In the matter of Morses Club Scheme Limited
[2023] EWHC 1365 (Ch)
Re Everyday Lending Limited
22 June 2023
[2023] EWHC 2097 (Ch)
High Court
A company offered a deal to pay back some money to people it owed. Even though not many people voted, those who did mostly liked the deal, and a judge said it was OK.
Key Facts
- •Everyday Lending Limited (the "Company") applied for sanction of a scheme of arrangement under Part 26 of the Companies Act 2006.
- •The scheme aims to create a £14 million fund to settle redress claims against the Company and associated companies.
- •Without the scheme, the Company would likely enter administration with minimal returns to creditors (0.2%).
- •The scheme offers creditors an estimated 24-31% recovery of their claims.
- •The Financial Ombudsman Service is also a scheme creditor.
- •The scheme's structure is similar to others successfully implemented by consumer credit businesses.
- •A major shareholder withdrew from a planned equity raise (Plan A), necessitating reliance on a fallback plan (Plan B).
- •The Financial Conduct Authority (FCA) does not oppose the scheme.
- •The scheme was approved by a majority (99.3% by number, 99.4% by value) of creditors present and voting at the meeting (4.7% turnout of potential creditors).
- •The court considered the low turnout in light of precedents, noting that low turnout alone is not grounds for refusal.
Legal Principles
Four-stage test for sanctioning schemes of arrangement: (1) Statutory compliance; (2) Fair representation and bona fide action; (3) Reasonable approval by an intelligent and honest person; (4) Absence of defects.
Re KCA Deutag UK Finance plc [2020] EWHC 2977 (Ch) at [16]
Low turnout is not in itself a reason to refuse sanction; the court considers the absolute number of creditors attending, the proportion to the whole class, notification methods, and explanations for participation.
Re Instant Cash Loans Ltd [2019] EWHC 2795 (Ch) at [29]; Re ALL Scheme Ltd [2021] EWHC 1401 (Ch) at [113]; Re Cape plc [2006] EWHC 1446 (Ch) at [24]-[26]
Creditors are better judges of their commercial advantage than the court; the court will be slow to differ from the meeting unless there is a material oversight or miscarriage.
Re English, Scottish, and Australian Chartered Bank [1893] 3 Ch 385; Re Telewest Communications plc (No.2) [2005] BCC 36
The court considers the FCA's position, particularly its consumer protection mandate.
Financial Services and Markets Act 2000
Outcomes
The scheme was sanctioned.
The court found that the scheme met all four elements of the sanction analysis: statutory requirements were met; the class was fairly represented; the scheme was one that an intelligent and honest person might reasonably approve; and there were no defects.