme compromised specified customer redress liabilities and related Financial Ombudsman Service fees in exchange for a proportionate entitlement to a compensation fund.

The scheme followed a convening process before Leech J, during which jurisdiction, class composition, funding, disclosure and claims-methodology concerns were considered. A single class meeting subsequently approved the scheme by substantial majorities. The central issue was whether the statutory and discretionary requirements for sanction had been satisfied.

1. Sanction granted. The statutory majorities were obtained, the directions for convening and conducting the meeting were complied with, and the single class was properly constituted.
2. The company was entitled to compromise selected liabilities. A scheme company may choose the creditors with whom it wishes to compromise, provided there are good commercial reasons. Here, the scheme addressed a specific redress problem without compromising categories of creditors with whom Morses Club wished to continue trading.
3. The court applied the four questions identified in Re KCA Deutag UK Finance plc: statutory compliance; fair representation and bona fide voting for proper purposes; whether an intelligent and honest person acting in their own interests might reasonably approve the scheme; and whether there was any other blot or defect.
4. The class was fairly represented. The turnout was materially relevant, there was no evidence of collateral interests affecting the vote, and the explanatory materials fairly and accessibly described the advantages and disadvantages of the scheme. The court could take account of the support provided by the Customer Advocate, customer committee and explanatory videos.
5. The strong vote in favour was confirmatory but not determinative. The substantial difference between the estimated scheme return and the likely administration dividend, together with evidence that the proposed funding represented the maximum reasonably available contribution, supported sanction.
6. Uncertainty about future funding did not constitute a blot. The scheme was not conditional on uncompleted events controlled by third parties, and the evidence established a reasonable prospect that the relevant funding conditions would be achieved.
7. The court accepted the jurisdictional structure previously considered by Leech J, relying on Re Lecta Paper (UK) Ltd and Re Provident SPV Ltd, and considered it inappropriate to revisit the class decision absent any creditor challenge, consistently with Re Global Garden Products Italy SpA.

The judgment records that Leech J dealt with the convening applications and related jurisdiction and class issues before the sanction hearing. This was a first-instance sanction decision, not an appeal.