septiembre 30 2021

Recent CVAs, schemes and restructuring plans


High Court sanctions scheme of arrangement proposed by the Provident Finance group

Provident SPV Ltd (“Provident”) was a special purpose vehicle set up to assume liability for certain debts of two companies (the “lenders”) in the Provident Finance group of companies.  The business of the lenders was the provision of small loans to individuals on low or moderate incomes. The interest rates charged were very high. Those companies perceived that large numbers of their borrowers, or guarantors of the borrowers, had or may have claims against them based on a number of statutory and other grounds, and in particular that they failed to carry out checks as to the creditworthiness of proposed borrowers or to assess the suitability of proposed loans or guarantees. Claims had been brought against the lenders over a number of years and the lenders did not know how many more claims might be asserted in the future. The anticipated level of claims could well have exceeded £1 billion, and the lenders were said not to be in a position to pay liabilities of that order. 

The group therefore proposed a scheme to deal with these (and other) liabilities pursuant to which: Provident would be funded in the sum of £50 million by the ultimate parent of the lenders as a pool from which the claims could be met; and there would be a mechanism for the adjudication of claims, including a bar date.  The alternative was the insolvency of the lenders, which the Court accepted would lead to the claimants receiving nothing.  Accordingly, the limited payments under the Scheme were said to be better than the nothing which would otherwise arise from insolvency.  It was proposed that the lenders would not carry on trading and would be wound down.

Sir Anthony Mann (sitting as a High Court Judge) indicated that he was minded to sanction the scheme but, before doing so, dealt with two specific matters: (i) parallels with the recent case of ALL Scheme Ltd [2021] EWHC 1401 (Ch) (the “Amigo Loans scheme”) in which a proposed scheme was not sanctioned; and (ii) a letter written by the FCA which raised certain objections to the scheme (although not taken as far as formal opposition to the sanction of the scheme). A copy of this letter is here.

The Amigo Loans scheme was concerned with loans of a similar nature to the Provident loans and with similar concerns regarding the level of redress claims.  However, the decision not to sanction the Amigo Loans scheme was distinguished by the Court on a number of grounds. In the Amigo Loans scheme there was no intention to wind down the relevant business following the scheme, so it would remain something in which shareholders would retain a potentially valuable interest. The shareholders were not taking a haircut while the scheme creditors were, and that shareholder interest was apparently reflected in the fact that the shares in the parent rose 250% in the period following the announcement of the scheme. In contrast, in the present case, the relevant businesses were to be wound down, and if they yielded any unexpected surplus, then that surplus would accrue to the benefit of the scheme creditors.  In the present case it was not suggested that any other restructuring would be likely, possible or even plausible. In the absence of such suggestions, and argument from the FCA (which was the only likely protagonist on the point), the Judge, on the information provided, could not sensibly reach the view that another scheme (or alternative restructuring scenario) might have be available in the present case.

The FCA was represented at the convening hearing and made various comments on the scheme as it was then presented, some of which were catered for in amendments to the scheme.  The FCA subsequently raised objections to the scheme in a letter which was placed before the Judge.  In this letter the FCA stated that it did not support the scheme and had some serious concerns regarding it.  However, the FCA went on to state that it has decided not to oppose the scheme based on two key factors: the lenders faced an imminent insolvency in which many creditors with redress claims would receive less than under the scheme; and the Lenders were not continuing their business and there appeared to be no unfair benefit to the group and its stakeholders at the expense of redress creditors.  The Judge questioned the status of the points made by the FCA in its letter, given that it did not oppose the scheme in company law terms.  The Judge considered those points in any event but, having done so, he noted that he did not consider that any of the matters presented by the FCA raised any other fairness factors, or any blots, which weighed against his sanctioning the scheme.

Amicus Finance PLC: restructuring plan sanctioned in respect of company in administration

Amicus Finance PLC provided short-term property finance, together with other forms of secured corporate and development finance. After experiencing financial difficulties, administrators were appointed over the company in December 2018. After a number of years in administration, the administrators proposed a restructuring plan be sanctioned by the Court as they had concluded that: (i) the administration was no longer financially viable, or in the interests of the creditors, principally because the loan portfolio had proven to be considerably more challenging and expensive to service and realise than had been anticipated by the administrators; and (ii) a restructuring plan was the only alternative to placing the company into liquidation.

On 9 August 2021, Mr Justice Snowden ordered five creditors’ meetings be convened to vote on a proposed restructuring plan in respect of Amicus Finance PLC (in administration) (Amicus). The restructuring plan involved three key elements:

  • The injection of approximately £3.7m in new funds from a minority shareholder and from a lender under an existing facility.
  • The making of certain lump sum payments to creditors.
  • The occurrence of a waterfall of payments from the proceeds of certain loans to which the company was entitled.

At the convening meetings, each class of creditors, except for the class in which Crowdstacker Corporate Services Limited (Crowdstacker) was a creditor, approved this plan. Crowdstacker’s rejection of the plan was not surprising given the objections it had raised at the convening hearing with respect to class composition, the drafting of the restructuring plan and the explanatory statement, priority of claims between the secured creditors and a potential antecedent transaction.

On 19 August 2021, Sir Alastair Norris sanctioned Amicus’ restructuring plan and exercised the Court’s cross-class cram down powers, despite a number of objections raised by Crowdstacker at the hearing regarding the relevant alternative and conflicts of interests of the administrators. Reasons for the sanction decision were not provided in the judgment handed down.

In terms of costs, at the convening hearing, the Court ordered that a proportion of Crowdstacker’s costs be paid as an expense of the administration due to its challenge in respect of class composition having succeeded and to reflect its contribution to the task the judge performed at the hearing. Costs were reserved in the sanction judgment.

This was the first restructuring plan to be sanctioned whilst a company was in administration and further demonstrated the wide and varied use of this new restructuring tool.

Servicios e Industrias Relacionadas


Stay Up To Date With Our Insights

See how we use a multidisciplinary, integrated approach to meet our clients' needs.