Link Fund Solutions Limited, Re

The court’s power to sanction a scheme of arrangement is discretionary and is not a rubber stamp for the statutory majority. The court must consider statutory compliance, fair representation and bona fide voting, whether an intelligent and honest creditor might reasonably approve the scheme, and any other blot or defect.

A scheme may compromise statutory claims and thereby remove consequential access to the Financial Services Compensation Scheme or the Financial Ombudsman Service, provided that the rights are compromised as part of the arrangement and for consideration. An explanatory statement must provide materially accurate and sufficient information to enable creditors to exercise a reasonable judgment. The court need not decide that the scheme is the fairest or best available scheme.

Link Fund Solutions Limited applied under Part 26 of the Companies Act 2006 for sanction of a scheme compromising claims by investors in the LF Equity Income Fund following its suspension and subsequent winding-up.

The scheme provided a settlement fund of up to £230 million in return for releases of claims against LFSL and related parties. Creditors objected principally that the scheme was unfair, that the explanatory statement was misleading or incomplete, and that sanction would deprive investors of access to the Financial Services Compensation Scheme and the Financial Ombudsman Service.

At the court meeting, 93.72% of creditors by number and approximately 96% by value voted in favour. The central questions were whether the statutory and procedural requirements were met, whether the class was fairly represented and voted bona fide, whether the scheme was one an intelligent and honest creditor might reasonably approve, and whether any blot or defect prevented sanction.

1. Disposition. The scheme was sanctioned. The court would not make sanction conditional on additional contributions by other persons involved in the fund. The order was not to be sealed until 29 February 2024, and any application for permission to appeal was to be made by 23 February 2024.
2. The court’s discretion under Part 26 was broad. The statutory majority was a threshold, not a guarantee of sanction. The relevant guide was whether statutory requirements had been met, whether the class was fairly represented and the majority acted bona fide, whether an intelligent and honest creditor might reasonably approve the scheme, and whether there was any other blot or defect. These questions were not to be treated as rigidly compartmentalised.
3. The scheme creditors were creditors for the purposes of section 895 of the Companies Act 2006, even though their claims had not been conclusively established. Statutory claims were not excluded from the statutory concept of creditor.
4. The releases validly compromised claims against LFSL. The resulting loss of access to the FSCS and the inability to refer released claims to the FOS were consequences of that compromise, not an impermissible stripping of freestanding statutory protections. The releases and the covenant concerning proceedings fell within the permissible scope of an arrangement between a company and its creditors.
5. The explanatory statement complied with section 897. Read as a whole from the perspective of an intelligent creditor, it gave sufficient and materially accurate information about the settlement fund, the alternative to the scheme, the loss of FSCS and FOS access, the releases, and the relevant interests of directors. Minor matters that might have been expressed more explicitly did not make it misleading.
6. The overwhelming vote was entitled to substantial weight. The court was not required to determine whether the scheme was the best or fairest possible arrangement. The immediate payment offered under the scheme could rationally be preferred to the uncertain prospect of obtaining more through disputed litigation.
7. The single class was fairly represented and voted bona fide. Turnout was not assessed impressionistically; relevant considerations included notification, access to information, ability to participate, and whether votes were properly recorded. The alleged artificiality of the related-party releases and the novel contribution reduction mechanism did not constitute a blot.