Lecta Paper UK Limited, Re

For a scheme meeting, a class should include creditors whose rights are not so dissimilar that they cannot consult with a view to their common interest. Creditors may remain in one class where they share materially equivalent rights before and under the scheme, despite differences in interest rates or ancillary arrangements. Equal opportunities to receive modest consent fees, subscribe for new money, or participate in funding arrangements will not usually fracture the class where those arrangements do not materially affect voting interests. Shareholder subscription rights exercised in the shareholders’ capacity, rather than as disguised scheme consideration, do not create different creditor rights. The court may convene a single class meeting where the scheme is within Part 26 of the Companies Act 2006 and jurisdiction is established.

Lecta Paper UK Limited applied for an order convening a single meeting of creditors to consider a scheme under Part 26 of the Companies Act 2006. The scheme concerned two series of senior secured notes with different interest rates but materially identical terms, common security and pari passu ranking.

The proposed restructuring included consent fees under a lock-up agreement, an opportunity for noteholders to subscribe for a new money facility, shareholder pre-emption rights and backstop fees for underwriters. The issues were whether the court had jurisdiction and whether those differences required separate creditor classes.

1. Single class meeting. The court directed that the creditors should vote in a single class.
2. The applicable test was whether the creditors’ rights were so dissimilar as to make it impossible for them to consult with a view to their common interest, as stated in Sovereign Live Assurance v Dodd [1892] 2 QB 573. The two note series gave materially the same rights against the company, shared security and ranked pari passu. Under the scheme, creditors received the same commercial package pro rata to their existing claims.
3. The differing interest rates did not require separate classes. In the relevant insolvency alternative, the interest-rate distinction was irrelevant to recovery.
4. The lock-up consent fees did not fracture the class. All creditors had an equal opportunity to accede, the fees were modest, notice had been given, and they were unlikely materially to influence voting decisions compared with the substantial difference between the scheme and insolvency outcomes.
5. The opportunity to subscribe for the new money facility likewise did not fracture the class because it was available equally to creditors and remained available after the meeting.
6. Shareholder pre-emption rights and related subscriptions did not create different creditor rights. The arrangements were necessary to provide essential funding, were not conditional on scheme approval, and involved shareholders acting in their capacity as shareholders. Following the approach in Re Codere Finance 2 (UK) Ltd [2021] 2 BCLC 396, the arrangement was not disguised scheme consideration and did not fracture the class.
7. Backstop fees for the new money underwriters did not fracture the class. They were carefully set by reference to comparable restructurings and contained no bounty element.
8. The court had jurisdiction. The company fell within Part 26 of the Companies Act 2006, and the proposal was a compromise or arrangement within that Part. Questions concerning enforcement in Europe could be considered at the sanction hearing.
9. Adequate notice had been given. The court directed the meeting and made the consequential directions in the draft order.

First-instance decision. No appellate history was stated in the judgment.