In the matter of Listrac Midco Limited & Ors.

The court granted the Plan companies' application to summon creditor meetings under section 901C(1) of the Companies Act 2006 to consider restructuring plans under Part 26A. The judge held that the jurisdictional conditions in sections 901A(2) and 901A(3) (conditions A and B) were satisfied: the companies faced serious financial difficulty and the proposed compromises had a legitimate purpose of reducing or mitigating those difficulties. The court addressed class composition and concluded that secured creditors, landlords (divided into sub-classes A, B1 and B2), landlord-guarantee creditors and other unsecured creditors were appropriately constituted classes given the differences in rights and proposed treatment. The court considered whether Midco's B shareholders (holders of management incentive plan put options) were "members whose rights are affected" within section 901C(3) and concluded their put-option rights had no economic value in the counterfactual and were not affected by the Plan so as to require a separate shareholders' meeting. The convening-stage requirements for notice and explanatory materials were satisfied.

Background and nature of the application.

The seven applicant companies are members of the Lifeways group and sought orders under section 901C(1) of the Companies Act 2006 to summon meetings of creditors so that restructuring plans under Part 26A could be proposed. The Plans formed part of a wider restructuring to reduce secured indebtedness, obtain new super-priority financing and compromise onerous lease and contractual liabilities so as to preserve the group's ability to continue as an operating concern and protect continuity of care.

Relief sought.

• An order summoning creditor meetings under s.901C(1) for the Plans to be voted on.
• Approval of the proposed class composition, explanatory statement and timetable for meetings.

Key issues for determination.

• Whether Part 26A applied (conditions A and B under section 901A).
• Whether sufficient notice and explanatory materials had been provided for the convening hearing.
• Proper composition of creditor classes (secured creditors, landlord subclasses, landlord-guarantee creditors and other unsecured creditors).
• Whether members (in particular Midco's B shareholders with put-option rights under the management incentive plan) were "members whose rights are affected" under section 901C(3) and therefore entitled to participate in a meeting.

Court's reasoning.

• Condition A: the companies faced imminent cash-flow and balance-sheet stress and would be insolvent absent temporary waivers; the threshold for Part 26A was met.
• Condition B: the proposed compromises involved a bona fide element of give and take and aimed to reduce or mitigate the companies' financial difficulties by providing enhanced returns compared to the relevant alternative (administration or liquidation), so the purpose test was met.
• Notice: a Practice Statement Letter was sent more than five weeks before the convening hearing and, given the evidence, the court was satisfied that the applicants had taken all reasonable steps to notify affected parties and the explanatory statement was fit for purpose.
• Class composition: the court applied established principles (compare rights as they exist and rights conferred under the Plan and the relevant alternative). Differences in proprietary rights and proposed treatment justified separate classes for secured creditors, landlord subclasses A/B1/B2, landlord-guarantee creditors and a class for other unsecured creditors.
• B shareholders/members: the court analysed the contractual structure (put option, definition of Total Lender Repayments and intercreditor consequences) and found that the B shareholders' put-option entitlement had no realistic economic value in the counterfactual or under the Plan, and their contractual rights were not altered by the Plan in a way that engaged s.901C(3). Consequently, a separate members' meeting for the B shareholders was not required at the convening stage.

The judge emphasised that the convening hearing is not the forum for final assessment of fairness, which is reserved for any later sanction hearing; the court's role at this stage is to ensure jurisdiction, adequate notice and prima facie appropriate class composition and meeting arrangements.

The application by the Plan companies to summon meetings under section 901C(1) of the Companies Act 2006 was allowed. The court found that the Part 26A jurisdictional conditions (sections 901A(2) and 901A(3)) were met, that the Plan companies had given adequate notice and explanatory materials, and that the proposed class composition was appropriate. The court declined to treat Midco's B shareholders as members whose rights were affected for the purposes of section 901C(3) because their put-option rights had no realistic economic value in the relevant alternative or under the Plan.