Project Verona Limited, Re

The company applied for directions to convene meetings of certain creditors to consider a restructuring plan under Part 26A of the Companies Act, 2006. The court considered the adequacy of notice, jurisdictional issues, class composition and whether the statutory threshold conditions in section 901A (Conditions A and B) were met. It was satisfied that (i) the Company and the relevant group companies are within the court's jurisdiction, (ii) Condition A (financial difficulties affecting going concern) and Condition B (a proposed compromise or arrangement for the purpose set out in s901A(3)(b)) were met, and (iii) the proposed division of creditors into seven classes was not obviously manipulative and was acceptable for the convening stage. The court noted the need, if a cross-class cramdown were pursued, to be able to assess whether benefits of the restructuring are fairly distributed (citing Re AGPS Bondco Plc) and identified issues of disclosure to enable creditors to assess that point, but considered the explanatory materials, including the Estimated Outcome Report, were adequate for convening purposes. No roadblocks were identified and an order was made convening the Plan creditor meetings.

Background and parties:

• The applicant, Project Verona Limited (the Company), a wholly owned subsidiary of a group headed by Tasty Plc, sought directions summoning meetings of certain creditors ("Plan Creditors") to consider and, if thought fit, approve a restructuring plan under Part 26A of the Companies Act, 2006 (the Plan). The Company has executed a deed poll under which it assumed liability for certain group liabilities (Deed Poll Liabilities) so that Plan Creditors have rights against both the Company and other group members (Underlying Liabilities).
• The Group operates restaurants with leases from largely unrelated landlords and has been affected by Covid-19 and subsequent trading and cost pressures. The Plan categorises sites as Category A (viable), Category B and Category C (to be exited or exited over time) and proposes compromises with various landlord and rating authority creditors and two non-critical creditors, and reductions to the Secured Loan interest rate. The Plan also establishes a Restructuring Surplus Fund tied to future EBITDA improvements and potential Covid claim proceeds.

Nature of the application:

• The Company applied for a convening order to summon Plan creditor meetings under Part 26A.

Issues before the court:

1. Adequacy of notice for the convening hearing and proposed meetings.
2. Jurisdiction to make the convening order.
3. Whether Conditions A and B in s901A were satisfied.
4. Proper composition of creditor classes for voting.
5. Practical and disclosure issues necessary to ensure creditors can judge fairness of any cross-class cramdown.

Court's reasoning and findings:

• Notice: Although a separate notice of the convening hearing was uploaded to the website only the day before the hearing, the court was satisfied that interested parties knew the hearing date and could have obtained time and place; no creditor had sought details or attended and one single email raising timetable concerns did not amount to systemic unfairness. The proposed timetable for meetings (notice to be sent 10 May; meetings on 29 May; sanction hearing 4 June) was acceptable in the absence of notified opposition.
• Jurisdiction: All relevant companies were incorporated in England and Wales; no jurisdictional difficulty was identified.
• Conditions A and B: The judge accepted the witness evidence that Condition A (financial difficulties affecting going concern) was met and was satisfied a proposed compromise or arrangement existed for the purposes of s901A(3)(b), including as to compromises of Underlying Liabilities owed by other group companies.
• Class composition: The court applied the established test (Sovereign Life Assurance v Dodd and the approach adopted in Re Gategroup Guarantee Limited) and was satisfied that seven classes (Secured Creditor; Category B and C Landlords; Category A, B and C Rating Authority Creditors; and two Non-Critical Creditors) were properly constituted for convening purposes and not an attempt at manipulation to enable a cross-class cramdown.
• Disclosure and fairness: Referring to Re AGPS Bondco Plc, the judge observed that if a cross-class cramdown is later invoked it will be necessary to assess fair distribution of restructuring benefits and therefore creditors need sufficient information on who benefits (for example, existing shareholders and the Secured Creditor via conversion rights). The court was satisfied that the Explanatory Statement together with the Estimated Outcome Report provided adequate information for the meetings, noting FRP Advisory are not on a success fee and that the Estimated Outcome Report makes clear the source and distribution of expected EBITDA benefits.
• Practical steps and conclusion: No roadblocks were found. The court directed that meetings be convened and did not require additional case management directions for disclosure or objections at this stage.

Order granted to convene meetings of Plan Creditors. The judge held that he had jurisdiction, that Conditions A and B in section 901A were satisfied, that the proposed class composition was acceptable for convening purposes, and that no procedural or disclosure roadblock existed to prevent a convening order. The court emphasised that issues of fairness and detailed disclosure (particularly if a cross-class cramdown is sought) will be matters for the sanction hearing.