In the matter of Listrac Midco Limited & Ors.

At a convening hearing for a restructuring plan under Part 26A of the Companies Act 2006, the court determines jurisdictional and class-composition issues rather than the plan’s merits or fairness. The jurisdictional conditions are construed broadly, including the requirement for an arrangement involving sufficient give and take and a purpose of eliminating, reducing, preventing or mitigating financial difficulties. Creditors may be affected only in their capacity as creditors, subject to ancillary and security rights. For section 901 C(3), members must be permitted to participate where their contractual rights or economic interests are affected by the plan. A merely worthless economic interest is not affected. Class composition depends on comparing rights in the relevant alternative with rights under the plan.

Seven companies in the Lifeways group applied for orders summoning creditor meetings to consider restructuring plans under Part 26A of the Companies Act 2006. The plans proposed a restructuring of substantial secured debt, new financing, and compromises of specified lease, nomination-agreement and other liabilities.

Mr Justin Tydeman, a former chief executive and holder of B shares in Midco, objected to the proposed treatment of his claims and argued that the B shareholders’ rights were affected so as to require a meeting under section 901 C(3). The principal issues were whether the Part 26A jurisdictional conditions were met, whether the proposed creditor classes were properly constituted, and whether the B shareholders were entitled to participate.

1. The applications were granted and meetings of creditors were ordered. At the convening stage the court does not determine the merits or fairness of the proposed plan; those matters arise at the sanction hearing: Re Smile Telecoms Holdings Ltd [2021] BCC 587.
2. The companies satisfied conditions A and B in sections 901 A(2) and 901 A(3) of the Companies Act 2006. The financial-difficulty threshold is relatively low. An arrangement is of wide import and requires sufficient give and take. The purpose requirement is broadly construed and is likely satisfied where creditors receive an enhanced dividend over the relevant alternative.
3. A plan may affect creditors only in their capacity as creditors. It may affect ancillary claims and proprietary rights that are incidents of, or parasitic upon, the debt. Landlords’ forfeiture rights may be varied only to the extent connected with the compromised pecuniary obligations, and an enforced surrender cannot be imposed: Re Lehman Brothers International (Europe) [2010] Bus LR 489; Re Instant Cash Loans Ltd [2019] EWHC 2795 (Ch). An option for landlords to terminate their leases was an appropriate approach: Re Virgin Active Holdings Limited [2021] EWHC 814 (Ch).
4. Class composition requires comparison of existing rights, rights under the plan and the rights in the relevant alternative. The basic test is whether rights are so dissimilar that consultation in a common interest is impossible. The statutory relevant alternative and the counterfactual for class purposes are equivalent concepts: Re Gategroup Guarantee Limited [2021] BCC 549; Re Hawk Insurance Company Limited [2022] BCC 300; Re Virgin Active Holdings Limited [2021] EWHC 814 (Ch).
5. Mr Tydeman’s unsecured employment claim could remain in the general unsecured class. Any preferential element was to be excluded from the compromise. His possible claim for declaratory relief was ancillary to the monetary claim and his personal interest in vindicating his reputation did not fracture the class: Re Noble Group Limited [2019] BCC 349; Re Telewest Communications Plc [2004] BCC 342; Re Nostrum Oil & Gas Plc [2022] EWHC 1646 (Ch).
6. The B shareholders were not entitled to participate under section 901 C(3). Although “affected by” has a broad ambit, the put-option rights had no economic value. The proposed transaction did not amount to repayment sufficient to trigger a valuable option, and the rights would have been worthless both under the plans and in the relevant alternative. The reasoning in Re Hurricane Energy plc [2021] EWHC 1418 (Ch) concerning economically affected shareholder rights therefore did not assist them.
7. The proposed meeting arrangements and explanatory statement were appropriate. Meetings were directed to be held on 9 February 2023, with a voting record time of 6 February 2023.