Re Everyday Lending Limited

This is an application by Everyday Lending Limited for the court's sanction of a scheme of arrangement promulgated under Part 26 of the Companies Act 2006. The scheme would create a £14 million trust fund to settle consumer redress claims against the company and related group entities. The court applied the familiar four-stage sanction analysis (compliance with statutory requirements; fair representation of the class and bona fides of the majority; whether the scheme is one that an intelligent and honest person might reasonably approve; and whether there is any other blot or defect).

The judge held that statutory requirements had been complied with, the class was properly constituted and fairly represented despite a low turnout, and the overwhelming support of those who voted together with the comparator of an insolvent administration (estimated 0.2% return) made the proposed 24–31% return plainly one an intelligent and honest creditor could reasonably approve. The conditionality of the scheme (payment of the Scheme Fund from new money as part of a wider restructuring to be completed by 31 December 2023) and the fallback Plan B were held not to be a fatal blot. The Financial Conduct Authority did not oppose the scheme. On that basis the court sanctioned the scheme.

Background and parties: Everyday Lending Limited (the Company) sought court sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 to create a £14 million Scheme Fund for distribution in full and final settlement of consumer redress claims (the Redress Claims) arising from loans made by the Company and an associated group company. The Company promulgated the Scheme after a convening hearing before Miles J who ordered a single meeting of scheme creditors. The Customer Advocate and an independent customer advocate provided assistance to the court on creditor-facing communications and process.

Nature of the application: The Company applied for the sanction order following a creditors' meeting held virtually on 12 June 2023 at which the requisite majorities in number and value approved the Scheme.

Issues framed by the court:

• Whether there had been compliance with the statutory requirements for convening and voting under Part 26 CA 2006 (including the explanatory statement requirement under section 897).
• Whether the creditor class was fairly represented and whether the majority that voted acted bona fide and for proper purposes.
• Whether the Scheme was one that an intelligent and honest person acting in respect of their interests might reasonably approve (the rationality test).
• Whether there was any other blot or defect (for example, the conditionality of the Scheme tied to the wider group restructuring and funding).

Court's reasoning and findings: The court found that the convening order and directions had been complied with, that the meeting was properly conducted and that voting used an appropriate claims assessment methodology. Although turnout was low as a proportion of the whole creditor population (approximately 4.7%), the absolute number who voted was substantial (16,252) and the result was overwhelming (99.3% by number and 99.4% by value of those who voted). The court accepted authorities to the effect that a low turnout is not of itself a reason to refuse sanction where the voting was properly notified and conducted and the vote was representative. The court noted that the explanatory materials and communications were considered satisfactory by the independent customer advocate. On the rationality test the court accepted the company’s comparator (likely return in administration of c.0.2%) and that the Scheme offered an estimated 24–31% return, which an intelligent and honest creditor might reasonably approve. The court considered the conditionality of the Scheme (that the Scheme Fund would be paid from new money as part of a restructuring to be completed by 31 December 2023) and concluded that the fallback Plan B and the secured lenders' lock-up gave sufficient certainty such that the conditionality did not constitute a fatal blot. The FCA informed the court it did not oppose the scheme.

Relief granted: The court sanctioned the Scheme in the terms of the draft sanction order, permitting the Scheme to proceed subject to its stated conditions.

The court sanctioned the Scheme. The judge concluded that statutory requirements were met, the single class was properly constituted and fairly represented despite a low turnout, the Scheme was one an intelligent and honest creditor might reasonably approve in light of the expected returns compared to the administration comparator, and there was no other blot or defect (the conditionality tied to the wider restructuring and funding was not fatal). The Scheme was therefore approved by the court in the terms of the draft sanction order.

At first instance the convening hearing was heard by Miles J who made the convening order on 28 April 2023 and directed that a single creditors' meeting be convened; the meeting was held on 12 June 2023 and the Scheme was approved by the requisite statutory majorities. This sanction hearing in the High Court followed and resulted in the Scheme being sanctioned. Miles J's convening judgment and directions were adopted and incorporated into the sanction hearing judgment.