In the matter of Listrac Midco Limited

An important part of the analysis is to compare what is expected to happen if the Plans are sanctioned with what would be expected to happen if the Plans are not sanctioned – i.e., to conduct a comparison between sanction and the relevant alternative.

As to the relevant alternative, I am satisfied on the evidence that in the case of LFL, LCC, LAL, ACUKL and VML, the most likely relevant alternative is insolvent administration, with the business and assets of those companies being sold in a pre-packaged administration sales process. In respect of Midco and Bidco, I am satisfied that the most likely relevant alternative is liquidation.

EY have conducted an exercise to analyse the recoveries for Plan Creditors under the relevant alternative should the Plans fail, and the Lender Transaction not be implemented. This is set out in a document called the “Relevant Alternative Report”. The headline point is that in the relevant alternative (I will refer to it in the singular for convenience, though there is more than one – see above), the value break is within the secured debt. In respect of each Plan Company, the returns to unsecured Plan Creditors of whatever type would be entirely dependent on the prescribed part under s.176A of the Insolvency Act 1986. As regards the Plan Companies this is limited to £600,000 and the cap would be reached only in relation to LCC and LAL. The result, as Mr Smith KC submitted, is that the unsecured Plan Creditors are all “out of the money” creditors, meaning that they have no genuine economic interest in any of the Plan Companies.

Turning first to the Lease Liabilities, in total 27 leases are affected by the Plans – three Class A Leases and 24 Class B1 and B2 Leases. What is proposed if the Plans are sanctioned is broadly as follows:

In each case, the landlords under the affected Leases will be entitled to make claims under the Plans in respect of their losses. So, for example, a landlord of a Class A Lease who is paid something less than the contractually agreed rent during the Rent Concession period will be entitled to make a claim under the Plans for the shortfall. Likewise, landlords of Class B1 and B2 Leases, whose leases are terminated, will be entitled to make claims in respect of their losses – i.e., in respect of lost rental income over the remainder of the relevant lease terms.

Under the Plans, such claims by landlords as well as the Other Unsecured Liabilities (see above at [14(ii)]) will benefit from an uplift on the amount that would otherwise have been payable in the relevant alternative. More precisely, the Plans contemplate that where relevant liabilities are compromised, the affected creditors will receive 110 per cent of their “Estimated Insolvency Return” – i.e., 10% more than in the relevant alternative.

The scheme of the Plans seeks to ensure that no-one is worse off – and indeed all Plan Creditors are at least marginally better off - than they would be in the relevant alternative. To amplify a little, the following are likely outcomes in the relevant alternative:

The predicted returns to Plan Creditors under the competing scenarios are shown in the following tables, derived from the EY Relevant Alternative Report (and based on a “higher case” valuation of the Plan Companies):

In the Convening Judgment, in dealing with the issue of class composition, Trower J accepted that the Secured Creditors should form a single separate class; that the Landlord Creditors should form separate classes depending on whether they fall within Class A, B1 or B2; that the Landlord Guarantee Creditors should form separate classes depending on whether the underlying lease is in class A or B; and that there should be a single class of Other Unsecured Creditors. Since there are 7 Plan Companies, and as regards each of them a number of different classes of creditor, in total there were some 22 Plan Meetings.

In accordance with the Convening Order, the Plan Meetings took place on 9 February 2023. The voting results, which I have taken from the Chairperson’s report, are set out in the table below:

The relevant statutory provisions are ss. 901F and 901G CA 2006.

Broadly, under s. 901F CA 2006, the Court may sanction a compromise or arrangement if 75% in value of the creditors or class of creditors present and voting at a duly summoned meeting give it their approval.

That was the position as regards all creditor classes of Midco, Bidco, LAL and LFL: see the Table at [25] above - the relevant majority by value in respect of each class of creditor was achieved, and so the Court has power under s. 901F to sanction the Plans affecting those four companies.

The position as regards LCC, ACUKL and VML is different. In the case of the Plan Meetings in relation to these Plan Companies, at least one creditor class dissented. In other words, the requisite majority (75% by value) was achieved only in respect of some, but not all, of the creditor classes relevant to those Plan Companies.

A number of points arise.

The first is that if the Plans are to be sanctioned in respect of LCC, ACUKL and VML, then the Court will need to be satisfied that the conditions in s.901G are met: only then will the sanction power under s.901F be exercisable, relying on the so-called cross-class cram down – see s.901G(2).

The second point is that the Plan Meetings which failed to achieve the relevant majority had only limited (or no) attendance, and in the strict sense cannot be described as having been “meetings” at all. This again can be seen from the Table at [25] above, which shows the following:

In Re Altitude Scaffolding [2006] BCC 904 at [18], in dealing with a scheme under Part 26 CA 2006, David Richards J took the view that a “meeting” logically requires the attendance of at least two persons. That is why I say that in the strict sense, the above Plan Meetings cannot properly be described as having been meetings at all. Does that present a problem in terms of compliance with the statutory requirements?

I think not in this case, given that the provision relied on as providing the power to sanction the Plans is s.901G, by means of the cross-class cram down.

The whole point of the machinery under s. 901G is that the Court’s sanction power is not dependent on a positive outcome (in the form of the requisite 75% majority) having been achieved across all meetings of every creditor class convened to consider the compromise in question. In fact, the opposite is true: the purpose of s. 901G is to confer a sanction power under s.901F – provided certain other conditions are fulfilled – even if there has been no agreement at one or more of the relevant meetings.

The precise statutory language in s. 901G(1) is as follows (my emphasis):

“This section applies if the compromise or arrangement is not agreed by a number representing at least 75% in value of a class of creditors or (as the case may be) of members of the company (‘the dissenting class’), present and voting either in person or by proxy at the meeting summoned under section 901C.”

It seems to me that that language is apt to describe the situation as regards the Plan Meetings mentioned in [32] above: in each case, the compromise or arrangement was not agreed by a 75% majority in value at the duly scheduled meetings. In my opinion, the failure to reach agreement is the relevant trigger: it does not matter how that comes about. It is irrelevant whether it is the result of a vote at a well-attended meeting which falls short, or the result of only one creditor attending and voting against, or indeed the result of no-one attending. However it comes about, there is no agreement by the required majority.

To put it another way, s.901G(1) exists precisely to cover the case where there is a dissenting class (or classes). Its language describes what is needed for there to be an agreement (75% majority in value of those present at a meeting), but it does not say that the only way to fail to reach agreement is to have a meeting and for the voting to fall short of the required majority. It follows that where there is a dissenting class, all that is required under s.901G(1) is that a meeting of the dissenting class has been “summoned under section 901C” (my emphasis added). That has happened here.

I think that conclusion is consistent with the policy and logic of the cross-class cram down. Were it otherwise, dissenting creditors could disable the operation of the cram down machinery simply by deciding not to attend and vote at the relevant class meeting.

The upshot in my opinion is that s.901G is engaged in this case even though certain of the Plan Meetings were not in fact “meetings” in the Re Altitude Scaffolding sense.

That is not the end of it, however. The next point is that, under the machinery of s. 901G, certain other conditions are required to be met in order for the sanction power to arise, precisely because not all creditor classes have agreed to the compromise or arrangement proposed. In order for the cram-down power to be available, two conditions – Conditions A and B – need to be met.

In Re Virgin Active Holdings Ltd [2022] 1 All ER (Comm) 1023 at [104], Snowden J conveniently summarised Conditions A and B as follows:

“Condition A: If the restructuring plan is sanctioned, would any members of the dissenting class be any worse off than they would be in the event of the relevant alternative? This is often described as the ‘no worse off’ test.

Condition B: Has the restructuring plan been approved by 75% of those voting in any class that would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative?”

In the present case, I am satisfied that Condition A is met, in the sense that each of the classes it is sought to cram down will receive at least as good an outcome under the Plans as they would under the relevant alternative – which in each case is an insolvent administration. That follows for the reasons already developed above at [19]-[23]. To summarise:

As to Condition B, this is certainly satisfied. That is because the Secured Creditors form a class in each of the Plans and in each case voted unanimously in favour. In the relevant alternative, they would receive 51.7p in the £, and so have a genuine economic interest in the relevant Plan Companies.

It is convenient first to deal with the Plans for Midco, Bidco, LFL and LAL – i.e., the four Plan Companies whose creditors approved the Plans by the requisite majority at the relevant Plan Meetings.

In such cases, the Court should apply the standard principles which govern the exercise of discretion under traditional Part 26 schemes: see Re Virgin Atlantic [2020] BCC 997, [46] and [51], and Re Gategroup [2021] BCC 549, [5]. Accordingly, in Re KCA Deutag UK Finance plc [2020] EWHC 2977 (Ch) at [16], Snowden J identified four questions for consideration in such cases:

“The relevant questions for the court at the sanction hearing can therefore be summarised as follows:

(i)

Has there been compliance with the statutory requirements?

(ii)

Was the class fairly represented and did the majority act in a bona fide manner and for proper purposes when voting at the class meeting?

(iii)

Is the scheme one that an intelligent and honest man, acting in respect of his interests, might reasonably approve?

(iv)

Is there some other ‘blot’ or defect in the scheme? In the case of a scheme with international elements there is also the question of whether the court will be acting in vain if it sanctions the scheme. This requires some consideration of whether the scheme will be recognised and given effect in other relevant jurisdictions.”

I will address these in turn.

Compliance with statutory requirements: I have dealt with certain aspects of this above. Two further matters arise. The first is class composition. Trower J. gave detailed reasons for the conclusions he expressed on class composition, and I see no need to revisit that analysis which I respectfully agree with. The second point is that I am also satisfied that the Plan Meetings were summoned and managed in accordance with the terms of Trower J.’s Convening Order.

Representation and bona fides: The Table at [25] above shows that the overall approval level was high among those who attended and voted at the relevant Plan Meetings: each Plan received 100% support from the Secured Creditors; the Midco, Bidco and LAL Plans also received support from 100% of the unsecured Plan Creditors; and the LFL Plan received strong majority support from the unsecured Plan Creditors.

Overall, the turnout for the Plan Meetings was also strong. The exception was the meeting of LAL Other Unsecured Creditors, which was attended by creditors representing only 8.33% of overall estimated claims.

I do not regard that as a matter of any weight, however, given the high turnout and level of approval in the other Plan Meetings, and given that the LAL Other Unsecured Creditors are out of the money creditors, whose non-attendance is most likely explained by an understandable lack of engagement.

Finally, I have seen nothing to suggest that those creditors who voted in favour of the Plans were acting otherwise than bona fide and for a proper purpose.

Fairness: Fairness in this context has a particular meaning. Again in Re KCA Deutag UK Finance plc [2020] EWHC 2977 (Ch), Snowden J at [28] gave useful guidance:

“The court simply has to be satisfied that the scheme is one that an intelligent and honest man, acting in respect of his interests, might reasonably approve. It does not mean that the court is required to form a view of whether the scheme is, in some general sense, or even in the court’s own opinion, the ‘fairest’ or ‘best’ scheme.”

I am entirely satisfied on this point in relation to the relevant Plans. That is because they provide a result for all classes of creditor which is better than the result likely to be achieved in the relevant alternative. Granted, in some cases it is only marginally better; but it is intended to be no worse, and looked at overall the Plans create an environment in which the Group is stable and its future more certain than in the case of insolvency. Each of the Plans is thus one that an intelligent and honest man, acting in his own interests, might reasonably approve.

This is a convenient point to consider the points raised by Mr Tydeman in his letter to the Court (mentioned at [5] above). To be clear, Mr Tydeman did not argue that they should lead to the request for sanction being refused, only that they give rise to “negative consequences” which the Court should comment on. On examination, however, neither gives rise to any serious issue in my view:

Blot: The remaining point is whether there is any blot or defect. None has been suggested and I have not identified anything which would qualify.

In some cases, the presence of an international element can cause complications, but that is not the case here. Each of the Plan Companies is incorporated in England, and there is no substantial connection with any other jurisdiction. The only possible exception is the fact that four LAL Class B1 Leases are subject to Scots law, but the Plan Companies have received advice that the Plans will be effective to compromise those Leases nonetheless.

I then come on to LCC, ACUKL and VML, the three Plan Companies in respect of which sanction is dependent on the cross-class cram down.

Some discretionary factors obviously overlap, but it is also relevant to ask whether there has been active opposition to the Plans, and whether they represent a fair distribution of the benefits of the overall restructuring (see [67]-[70] below)

Statutory requirements: To begin with, I am satisfied that the relevant statutory requirements have been complied with (including as to class composition and as to the summoning and conduct of the relevant Plan Meetings).

Representation/Bona fides: As shown by the Table at [25] above, the Secured Creditors in each case were unanimously in favour of the Plans: and in each case the Secured Creditors present and voting represented 100% of the overall estimated claim value.

The position of the unsecured Plan Creditors is more of a mixed bag. Several points can be mentioned:

What conclusions to draw from this? None of it persuades me as a matter is discretion that the relevant Plans should not be sanctioned. As to category (ii), it is true that the turnout was low, but I do not find that at all surprising given that the relevant creditors are all out of the money. The low turnout, and passivity even among those who did attend (who abstained), is again consistent with such creditors simply having decided not to engage, rather than with them having any inability to do so.

Category (iii) is more notable, but viewed in the overall context, the fact that two out of the money creditors chose to appear and vote against the relevant Plans does not seem to me a point of any real weight. Given the overall voting pattern revealed by the Table at [25], it is impossible to think that they are in any way representative of a broader pattern of vigorous and positive dissent among unsecured Plan Creditors which has not been able to find a voice. On the contrary, they are an aberration. The overall pattern in fact shows much positive support for the Plans, and otherwise is one of understandable resignation by unsecured creditors having no real economic interest in the Plan Companies.

Again, I have seen nothing to suggest that those who voted in favour of the Plans were motivated other than by bona fide commercial interests.

Blot: It is also relevant that no blot on any of the Plans has been identified, and that there are no complicating international elements and no reason to think the Plans will not be effective.

No Active Opposition: I also take comfort from the fact that there has been no active opposition to the sanction of the Plans, including from Mr Tydeman. The evidence of the Plan Companies was effectively unchallenged (as to which see Re ED&F Man Holdings [2022] EWHC 687 (Ch), [39] and [56], and Re Houst [2022] BCC 1143 at [29]).

Fair Distribution: I have already expressed the view that the Plans are such that an intelligent and honest man, acting in his own interest, might approve of (above at [53]). The present is a slightly different point. A further factor in cases under s901G is whether the proposed compromise involves a fair distribution of the benefits of the restructuring (see Re DeepOcean at [62]-[65], and Re Virgin Active [256]-[300]). I am persuaded that is the case here.

I note that the Plans exclude certain classes of creditor, whose claims are therefore unaffected by the proposed compromise (see above at [13]). Such creditors, however, have been excluded on the basis of objective criteria and for good commercial reasons, essentially because they are important for the continued operation of the Group. Similar arrangements were approved in the context of s.901G, both in the Virgin Atlantic decision at [64]-[67], and in the later Virgin Active case at [260]-[263].

As to the creditors (i.e., the Plan Creditors) whose claims are to be compromised, it is true that the Plans chiefly benefit the Secured Creditors, and that the position of the unsecured Plan Creditors is only marginally better than in the relevant alternative. That seems fair, however, since the unsecured Plan Creditors are all out of the money and thus have no genuine economic interest in the Plan Companies, whereas the Secured Creditors do. They are ones who are compromising their interest, and who are committing to provide the substantial ongoing funding needed for the Group to stabilise and survive. In such circumstances, I think it appropriate for them to receive the bulk of the economic value arising under the restructuring. The unsecured Plan Creditors may only be receiving a 10% uplift on their Estimated Insolvency Return and no more, but as Mr Smith KC put it in submissions, the uplift really is in the nature of a gift, which such creditors are doing nothing to earn. It is not an objection to the Plans to say that the gift could have been bigger, and to be fair to the unsecured Plan Creditors, none sought to say that it should have been.

For all the above reasons, I determined at the hearing on 22 February 2023 that I would sanction the proposed Plans for all seven Plan Companies, and duly made an Order to that effect.