OutsideClinic Limited, Re The Companies Act 2006

Under Part 26A of the Companies Act 2006, an assenting creditor class requires approval by creditors representing at least 75% in value of those present and voting. No majority in number is required. A class which does not meet that threshold may be crammed down if the statutory conditions are satisfied and the court considers the plan fair in all the circumstances.

In exercising its discretion, substantial weight may be given to the fact that dissenting creditors are out of the money in the relevant alternative, particularly where they do not object. The court may also take account of the agreement of in-the-money creditors to the restructuring and of new money being provided by shareholders.

OutsideClinic Limited applied for sanction of a restructuring plan under Part 26A of the Companies Act 2006. The plan concerned seven creditor classes. Five classes approved it by the statutory majority. The Onerous Contract Creditor abstained, and the court was uncertain whether the Shop Landlords class, in which one creditor holding 83% by value voted in favour, was assenting or dissenting.

The relevant alternative was administration. On the evidence, the Secured Creditor would recover a small amount, while the other plan creditors would be out of the money, subject to uncertainty concerning HMRC’s secondary preferential status. The central issues were the classification of the creditor classes, the applicable approach to assenting and dissenting classes, and whether the plan should be sanctioned and imposed on any dissenting classes.

1. Jurisdiction and notice. The statutory conditions for applying Part 26A were satisfied: OutsideClinic had encountered financial difficulties affecting its ability to continue as a going concern, and the plan was intended to mitigate those difficulties. The omission of postal notices caused no practical prejudice because creditors had received effective email or online notice. The defect was waived.
2. Assenting classes. Under section 901F(1), a class is assenting where creditors representing at least 75% in value of those present and voting agree the plan. Part 26A contains no additional majority-in-number requirement. The five clear assenting classes satisfied that threshold. The court assumed, without deciding, that the Shop Landlords were also assenting. The applicable questions were fair representation, absence of coercion and the limited rationality test: whether an intelligent and honest member of the class, acting in their own interest, might reasonably approve the plan.
3. Shop Landlords classification. The court did not decide whether a meeting attended by only one creditor could constitute a meeting for Part 26A purposes. The issue had arisen late, had not been fully argued, and did not affect the outcome because the plan would be sanctioned whichever classification applied.
4. Cram-down. The Onerous Contract Creditor was plainly dissenting. Assuming the Shop Landlords were also dissenting, the conditions in section 901G(2) were met: neither class would be worse off than in the administration alternative, and the plan had been approved by classes with a genuine economic interest in that alternative. The statutory conditions did not exhaust the court’s discretion.
5. Fairness and final order. Both possible dissenting classes were out of the money. The Shop Landlords positively supported the plan by value, while the Onerous Contract Creditor abstained and did not object. The in-the-money creditors accepted the restructuring, and some shareholders supplied new money. There was no unfairness, coercion or operational defect. The restructuring plan was appropriate for sanction, and the court’s order sanctioning it was confirmed.