CR-2025-005763 and CR-2025-005674 - [2025] EWHC 2318 (Ch)

The basic rule is that each class of creditors voting under a Part 26 scheme must be confined to persons whose rights “are not so dissimilar as to make it impossible for them to consult together with a view to their common interest” (Sovereign Life Assurance v Dodd [1892] 2 QB 573 at [583]).

That is the overarching test. Over the years, a number of authorities have amplified the detail of that test and I draw gratefully on the following summary of the authorities provided by Zacaroli J, as he then was, in Re Gategroup Guarantee Ltd [2021] BCC 549:

(1)

The creditors’ rights that fall to be considered are both their existing rights against the company and the rights conferred by the scheme/plan;

(2)

The existing rights must be assessed in the context of the relevant comparator, described by Hildyard J in Re APCOA Parking (UK) Ltd [2014] EWHC 997 (Ch); [2014] B.C.C. 538, at [32], as “what would be the alternative if the scheme does not proceed”;

(3)

It is rights, not interests, that fall to be taken into account for the purposes of class composition. Without attempting an exhaustive definition, rights of the creditors against third parties (for example against guarantors for the company’s debts) will generally constitute interests as opposed to rights; differences in interests may be relevant to the discretion to sanction the scheme/plan;

(4)

Even if there are differences in rights as between different groups of creditors, that is not necessarily fatal to them being placed in the same class: it is still necessary to consider whether the differences are such that it is impossible for them to consult together with a view to their common interest. This has been expressed (for example by David Richards J in Re Telewest Communications Plc [2004] EWHC 924 (Ch); [2004] B.C.C. 342 at [40]) as whether there is more to unite than to divide the relevant creditors

It is important also to avoid an unnecessary proliferation of classes. As Snowden J, as he then was, said in Re Noble Group Ltd [2019] BCC 49:

Different judges have sought to explain how to make this judgment in various ways, but the modern trend has certainly been to resist any tendency to increase the number of classes. So, for example, in Re Anglo American Insurance Ltd [2001] 1 B.C.L.C. 755 (Ch) at 764, Neuberger J observed in the context of an insurance company scheme that practical considerations were not irrelevant, and that the court should not get “too picky” about potential different classes, or “one could end up with virtually as many classes as there are members of a particular group”. In Equitable Life Assurance Society [2002] B.C.C. 319, policyholders with a wide variety of mis-selling claims were placed into a single class. And in Telewest Communications Plc (No.1) [2004] EWHC 924 (Ch); [2004] B.C.C. 342 at [40] David Richards J held that it was appropriate to place into the same class two groups of sterling and dollar bondholders who were treated differently by the use of a particular currency conversion date under the scheme than if there had been a winding-up, remarking that “there is a great deal more which unites the bondholders than divides them”.

In making that judgment, as those cases make clear, it is also important to bear in mind that the safeguard against minority oppression is that the court is not bound by the decision of the class meeting, but retains a discretion to refuse to sanction the scheme: see e.g. Hawk at [33] (Chadwick LJ) and [59] (Pill LJ).

I therefore need to assess the ability of persons to consult together by reference to their existing rights against the companies and the rights that are conferred by the scheme or plan – the “rights in, rights out” analysis in the jargon of restructuring lawyers. I need to consider that analysis by reference to the comparator transaction. That is because, as explained in, for example, Re Stronghold Insurance Co Ltd [2019] 2 BCLC 11, part of my task is to compare the rights that creditors currently have (that operate in a world in which there is no scheme) and the rights that they would have if the scheme becomes effective. That necessarily invites some consideration of what would happen if either of the Schemes is not implemented. Moreover, when I am considering the practicalities and likelihood of sensible discussion between holders of rights affected by the Schemes, it is relevant to consider what would happen if the relevant Scheme does not take effect, because that is one of the matters that the holders would need to be discussing between themselves with a view to their common interest.

Given the need to avoid the unnecessary proliferation of classes, some differences in the “rights in, rights out” test can be tolerated, provided those differences mean that members of the class could still sensibly consult together.