Link Fund Solutions Limited, Re

The court considered an application by Link Fund Solutions Limited under Part 26 of the Companies Act 2006 for an order convening a single meeting of creditors to consider a proposed scheme of arrangement (the Scheme) to settle actual and potential claims arising from LFSL's role as authorised corporate director of the LF Equity Income Fund. The principal legal issue was class composition for the convening order.

The court applied established principles governing class composition, including the requirement that a class be confined to persons whose rights are not so dissimilar as to make consultation with a view to a common interest impossible (Sovereign Life); and that the inquiry focuses on creditors' existing legal rights against the company and the rights conferred by the scheme, not private or third-party interests (Re Hawk Insurance; Re UDL Holdings; Re Gategroup Guarantee).

On the facts the court held that private (retail) and institutional investors have materially similar existing rights as unsecured creditors and will receive materially similar rights under the Scheme (pari passu distributions from the Settlement Fund). Differences identified—such as differing causes of action available to private and institutional investors, and the possibility of recourse to the Financial Services Compensation Scheme for some private investors—are third-party or private interests and do not amount to differences in legal rights against LFSL warranting separate classes.

The court therefore ordered that a single class meeting be convened, noting that any differences between investor groups could be addressed at the sanction hearing in relation to fairness.

Background and parties: LFSL sought an order under Part 26 of the Companies Act 2006 to convene a single meeting of creditors to consider a Scheme settling claims arising from the suspension and winding up of the LF Equity Income Fund. The Scheme is funded by sale proceeds, insurance recoveries and a parent company contribution and is supported by the FCA. Claiming investors represented by Leigh Day and Harcus Parker, other investor representatives and four individual investors objected to aspects of the proposals; the principal contested issue for this judgment was class composition.

Nature of the application (relief sought): an order convening a single creditors' meeting under Part 26 to consider and, if thought fit, approve the Scheme.

Issues framed: (i) whether creditors should be divided into two classes (private/claiming investors and institutional investors) or convened as a single class; (ii) procedural issues about notification and information for creditors; (iii) voting form drafting. The judgment addressed only the class composition issue.

Material facts: the Fund was suspended in June 2019 and wound up in January 2020. The FCA carried out an investigation and issued a confidential draft warning notice alleging LFSL failed to meet regulatory obligations and proposing substantial restitution and a penalty. LFSL entered into a conditional settlement with the FCA proposing the Scheme; parallel investor litigation has been issued on behalf of large groups of investors. LFSL sold its business and proposes a Settlement Fund of up to £230 million for distribution to Scheme Creditors in exchange for releases.

Court's reasoning: the court applied the established test for class composition, focusing on the legal rights creditors have against LFSL absent and under the Scheme. Although private investors may bring claims under s.138D FSMA and some private investors might have potential recourse to the Financial Services Compensation Scheme, those features do not constitute differing legal rights against LFSL but are third-party or private interests. The Scheme treats all Scheme Creditors alike with pari passu distributions and a common proving mechanism; therefore a single class is appropriate. The court distinguished cases where litigating creditors' interests in the conduct of litigation would be adverse to others, finding that those "unusual" circumstances do not exist here. The court observed that differences between investor groups remain matters for the sanction hearing concerning fairness.

The court allowed LFSL's application to convene a single class meeting. The judge held that private and institutional investors have materially similar legal rights against LFSL absent the Scheme and materially similar rights under the Scheme (pari passu participation in the Settlement Fund). Differences based on the availability of different causes of action and potential recourse to third-party compensation schemes are private or third-party interests and do not justify separate classes; any relevant differences may be considered at the sanction hearing as fairness issues.