Link Fund Solutions Limited, Re

For class composition in a scheme, the court must compare the creditors’ legal rights against the company before and under the scheme. Differences in the strength or legal basis of claims do not ordinarily justify separate classes. Nor does a private interest arising from possible recourse to a third-party compensation fund. The decisive question is whether differences in legal rights make it impossible for creditors to consult together in pursuit of a common interest. Differences in commercial interests may remain relevant at the sanction stage, particularly when assessing fairness, without requiring separate meetings.

Link Fund Solutions Limited applied under Part 26 of the Companies Act 2006 for an order convening a single meeting of creditors to consider a scheme settling actual and potential claims arising from its role as authorised corporate director of an investment fund.

Private and institutional investors objected that they should vote in separate classes. They relied principally on differences in the causes of action available to them, the relative strength of their claims, and the possibility that some private investors might obtain compensation from the Financial Services Compensation Scheme. The issue before the court was limited to class composition.

1. Single class. The court ordered that a single class meeting be convened to consider the scheme.
2. Applicable test. The relevant comparison concerns the creditors’ rights if the scheme is not implemented and the rights conferred under the scheme. The class must be confined to persons whose rights are not so dissimilar that they cannot consult together with a view to their common interest, applying the approach in Sovereign Life Assurance v Dodd, Re Hawk Insurance and Re Noble Group.
3. Legal rights, not extraneous interests. The relevant rights are rights against the company and rights affected or conferred by the scheme. Commercial preferences and private interests which do not derive from legal rights against the company are not sufficient. An interest flowing from a creditor’s legal claim may nevertheless remain a private interest rather than a scheme-class right.
4. Application. All scheme creditors were unsecured creditors whose claims would rank pari passu in a liquidation. Under the scheme they would receive distributions from the same settlement fund on the same basis and would release claims against LFSL. Differences between private and institutional investors in available causes of action, prospects of success, and possible recourse to the Financial Services Compensation Scheme therefore did not create different legal rights for class purposes.
5. Distinguishing exceptional circumstances. The unusual facts in Re Cimolai, where litigating creditors had materially different concerns about the conduct of litigation and potentially adverse interests, were absent. Re Apcoa Parking Holdings and Re Sunbird did not alter the analysis, since neither involved a scheme affecting rights of recourse against third parties in the relevant way.
6. The court emphasised that differences in the investors’ interests could properly be considered at the sanction hearing as matters of fairness, even though they did not justify separate meetings.