Project Veronica Limited, Re

At a convening hearing for a restructuring plan, the court considers jurisdiction, notice, the statutory threshold conditions, class composition and any procedural roadblocks, rather than the plan’s ultimate fairness or merits.

A compromise may, in principle, deal with liabilities owed by other group companies without ceasing to be a compromise or arrangement for the purposes of section 901A(3)(b) of the Companies Act 2006. Creditors must be grouped by reference to whether their rights are sufficiently similar to enable consultation in a common interest. Where cross-class cramdown may be used, explanatory material should enable creditors to assess the total restructuring benefits and their proposed distribution.

Project Veronica Limited, a wholly owned subsidiary of a wider restaurant group, sought an order convening meetings of creditors to consider a restructuring plan under Part 26A of the Companies Act 2006.

The plan involved compromises of liabilities assumed by the claimant under a deed poll and underlying liabilities owed by other group companies. It proposed seven creditor classes, including a secured creditor, landlords, rating authorities and non-critical creditors. No creditor appeared at the convening hearing, although one email raised concerns about timing.

The court considered the adequacy of notice, jurisdiction, the statutory conditions, class composition, the explanatory materials, the proposed timetable and any other obstacle to making a convening order.

1. Convening order made. The court identified no roadblock requiring refusal of the order convening meetings of the plan creditors.
2. The notice of the convening hearing was adequate. Although the precise time and venue were not communicated separately until the day before, creditors knew the hearing date and there was no evidence of a wider inability or desire to attend.
3. Conditions A and B in section 901A of the Companies Act 2006 were satisfied. The company had encountered, or was likely to encounter, financial difficulties affecting its ability to continue as a going concern. A compromise or arrangement was proposed with each creditor class for the statutory purpose of eliminating, reducing, preventing or mitigating the effect of those difficulties.
4. The proposed plan could, in principle, compromise both liabilities owed by the company and underlying liabilities owed by other group companies without ceasing to be a compromise or arrangement within section 901A(3)(b). The question remained for the sanction hearing.
5. The class composition principles summarised in Re Gategroup Guarantee Limited and derived from Sovereign Life Assurance v Dodd were adopted. Rights should not be placed in the same class where they are so dissimilar that creditors could not consult together in a common interest. The secured creditor properly formed a separate class because of its security. The division of the other creditors into six further classes was a genuine and reasonable attempt to constitute classes and was not an attempt to manipulate cross-class cramdown.
6. Following Re AGPS Bondco Plc, creditors should receive information enabling them, if cross-class cramdown is invoked, to assess the total benefits of the restructuring and whether those benefits are fairly shared. The documentation, read as a whole, adequately disclosed the relevant benefits and distributions. The court expressed no view on fairness, which was for the sanction hearing.
7. The proposed timetable for the creditor meetings was sufficient. A longer period between meetings and sanction might have been appropriate if objections had been notified, but none had been.