Card Protection Plan Litd, Re

This is an application for an order sanctioning a Scheme of Arrangement under Part 26 of the Companies Act 2006 pursuant to s.899 of that Act. The company is an insurance intermediary regulated by the Financial Conduct Authority. Its two core products are card protection which assists customers if their credit cards are lost, stolen or used without authority, and protection against identity fraud.

The company has been involved in the mis-selling of insurance products. The FCA identified a number of flaws in the way the company’s products had been sold, and concluded that if a customer’s decision to buy a product had been materially affected by the issues, the customer was entitled to redress. Approximately seven million of the company’s customers may have claims against it, either because of direct sales or by sales introduced by Business Partners, or by Business Partners as agents for the company. The majority of the sales were, I understand, in the second category.

In May 2011, the FCA commenced an investigation into the company, as a result of which the company stopped new sales of these two regulated products. The FCA imposed a fine of £10½ million on the company to be paid in instalments by December 2014. The company’s regulatory permissions were varied at its own request.

The company has potential liability to customers arising out of all three types of sales, and there may also be claims against the Business Partners. The company has, in broad terms, agreed to indemnify those Business Partners against such claims under warranties and indemnities. The company’s potential financial exposure is huge. To date, it has paid out considerable amounts of redress.

The object of the Scheme is to quantify, limit and indeed extinguish its liabilities. The advantages to the customers are:

I say “reduction” because the risk is not entirely avoided by the Scheme. The company could still become insolvent if either the response rate exceeds expectations or a Business Partner becomes insolvent. However, at present, it is not believed that either of those things could happen, or would happen. If the company does become insolvent, a Scheme Creditor’s claim will cease tobe governed by the Scheme and the Creditor will retain the same rights, including claims against the Financial Services Compensation Scheme, against the company and any insolvent Business Partner, as if the Scheme had not become effective.

If the Scheme is not sanctioned, the company will have to proceed with a past business review which it agreed with the FCA to undertake. The Business Partners will also have to undertake their own review. It could take up to three years to do this and customers are likely to be confused by multiple reviews. The advantages to the company of the Scheme are:

The Scheme appears to provide a fair, quick, balanced and accessible process. However, there are a number of disadvantages to the Scheme as far as customers are concerned. First, there is the bar date. Secondly, there is a methodology which affects the balance between the customers. Thirdly, the Scheme does not make any provision for the position prior to14th January 2005. Those rights are simply excluded from the Scheme.

The main disadvantage of the Scheme is that there is a release of the Business Partners' liability. In that regard Mr. Trower has taken me to my decision in Re La Seda de Barcelona SA. He has satisfied me that the same considerations apply, and that the release is not necessarily a bar to approving the Scheme.

Mr. Trower also, very properly, took me to some letters which have been sent, in one instance to the court and in other instances to the chairman of the Scheme Meeting, objecting to the Scheme, and I should deal with those. First of all, there was a letter before the convened Scheme meeting from a Mr. Hall, in which he says that he effectively wants all the organisations (that is Card Protection Plan Limited, the company, and its Business Partners) to be liquidated and the proceeds shared equally amongst the Creditors involved. He also asks for the directors of the companies to be arrested and dealt with inaccordance with the law in relation to suspected fraud. I am not prepared to make an order of that kind.

Secondly, there is a letter from Miss Carr. She makes the point that the Scheme is only for those who have had a card protection product since 14th January 2005, whereas she has had it since 2001. She does not feel, she says, that the Scheme is, or represents, a reasonable or fair process for her personal circumstance or position. She makes a further point in para.(d) on the second page of her letter, which Mr. Trower has persuaded me is probably a bad point because she seems to have misunderstood the relevance of a date in August 2013.

However, she makes the good point that if the Scheme were approved, she would be faced with the double task of having to make a separate claim for payments prior to 14th January 2005, and a claim for payments under the Scheme. She also objects to the bar date. Again, I understand that (and I say this in the face of the court) the company will probably be writing to her to explain her position under the Scheme. It seems to me that, probably, her only good point is her double task point, but that is not a reason, it seems to me, not to approve the Scheme.

Thirdly, there are a number of letters (I have two letters), which plainly originate from the same genesis because they are in very similar form indeed, from a Mr. Knight and a Mr. Sparks. They make the point that, although the Scheme provides for 8% interest to be payable, that will not match the higher amount of interest that people might have to pay on their credit cards. Again I agree with Mr. Trower, that is not a reason for not approving the Scheme. The whole point of a Scheme is that it provides an overall benefit to the Scheme Creditors as a whole.

I accept that there may be differences between the various Scheme Creditors, but the point of the Scheme is that a similar benefit is given to everybody. The 8% seems to me to be a good percentage. It has not been shown that people would suffer the higher amount in any event. This seems to me to be the kind of Scheme that the Creditors could approve, and have approved, as being reasonable and in their interests as a whole.

On 7th October last year, David Richards J directed that a meeting of Scheme Creditors be convened to take place on 7th January 2014. That meeting was duly convened and the Scheme was approved by a majority in excess of the statutory majority. Although I have jurisdiction to reconsider the question of constitution of the Scheme meeting, it has not been suggested by any Scheme Creditor that there is any issue in respect of classes. It is not generallyappropriate for the court hearing the sanction application to re-visit the question of classes, and I do not propose to do so.

I have been referred to Re Telewest Communications Plc. (no.2) and Re National Bank Limited as to the test to be applied when considering sanctioning a scheme. I am satisfied that all of the procedural requirements for the Scheme under the Companies Act 2006 have been complied with in accordance with David Richards J’s order, save for minor deviations which I am prepared to waive.

At the meeting there was a large majority voting in favour of the Scheme both in terms of numbers of shareholders and value of the holdings. I believe that the class of Scheme Creditors was fairly represented by those attending the meeting, despite the relatively low turnout, and that the statutory majority were acting bona fide without coercing the minority and without promoting interests adverse to those of the others. I have, as I say, taken into account the letters from Mr. Hall, Miss Carr, Mr. Sparks and Mr. Knight when coming to that conclusion.

I am satisfied that the directors have, properly advised, unanimously recommended the Scheme, and that it has been fully and properly explained. In particular, I note that the Scheme was promulgated in consultation with the FCA who has considered it in some detail and approved it. I also note that counsel today represent the Business Partners for the purposes of giving an undertaking to be bound by the Scheme.

I am satisfied that, notwithstanding the written objections, the Scheme is such that an intelligent, honest man acting in respect of his interests might reasonably approve. I have considered the merits of the Scheme and I find it to be fair, both procedurally and substantively, and I see no blot on the Scheme. In all of the circumstances, it is expedient and proper in the exercise of my discretion to approve the draft order and I have done so accordingly.