Praesidiad Limited, Re

The court granted the applicant company an order to convene a single meeting of certain secured lenders under Part 26 of the Companies Act 2006 to consider a scheme of arrangement. The judge applied established principles on class composition (drawing on Sovereign Life Assurance v Dodd and related authorities) and emphasised that the focus is on creditors' "rights" rather than their commercial interests. He concluded that, on ordinary principles, the SFA lenders should form a single class and that features such as participation in an interim facilities agreement, lock-up or turnover arrangements did not in themselves fracture the class.

The court considered the effect of the Russia (Sanctions) (EU Exit) Regulations 2019 (in particular Regulation 11) and concluded that creditors subject to asset-freeze sanctions (notably Bank GPB) may be treated differently in practice but that difference, arising from their inability to deal with funds, does not automatically create a separate class. The judge followed recent first-instance authorities in holding that sanctioned lenders should not be permitted to vote at the scheme meeting because voting on the scheme would constitute dealing with or using the frozen economic interest. On that basis the court ordered convening of a single meeting with sanctioned lenders disqualified from voting, subject to other standard convening-hearing matters being satisfied.

This was an application by Praesidiad Ltd for an order convening a single meeting of certain creditors to consider a scheme of arrangement under Part 26 of the Companies Act 2006. The Company is an intermediate holding company for a group whose lenders under a Senior Facilities Agreement (the "SFA") and an Interim Facilities Agreement (the "IFA") were to be compromised by a scheme. The restructuring involved conversion of debt into equity, re‑denomination and re‑ranking of facilities and other changes requiring foreign investment and sanctions approvals.

The relief sought: an order convening a single creditors' meeting to consider the proposed scheme.

Key issues:

• whether notice and consultation for the convening hearing were sufficient;
• whether statutory jurisdictional requirements under Part 26 and section 895 were satisfied;
• whether the creditors were correctly constituted into classes or whether some matters fractured the proposed single class;
• whether the presence of a creditor subject to asset-freeze sanctions (Bank GPB) required that creditor to be placed in a separate class or to be permitted to vote.

Court's reasoning: The Practice Statement letter and prior consultation were sufficient for the convening hearing. The company and the proposed arrangement fell within Part 26 and section 895. Applying the established test for class composition the court focused on the substantive rights to be varied: differences arising from participation (or inability to participate) in the IFA, entitlement to lock-up or backstop fees, turnover arrangements and differences in loan terms did not make consultation impossible and did not fracture the class. The court accepted expert evidence (FTI) about likely alternative outcomes for the purpose of class analysis. With respect to a sanctioned creditor, the court analysed Regulation 11 of the Sanctions Regulations and concluded that voting at a scheme meeting (which affects the character, amount and ranking of the loan as a tradable financial asset) would amount to "dealing with" or "use" of the frozen economic interest so that sanctioned lenders should not vote. The judge declined to follow the reasoning in Palladyne as applied to this factual matrix and followed recent English first‑instance authorities that sanctioned creditors cannot vote. The court also dealt briefly with explanatory materials, meeting arrangements and conditionality: the explanatory statement was acceptable, meeting arrangements were adequate to ascertain creditor wishes, and the need for regulatory and OFSI approvals did not render the scheme fatally conditional at the convening stage.

The application to convene a single creditors' meeting under Part 26 was allowed and the court made the proposed order (with minor amendments). The judge held that the proposed SFA lenders should form a single class for the convening meeting, that participation in the IFA, lock‑up or turnover arrangements did not fracture that class, and that creditors subject to asset-freeze sanctions (e.g. Bank GPB) should be disqualified from voting at the scheme meeting because voting would amount to dealing with frozen economic resources under Regulation 11. The convening arrangements and explanatory statement were satisfactory and there was no obvious reason to refuse to convene the meeting.