Scottish Court of Session Decisions
You are here:
BAILII >>
Databases >>
Scottish Court of Session Decisions >>
Petition of Dobbies Garden Centres LTD (Court of Session) [2024] CSOH 111 (20 December 2024)
URL: http://www.bailii.org/scot/cases/ScotCS/2024/2024csoh111.html
Cite as:
[2024] CSOH 111
[
New search]
[
Printable PDF version]
[
Help]
OUTER HOUSE, COURT OF SESSION
[2024] CSOH 111
P948/24
OPINION OF LORD BRAID
In the Petition of
DOBBIES GARDEN CENTRES LIMITED
Petitioner
for
sanction of a compromise or arrangement under Part 26A of the Companies Act 2006
Petitioner: Delibegovic-Broome KC, Roxburgh; Burness Paull LLP
20 December 2024
Introduction
[1]
The petitioner, Dobbies Garden Centres Limited (the "company") is a well-known
company which operates garden centres. In this petition under Part 26A of the Companies
Act 2006, it asks the court to sanction a Restructuring Plan between the company and seven
classes of its creditors, the purpose of which is to alleviate certain financial difficulties which
the company has encountered, to enable it to continue trading. It seeks to do that by
amending and extending its existing secured loan facilities in exchange for the addition of
new financial covenants; and by amending and comprising, in each case in exchange for a
payment greater than the relevant creditor's outcome in the most likely alternative to the
2
Restructuring Plan (administration), some of its obligations, being those due under certain
Leases and general property arrangements; certain guarantees; and business rates.
[2]
At the first hearing on 18 October 2024, I gave detailed directions allowing the
company to summon and hold meetings (the court meetings) of each of the seven classes of
creditors for the purpose of considering and, if thought fit, approving, the Restructuring
Plan. I also appointed Mr Adrian Bell WS, solicitor, to report on the facts and circumstances
set forth in the petition and the regularity of the proceedings.
[3]
As will be seen, the court meetings took place on 13 November 2024. The
Restructuring Plan was approved by only one class of creditors - the secured creditors. It
was not approved by any of the other classes. Thus, although I also have to be satisfied on
other matters, the key decision for the court is whether the decision of the secured creditors
ought to be imposed upon the other classes through the operation of what has become
universally known as cross-class cram down, provided for in section 901G of the 2006 Act.
[4]
On 14 November 2024 I issued a further interlocutor allowing advertisement of the
petition in various publications, and appointing any person claiming an interest to lodge
answers within 14 days of the last of such advertisements. Advertisements were
subsequently placed in the relevant publications on 15, 18 and 19 November 2023. (There
was a minor error in one of the advertisements, in that it mis-stated, by one day, the
anticipated last date for lodging answers. However, nothing turns on that, given that no
creditor has attempted to lodge answers; no prejudice was caused).
[5]
The final hearing - commonly referred to as the sanction hearing - called before me
on 9 December 2024. Although a small number of creditors have raised informal objections,
no answers were lodged in opposition to the petition, nor did any creditor appear at the
hearing. I also had the benefit of Mr Bell's comprehensive, and very helpful report.
3
[6]
At the sanction hearing, senior counsel adopted her written submissions, which she
amplified in oral argument in moving that the petition be granted. I granted sanction but,
since I was told that this was only the second petition in Scotland under Part 26A of the
2006 Act (and the first was not written on), and since the present case involves a point of
general principle in relation to what constitutes a meeting (where I have differed from
English authority), I intimated that I would issue a written opinion giving full reasons.
The approach to considering sanction
[7]
As with schemes of arrangement under Part 26 of the 2006 Act, the court has a
general discretion as to whether to sanction a restructuring plan under Part 26A. Although
there are important differences between schemes of arrangement under Part 26 and
restructuring plans under Part 26A, the court may draw on Part 26 case law in considering a
Part 26A application: Re Virgin Atlantic Airways Ltd [2020] BCC 997, Trower J at [45].
Further, this court may draw on English and Welsh jurisprudence: Sportech Plc,
Petitioner 2012 SLT 895, Lord Hodge at [12].
[8]
The important differences between the two types of scheme are as follows:
(i)
Section 901A contains two threshold conditions which must be satisfied:
(see below, paras [15] to [18]). The use of Part 26A is therefore restricted to
companies which are likely to be, or about to become, insolvent (in contrast
to schemes of arrangement under Part 26).
(ii)
Under Part 26A, it is possible to exclude any class of creditors from being
summoned to a meeting where the court is satisfied that none of the members
of that class has a genuine economic interest in the company (section 901C (3)
4
and (4): those provisions are not prayed in aid in the present case, although
arguably they might have been).
(iii) Under Part 26A, the court may sanction a plan approved by 75% in value of
those present and voting at the class meeting or meetings: section 901F(1) (see
below, para [22]), whereas under Part 26 there is an additional requirement to
obtain a majority in number of those present and voting at each class meeting.
Consequently, the cross-class cram down provisions do not apply to Part 26.
[9]
The approach in a Part 26A petition, where cross-class cram down is invoked, as
here, was recently helpfully summarised by the Court of Appeal in Re AGPS Bondco plc
("Adler") [2024] BCC 302, Snowden LJ, from para [155], from which I take the following:
(i)
At the first stage, the court must consider whether the provisions of the
2006 Act have been complied with. This will include questions of class
composition, whether the statutory majorities were obtained, and whether an
adequate statutory statement was distributed to creditors.
(ii)
At the second stage, as regards each assenting class, the court must consider
whether the class was fairly represented by the meeting, and whether the
majority were coercing the minority in order to promote interests adverse to
the class whom they purported to represent. The court will therefore need to
be satisfied that those who attended and voted in favour at the meeting were a
true reflection of the class as a whole and that the majority had not voted in
favour in order to promote interests adverse to the class of which they formed
part.
(iii) At the third stage, the court must consider whether the plan which is to be
imposed on dissenting creditors is fair to the creditors as a whole. The
5
question is whether the plan provides for a fair distribution of the restructuring
surplus to the creditors as a whole.
(iv) At the fourth stage, the court must consider whether there is any "blot" or
defect in the scheme that would, for example, make it unlawful or in any other
way inoperable.
[10]
The first and second stages subsume a number of different questions, all of which
must be answered in the affirmative if sanction is to be granted. Applying all of that to this
case, and modifying slightly the list suggested by senior counsel, it seems to me that the
matters on which I must be satisfied in this case (where no question of coercion of a minority
within an assenting class arises) are as follows:
(i)
that the court has jurisdiction (on which I am satisfied: see para [14];
(ii)
that the threshold conditions in section 901A of the 2006 Act have been met (on
which I am satisfied: see paras [15] to [18]);
(iii) that there is a proper basis for excluding any creditors who are not included in
the Restructuring Plan (on which I am satisfied: see paras [67] to [78]);
(iv) that the classes identified for the court meetings were appropriate (on which I
am satisfied: see paras [79] to [97]);
(v)
that the explanatory statement was adequate (on which I am satisfied: see
paras [100] to [104])
(vi) that the court meetings were properly convened (on which I am satisfied: see
paras [105] to [106]);
(vii) that the petition was properly advertised; (I am satisfied: see para [4]);
(viii) that the jurisdictional requirements for exercise of the cross-class cram down
power, contained in section 901G of the 2006 Act; (viz, conditions A and B,
6
discussed fully below) have been met (on which I am satisfied: see paras [122]
to [124];
(ix) that the Restructuring Plan is fair to the creditors as a whole (including
consideration of whether there is a better plan available) (on which I am
satisfied: see paras [125] to [127]);
(x)
that there is no blot or defect (on which I am satisfied: see para [128]); and
(xi) that it is appropriate, in all the circumstances, including the informal objections
which have been made, to exercise the cross-class cram down power contained
in section 901G of the 2006 Act and to sanction the plan (discussed at
para [129]).
[11]
At this stage I would mention briefly the two informal objections. The first is an
objection by ABC Adventure Golf Ltd, which asserts that it ought to have been included in a
separate class rather than placed in the class comprising general property creditors; and,
moreover, that it will not be no worse off under the plan than under the "relevant
alternative". The second is a suggestion from Peterborough City Council in relation to the
ability of a restructuring plan to compromise liabilities in respect of local authority rates.
[12]
I shall consider all of these matters in the course of this opinion.
The legislative policy behind Part 26A of the 2006 Act
[13]
As the reporter has helpfully observed, the compromise of creditors' rights is always
a matter to be approached with seriousness, particularly where, as here, that compromise
may be imposed on creditors or classes of creditors who have not assented to, or indeed,
have opposed, that compromise. Part 26A forms part of a long term public policy push
towards preventative insolvency measures emulating those provided for in the EU, albeit it
7
was introduced as an emergency measure at the outset of the Covid pandemic. The high
level policy objective of Part 26A is to maximise the survival prospects of viable companies
and to:
·
address the scenario where a secured creditor can block a company rescue,
despite the proposals being well supported by other creditors;
·
enable courts to sanction restructuring plans where it is fair and equitable to do
so;
·
enable companies with viable businesses that are struggling to meet debt
obligations to restructure with limited disruption to their operations; and
·
provide an alternative measure to a Part 26 scheme in cases where the
agreement of all classes of creditors is unlikely.
The policy behind Part 26A therefore recognises that, to save viable companies,
compromises may need to be imposed on non-assenting creditors.
Jurisdiction
[14]
The company has both its registered office and its centre of main interests in
Scotland, as its central affairs are managed from its office at Melville Nursery, Lasswade.
This court therefore has exclusive jurisdiction by virtue of: (i) sections 901A and 1156(1)(b)
of the 2006 Act and section 120(1) of the Insolvency Act 1986; and (ii) section 21(1)(b) of, and
paragraph 5 of Schedule 9 to, the Civil Jurisdiction and Judgments Act 1982.
8
Part 26A of the Companies Act 2006
The threshold conditions section 901A
[15]
In terms of section 901A of the 2006 Act, Part 26A of the Act applies where two
conditions, A and B, are met in relation to a company. Insofar as relevant to this case,
condition A is that the company has encountered, or is likely to encounter, financial
difficulties that are affecting, or will or may affect, its ability to carry on business as a going
concern. Condition B is that (a) a compromise or arrangement is proposed between the
company and its creditors or any class of them, and (b) the purpose of the compromise or
arrangement is to eliminate, reduce or prevent, or mitigate the effect of, any of those
financial difficulties.
[16]
As described more fully below, I am satisfied, first, that the company's financial
difficulties are such that, absent some intervention, the company will not be able to continue
trading beyond week commencing 16 December 2024. There is no doubt, on the material
produced, that the company will be unable to continue trading without the injection of
additional funding. The secured creditors, through their agent Ares Management Ltd, have
confirmed in a letter dated 27 November 2024 that if the plan is not sanctioned no additional
funding will be provided. There is no reason not to take that letter at face value. One of the
company's directors, Ms Debbie Harding, has stated in her affidavit of 5 December 2024 that
an updated cash flow forecast prepared on 2 December 2024 reconfirms that the company
will have insufficient cash to meet its debts as they fall due on or around week commencing
16 December 2024. No creditor has taken issue with the extent of the company's financial
difficulties as prayed in aid by the company.
[17]
The reporter has also considered this issue, drawing attention to the approach of the
Companies Court in England to the threshold conditions. In Hurricane Energy Plc
9
low, and that (as section 901A(2) expressly states) it is enough that the company is likely to
encounter financial difficulties that may affect its ability to carry on business as a going
concern; which approach was broadly supported by Trower J in Re LIstrac Midco Ltd &
and the revised short term case flow prepared as at 2 December 2024, that this limb of the
statutory test is met, and that the company is encountering financial difficulties that are
affecting or may affect its ability to carry on business as a going concern.
[18]
As regards threshold condition B, there are two limbs to it: that the company
proposes a compromise or arrangement between it and its creditors or certain classes of its
creditors; and that the purpose of that arrangement is to alleviate the company's financial
difficulties. As regards the latter, as the petition makes clear, the object of the Restructuring
Plan is to return the company to financial stability and secure its long term future by
restructuring its unsecured liabilities and making changes to its secured liabilities in order to
access new funding, thus enabling it to avoid entry into an insolvency process in the
imminent future. As regards whether the plan is a compromise or arrangement, the courts
have consistently interpreted the term "arrangement" broadly (see, for example, Re Listrac
Midco Ltd, above, Trower J at [36] where he expressed the view that where creditors were to
be offered terms which provided a better return for them than they would otherwise receive
in the relevant alternative, the court could be satisfied that this element of condition B was
met); Premier Oil Plc v Fund III Investment Cayman Ltd 2020 CSOH 39, Lady Wolffe at [86].
I am satisfied that the Restructuring Plan is a compromise or arrangement within the
meaning of the Act with certain classes of the company's creditors (the Plan Creditors), and
that the plan provides the necessary degree of "give and take", inasmuch as the Plan
10
Creditors (including those who are "out of the money") are to receive consideration in the
form of compromised payments under the plan. I am therefore satisfied that the second
limb of the threshold condition is also met. Again, no creditor has suggested otherwise.
Section 901C
[19]
Section 901C of the 2006 Act provides that the court may order a meeting, or
meetings, of the creditors, or class of creditors, at which every creditor whose rights are
affected by a proposed compromise or arrangement must be permitted to participate.
Section 901D
[20]
Section 901D of the Act provides that, where a meeting is convened under
section 901C, a statement complying with section 901D must be prepared by the plan
company and the notice summoning the meeting must either be accompanied by that
statement or state where and how creditors entitled to attend the meeting may obtain it.
Such a statement must explain the effect of the compromise or arrangement and, in
particular, state (i) any material interests of the directors of the company (whether as
directors, members, creditors or otherwise) and (ii) the effect on those interests of the
compromise or arrangement in so far as it is different from the effect on the like interests of
other persons.
Section 901E
[21]
Section 901E of the Act provides, insofar as material, that it is the duty of any director
of the company to give notice to the company of such matters relating to that director as
may be necessary for the purposes of section 901D.
11
Section 901F
[22]
Section 901F of the Act, insofar as material, provides:
"901F Court sanction for compromise or arrangement
(1)
If a number representing 75% in value of the creditors or class of creditors or
members or class of members (as the case may be), present and voting either in
person or by proxy at the meeting summoned under section 901C, agree a
compromise or arrangement, the court may, on an application under this section,
sanction the compromise or arrangement.
(2)
Subsection (1) is subject to--
(a)
section 901G (sanction for compromise or arrangement where one or
more classes dissent), ...
(3)
An application under this section may be made by--
(a)
the company
...
(5)
A compromise or arrangement sanctioned by the court is binding--
(a)
on all creditors or the class of creditors or on the members or class of
members (as the case may be), and
(b)
on the company ...
(6)
The court's order has no effect until a copy of it has been--
...
(b)
... delivered to the registrar."
Section 901G the "cross-class cram down" provision
[23]
Section 901G, insofar as material, provides:
"901G -Sanction for compromise or arrangement where one or more classes dissent
(1)
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.
(2)
If conditions A and B are met, the fact that the dissenting class has not agreed
the compromise or arrangement does not prevent the court from sanctioning it
under section 901F.
12
(3)
Condition A is that the court is satisfied that, if the compromise or arrangement
were to be sanctioned under section 901F, none of the members of the
dissenting class would be any worse off than they would be in the event of the
relevant alternative (see subsection (4)).
(4)
For the purposes of this section `the relevant alternative' is whatever the court
considers would be most likely to occur in relation to the company if the
compromise or arrangement were not sanctioned under section 901F.
(5)
Condition B is that the compromise or arrangement has been agreed by a
number representing 75% in value of a class of creditors or (as the case may be)
of members, present and voting either in person or by proxy at the meeting
summoned under section 901C, who would receive a payment, or have a
genuine economic interest in the company, in the event of the relevant
alternative.
..."
[24]
That provision provides for "cross-class cram down": in other words, the proposed
scheme may be approved by the court and imposed upon dissenting classes of creditors,
provided that at least one class meeting has approved the scheme by the statutory majority,
and provided, also, that none of the members of the dissenting classes would be any worse
off under the scheme than they would be if the scheme were not sanctioned. That latter
condition involves consideration of the "relevant alternative", namely, the counterfactual
situation which would exist if sanction were refused. As already observed, the company is
necessarily relying upon cross-class cram down in this case, because of the seven class
meetings which were summoned, at only one was the scheme approved by the requisite
majority of creditors. The relevant alternative is said to be that the company would enter
administration and a number of other group entities would enter either administration or
liquidation, such processes commencing on or around 16 December 2024; I revert to this at
paras [39] to [40].
13
Background to the Restructuring Plan
[25]
The company forms part of a group, comprising in total nine companies. The
ultimate holding company of the group is DanAtAugusta EquityCo Limited ("EquityCo"), a
Jersey-registered company. The entire share capital of EquityCo is held by entities managed
by Ares Management Limited (the "Ares Funds"), who are also the secured creditors.
Dobbies Garden Centres Group Limited (the "Parent"), a company registered in England
and Wales, is an indirect subsidiary of EquityCo. The Parent's direct subsidiary is
DanAtAugusta Bidco Limited ("Bidco"). The issued share capital of the company as at
27 June 2024 (the date of last confirmation statement) is £1,703,850.90 divided into 17,038,509
ordinary shares of £0.10 each, all of which are fully paid up. Ms Harding has confirmed in
her affidavit that there has been no subsequent change in the company's share capital and
that there are no warrants in issue. All of the shares in the company are held by Bidco.
[26]
The company is the principal operating company for the group's business, which is
the operation of a chain of garden centres under the "Dobbies" brand. This involves: (i) the
sale of horticultural, food, homewares and seasonal products; (ii) the operation of
restaurants and cafes from the garden centres; and (iii) the granting of concessions to third
party retailers who trade from the garden centres. The group also operated, until recently,
small retail stores in urban locations under the "Little Dobbies" brand, but due to the
company's financial difficulties, these have all now ceased trading.
[27]
As at the date of presentation of the petition, the company operated and traded from
77 garden centres and urban stores across the United Kingdom, of which one was owned by
the company and 76 were occupied under Leases. The company considers that 28 of those
Leases were unsustainable at their current level of rent (two Leases have been surrendered
since the presentation of the petition, taking the number down to 26). Thirteen of the
14
premises operated by the company are located in Scotland, two in Northern Ireland, one in
Wales and 61 in England. All of the group's employees are employed by the company. The
company has about 3,600 employees, of whom around 1,400 are employed full time.
The financial position of the company and the group
Introduction
[28]
The company has encountered financial difficulties, partly due to unsustainable
Lease arrangements dating back to 2016. The company's management team has prepared a
short-term cash flow forecast for the company and the group for the period 16 September
2024 to 2 March 2025. The forecast was updated as at 2 December 2024. Both forecasts show
that if the Restructuring Plan is not sanctioned and new funding, conditional on the sanction
of the Restructuring Plan, is not received, the company was expected to have insufficient
cash to meet its obligations starting on or around the week commencing 16 December 2024.
The company was able to trade to the date of the sanction hearing only because additional
financial support was provided by its secured creditors.
[29]
The company's financial position for the financial years ending 1 March 2020
through to 5 March 2023 (respectively, "FY20", "FY21", "FY22" and "FY23"), derived from
the company's audited financial statements for those financial years, is as follows:
15
Historical Plan company income statements for the company
FY20
FY21
FY22
FY23
Turnover (£,000)
234,989
215,957
303,609
278,682
Cost of sales (£,000)
(114,927) (109,767) (152,422) (156,466)
Gross profit (£,000)
120,062
106,190
151,187
122,216
Operating profit/(loss) (£,000)
519
11,398
17,736
(96,045)
Profit/(loss) before tax (£,000)
(22,942) (13,976) (7,045) (105,220)
Historical Plan company balance sheet
FY20
FY21
FY22
FY23
Non-current assets (£,000)
707,931
712,761
771,829
694,828
Current assets (£,000)
98,630
128,647
72,832
73,930
Total assets/(liabilities) (£,000)
806,561
841,408
844,661
768,758
Total assets less current liabilities (£,000)
669,978
673,834
674,808
591,212
Net assets/(liabilities (£,000)
134,498
124,785
112,905
22,610
The group's updated financial position
[30]
Since the 2023 accounts, the group's cash flow and trading position has deteriorated.
The next accounts which the company is required to lodge with the Registrar of Companies
are its financial statements for the period ending 28 February 2024, due by 28 February 2025.
Those accounts have not yet been finalised because the company's auditors cannot finalise
their opinion on them until it is known whether the Restructuring Plan will be approved.
16
The company's key financing arrangements with secured creditors
[31]
The principal financing arrangement that the company has entered into is a facilities
agreement with its secured creditors, which sets out the terms upon which the secured
creditors have made available existing facilities to Bidco as the borrower. In essence, as at
the date of presentation of the petition, there were nine term loan facilities (named
Accordion Facility A to I), for a total of £66.5 million. In the case of Accordion Facilities A, B,
G, H and I, interest is charged and is capitalised at the end of each interest period rather
than paid in cash. In the case of Accordion Facilities C, D, E and F, no interest is charged but
an arrangement fee is due to be paid when the existing facilities are repaid. Each of the
existing facilities is fully drawn (other than Accordion Facility I which was expected to be
fully drawn in the week commencing 21 October 2024) and is repayable on 31 August 2025.
Subsequently, another Accordion Facility, K, has been entered into, in the sum £1 million.
(Accordion Facility J relates to the remaining £23 million which the secured lenders are to
advance upon the Restructuring Plan becoming effective.)
[32]
The company has guaranteed the obligations of Bidco and other obligors (which
include the Parent, and three other group companies: DanAtAugusta Propco1 Limited,
("Propco1"): DanAtAugusta Propco2 Limited,("Propco2"): and DanAtAugusta Propco3
Limited, ("Propco3") (the group obligors) under the facilities agreement and other relevant
finance documents. The company thus has a primary obligation to pay and discharge the
obligations of the group obligors. As at 30 September 2024 the secured creditors were
owed £97,068,198.79. By mid-November 2024, the secured creditors' claim, for voting
purposes, had risen to £105,606,826.
17
The company's unsecured liabilities
Leases
[33]
Apart from the facilities agreement, the company's main obligations are under its
Leases. The 76 Leases under which the company is or was tenant fall into broadly three
categories:
·
47 are arm's length commercial Leases with third-party non-group Landlords;
·
three are with third-party non-group Landlords for a peppercorn rent; and
·
26 are ones in which Propco3 is the Landlord (the "Propco3 Leases").
[34]
As at the end of September 2024, the outstanding rent liabilities were £54.5 million,
excluding the Propco3 Leases (which are not included in the Restructuring Plan for the
reasons set out below). Including those Leases, that figure was £215.7 million.
[35]
The company considers that, to be sustainable, each of its stores must generate
EBITDA (earnings before interest, taxation, depreciation and amortisation) in excess
of £120,000. The Leases which met that criteria have not been included in the Restructuring
Plan, nor have the Leases of premises in Tewkesbury and in Beaconsfield. Although those
Leases do not meet the economic criteria, both are considered to be of sufficient strategic
importance to the group for them to be considered sustainable regardless.
[36]
Of the remaining Leases, 26 are to be compromised or amended under the terms of
the plan. (References to Leases hereafter are to those Leases). Eleven of the Leases are the
subject of a guarantee granted by the Parent (the "guarantee Leases"). The plan also seeks to
compromise and amend the terms of those guarantees in order to prevent any "ricochet"
claims; such claims might arise if the compromise of the guarantee Leases led to a demand
against the Parent under one or more guarantees, which would ultimately result in the
Parent having a claim against the company in respect of any sums it had to pay under the
18
terms of the guarantees, potentially destabilising the financial position of the company and
undermining the purposes of the Restructuring Plan.
[37]
The company has not granted any securities in relation to its obligations under the
Leases. Two of the Leases relate to premises in Scotland. The Landlords of those properties
would benefit from the Landlord's hypothec if there were arrears of rent due to them at the
date the company entered insolvency and there were moveable assets owned by the
company located at the relevant leased properties. It is anticipated that only one of those
would have arrears of rent at the relevant date. The likely return to that Landlord would be
relatively low in the context of its claim as a whole.
Other creditors
[38]
The company's other key creditors are: local authorities owed business rates; third
parties with licences to occupy or sub-leases of premises occupied by the company; various
other property related liabilities; HMRC in relation to value added tax; trade creditors and
suppliers; employees; intra-group creditors; Barclays Bank plc; and customer claims.
The "relevant alternative" what will happen if the plan is not approved?
[39]
As already noted, the company's position is that if the proposed plan does not
become effective, the company will be unable to pay its debts on or around the week
commencing 16 December 2024. The updated cash flow forecast reflects the additional
funding provided by the secured creditors to ensure that the group had sufficient liquidity
for trading purposes until the time of the sanction hearing, but also reflects the secured
creditors' unwillingness to provide further funding beyond that, in the absence of the
sanction and implementation of the Restructuring Plan and wider turnaround measures. As
19
a result, the directors were of the view that, if the Restructuring Plan were not sanctioned,
the most likely outcome (and therefore the relevant alternative to the Restructuring Plan) is
that the company and some other entities in the group would enter into formal insolvency
processes. While the precise timing of the relevant alternative is dependent on a number of
factors, it would most likely occur during the week commencing 16 December 2024. The
company obtained a report from Grant Thornton which opined on: (i) the most likely
outcome for the company if the Restructuring Plan were not approved (the "relevant
alternative"); and (ii) the value of the company's business in that relevant alternative. In
summary, the Grant Thornton report, having considered and rejected other possible
scenarios, including sale of the company as a going concern, additional lender funding,
liquidation and consensual restructuring, concluded that, if the Restructuring Plan were not
sanctioned, the most likely outcome would be for the company to enter administration. It
also concluded that the administrators would seek to progress a sale of the business of the
company on an accelerated basis. Grant Thornton considered that:
·
any sale of the business would involve 48 of the sites operated by the company.
This would include sites where another member of the group is the Landlord.
It would also include sites which provide an EBITDA in excess of £120,000 or
where rent cover is in excess of 1.5x.
·
The administrators would be likely to trade from all of the sites for a period of
3 weeks. Thereafter, driven by a lack of cash, they would require to cease
trading from those stores which were not to be included within any sale (that
is, all of the leased premises which are included in the Plan). At that stage, the
administrators would cease occupation of those stores.
20
·
The administrators would trade from the stores to be sold for a further 4 weeks
to finalise the sales process, following which the purchasers would occupy the
sites they wished to acquire under a licence to occupy, granted by the
administrators. This would allow them time to negotiate an assignment of the
Lease or agree a new Lease with the relevant Landlord.
·
The market value of the sold sites would be between £40.4 million and
£52.3 million, which is materially less than the sum due to the secured
creditors.
[40]
The company obtained a further report from FTI Consulting LLP (FTI), showing the
recoveries which creditors would be likely to receive in the relevant alternative posited by
Grant Thornton. FTI prepared an Estimated Outcome Statement identifying the way in
which the funds realised in the relevant alternative would be distributed amongst the
company's creditors. In summary, the FTI report identified that in the relevant alternative:
(i)
there would be insufficient funds to make repayment in full to the secured
creditors;
(ii)
the preferential creditors (including HMRC as secondary preferential creditors)
would be paid in full;
(iii) the unsecured creditors of the company would receive a return of around 0.2p
in the £1.00 under the prescribed part available from floating charge assets;
(iv) the creditors who benefit from Parent guarantees would see a further dividend
from the liquidation of the Parent. The level of this dividend would be 0.03p in
the £1.00;
(v)
the one Landlord likely to have a hypothec claim would receive an additional
dividend of 0.95p in the £1.00 in respect of that claim.
21
Weight to be attached to the Grant Thornton and FTI reports
[41]
It is appropriate that I say a little more about the Grant Thornton and FTI reports,
since one of the creditors which has informally objected to the Restructuring Plan, ABC
Adventure Golf Ltd, has in correspondence complained that the Grant Thornton report did
not constitute an audit and did not provide an independent valuation of the company; and
the reporter has also drawn the court's attention to the recent English case of Re Chaptre
case, both by the petitioning company and by opposing creditors, which did not comply
with the requirements of the Civil Procedure Rules (CPR) Part 35. CPR Part 35 has no
application in Scotland, although the duties owed by an expert here are broadly similar to
the duties under it. The reporter has ascertained that the practice in England and Wales
prior to Chaptre was, in the first instance, to obtain reports which did not comply with
Part 35, due to cost considerations. The Grant Thornton and FTI reports were instructed
pre-Chaptre. Be that as it may, my attention was drawn to the letters of engagement sent to
Grant Thornton and FTI respectively, and to certain other correspondence. On the basis of
those, it is apparent that Grant Thornton: had full access to the company's books and
records and the full co-operation of its directors and senior management; required a written
representation from the company's directors to confirm the factual accuracy of the
information provided to it; acted in the engagement as if it were instructed as an expert
witness; and confirmed that it was independent of the company and had no conflict of
interest. For its part, FTI also had full access to the company's books and records; received
a written representation from the company's directors to confirm the factual accuracy of the
information provided to it; and acted in the engagement as though it would be performing
22
the role of an expert witness. In both cases, the individuals who prepared the respective
reports were identified.
[42]
I can easily distinguish the reports in this case from those which attracted criticism in
Chaptre. Most importantly, the authors of the Grant Thornton and FTI reports were
identified, and, additionally, they confirmed that they recognised their duties to the court,
both features which were lacking in Chaptre.
[43]
In the absence of any competing opinion evidence, I therefore accept and proceed
upon the conclusions of the Grant Thornton and FTI reports, being the only reliable
evidence I have as to what the relevant alternative is; and what the outcome would be for
each class of creditors in that relevant alternative.
The Restructuring Plan
Introduction
[44]
There is nothing in the company's articles of association which might affect the
company's ability to enter into, and give effect to, the Restructuring Plan. At a board
meeting on 14 October 2024, the company's directors resolved in favour of the plan. There
are three directors: Ms Harding (who was appointed on 21 August 2023), Mr David
Robinson (who was appointed on 24 July 2023) and Mr Jonathan Wass (who was appointed
on 16 April 2024). They are also directors of the Parent. The directors have an aggregate
interest in 10% of the equity in DanAtAugusta Holdo Limited ("Holdco") held as part of a
management incentive plan. Holdco is a subsidiary of EquityCo. Otherwise, none of the
directors has any material interest (whether as a director, member, creditor or otherwise) in
the company or the Parent. The only other interest which the directors have in the
Restructuring Plan arises from the terms of the Global Deed of Release, which discharges
23
them (subject to certain conventional exceptions) from any liability arising from the
Restructuring Plan.
An outline of the Restructuring Plan
[45]
The purpose of the plan is to enable the company to address its financial difficulties,
and avoid the consequences of the relevant alternative. The plan proposes a compromise or
arrangement with some (but not all) of the company's creditors (the Plan Creditors). The
company believes that the plan will ensure the continuing operations of the group for the
benefit of all Plan Creditors, and other stakeholders, providing a platform to enable the
company to recover from its current financial difficulties and return to sustainable
profitability. The objective of the plan, which is said to perform a critical role in a wider
restructuring and operational turnaround strategy, is to return the company to financial
stability and secure the long-term future of the group, which it seeks to achieve principally
by restructuring the company's unsecured liabilities, predominantly relating to its
underperforming sites, in order to access new funding from the secured lenders conditional
on the plan being approved.
[46]
The key components of the Restructuring Plan are:
·
obligations under the secured facilities will be amended and extended;
·
obligations under certain Leases and certain general property agreements will
be amended and compromised in exchange for a payment greater than the
relevant creditors would receive in the relevant alternative.
·
certain parent company guarantees granted in respect of obligations of the
company will be amended and compromised in exchange for a payment
24
greater than the relevant creditors would receive were the relevant guarantees
to be enforced following the guarantor entering liquidation; and
·
business rates owed to local authorities will be compromised in exchange for a
payment greater than the relevant local authority would receive in the relevant
alternative.
[47]
In addition, separate to the Restructuring Plan, but contingent upon its approval, is
the provision of a new loan facility by the company's secured creditors. In terms of the
original plan this was to have been a facility of £24 million. As was confirmed in the First
Update to Plan Creditors dated 1 November 2024, the secured lenders provided a £1 million
of additional funding to the company in advance of the sanction hearing, pursuant to a
further accordion facility, in order to provide the group with sufficient liquidity to meet its
liabilities until that hearing; as a result, the amount of additional funding to be made
available pursuant to the plan being sanctioned has been reduced to £23 million.
[48]
Finally, certain intercompany liabilities totalling in the region of £130,000,000 owed
by the company to group entities, will, subject to the Restructuring Plan being sanctioned, be
released and discharged in full pursuant to a deed of waiver entered into by the company
and the relevant members of the group.
[49]
As regards the turnaround strategy of which the plan and additional funding are
said to form a critical part, in addition to operational efficiencies which are already
underway, the group is also planning to implement changes to its central operations and
cost reduction measures together with other strategic initiatives.
25
Restructuring Plan Creditors
[50]
The company proposes, that, for the purposes of sections 901C (1) and 901F (1) of the
2006 Act, the Plan Creditors are to be divided into seven classes, as follows: (i) secured
creditors; (ii) four classes of Landlord creditors, namely: Class B1 Landlords; Class B2
Landlords; Class B3 Landlords; and Class C Landlords; (iii) General Property Liabilities
Creditors; and (iv) Business Rates Creditors.
How Plan Creditors are treated by the Restructuring Plan
Secured creditors
[51]
There are 11 secured creditors (being the Ares Funds pursuant to the Facilities
Agreement). Pursuant to the Restructuring Plan, an amendment agreement will take effect
between the secured creditors, the company and the other group obligors, under which
various amendments to the facilities agreement will be made, conditional upon, and with
effect from, the Restructuring Effective Date. These include: the extension of the final
repayment date in respect of loans made under the facilities agreement until at least
31 December 2027; the addition of financial covenants requiring the group obligors to
maintain certain minimum liquidity and, from the financial year ending on or around
28 February 2026, certain EBITDA levels; the removal of the group obligors' current
obligation to maintain certain net leverage levels; and the permanent waiver by the secured
creditors of all defaults or events of default under the existing facilities and their consent to
any real estate transactions which are contemplated by the Restructuring Plan. Separately,
the Parent (as agent for a number of the group obligors, including the company) and the
secured creditors have entered into a new term loan facility under which Bidco may borrow
up to a further £23 million from the secured creditors on a pro rata basis in proportion to
26
their existing commitments under the facilities agreement, provided that the plan is
sanctioned and becomes effective. That additional facility is on terms consistent with the
terms of the existing facilities, including compliance with certain financial covenants, and
has an interest rate of 6% per annum, "paid in kind" by being capitalised rather than paid in
cash; and will be secured by the existing security and guarantees.
Class B1 Landlords
[52]
The Class B1 Landlords are the Landlords under those Leases which the company
considers would be sustainable if the rent were reduced to 75% of the contractual rate.
There are five Class B1 Landlords. The key effects of the plan on the Class B1 Landlords are
that: all liabilities for rent arrears shall be discharged; during the "Rent Concession Period",
(a period of up to 36 months) rent will be paid monthly in advance, and will be the
aggregate of: (i) 75% of the applicable contractual rent and (ii) the contractual insurance and
service charge applicable to that Class B1 Lease; any rent review provisions will not apply
during the Rent Concession Period; at the end of that period, payments will revert to be
made in accordance with the existing terms of the relevant Class B1 Lease. Each Class B1
Landlord will be entitled to terminate the relevant Lease on 30 days' notice within 60 days of
the Restructuring Effective Date; and the company may exit a Class B1 premises on the
third anniversary of the Restructuring Effective Date on giving not less than 120 days' prior
notice to the Landlord. Upon such termination, or exercise of the company's exit right, no
past, present or future rent, service charge, insurance or other liabilities will be payable
under the Lease and the company will no longer have any obligations under it; and any
dilapidations claims shall be compromised and released in full. Any Parent guarantee
applicable to a Class B1 Lease will be varied such that it guarantees the obligations of the
27
company under the relevant Class B1 Lease as varied by the plan. Any obligation on the
Parent to take on a new Lease or to pay amounts in lieu of rent will be waived and released.
[53]
In exchange for the foregoing compromises to the Class B1 Leases, the company will
pay each Class B1 Landlord a payment which will be the aggregate of: (a) an amount equal
to the lower of (i) 3 weeks' worth of that Landlord's contractual rent and (ii) contractual rent
for the remainder of the contractual term; plus (b) an amount equal to 150% of that
Landlord's Estimated Insolvency Return (as calculated under the Restructuring Plan), less
any payments received pursuant to the Restructuring Plan, subject to a minimum payment
of £1,000 (where there is no Parent guarantee) or £2,000 (where there is a Parent guarantee).
For those Class B1 Landlords which benefit from a Parent guarantee, the Estimated
Insolvency Return includes their estimated return in the administration of the company and
the liquidation of the Parent. That payment will be made either on the first anniversary of
the Restructuring Effective Date or on the date falling 39 months after that date, depending
on when a claim is made by the Landlord in question.
Class B2 Landlords
[54]
Class B2 Landlords, of whom there are two, are the Landlords under those Leases
which the company considers would be sustainable if rent were reduced to 55% of the
contractual rate. The key effects of the plan for the Class B2 Landlords are the same as for
the Class B1 Landlords, other than that the amount of rent during the Rent Concession
Period will be the aggregate of: (i) 55% of the applicable contractual rent and (ii) the
contractual insurance and service charge applicable to that Class B2 Lease.
28
Class B3 Landlords
[55]
Class B3 Landlords, of whom there are two, are the Landlords under those Leases
which the company considers would be sustainable if rent were reduced to 45% of the
contractual rate. The key effects of the plan for the Class B3 Landlords are the same as for
the Class B1 Landlords, other than that the amount of rent during the Rent Concession
Period will be the aggregate of: (i) 45% of the applicable contractual rent and (ii) the
contractual insurance and service charge applicable to that Class B3 Lease.
Class C Landlords
[56]
The Class C Landlords are the Landlords under leases which the company does not
consider it possible to continue to trade from sustainably even if the contractual rate was
reduced to 45%. There are now 16 Class C Landlords within the plan. (Originally, there
were 18 but one Class C Lease, for the Cheltenham, premises, has been surrendered and
another, Clifton, Bristol, has been assigned.) The key effects of the Restructuring Plan on the
Class C Landlords are that: all liabilities of the company to each Class C Landlord for rent
arrears shall be discharged; the amount payable in respect of rent shall be compromised in
full and the company shall have no obligation to pay any rent under the Class C Leases on
or after the Restructuring Effective Date; whilst any Class C Lease remains in effect, any
contractual insurance and service charge will be paid monthly in advance after the
Restructuring Effective Date; any rent review provision will cease to apply. After the
Restructuring Effective Date, (a) each Class C Landlord will be entitled to terminate the
relevant Class C Lease on 30 days' notice; and (b) the company may exit a Class C premises
on giving not less than 30 days' notice. In either event, no past, present or future rent,
service charge, insurance or other liabilities will be payable under the Lease and the
29
company will no longer have any obligations under it. All dilapidations claims will be
compromised and released in full. Any Parent guarantee applicable to a Class C Lease shall
be irrevocably and unconditionally discharged in full on the Restructuring Effective Date,
and any obligation on the Parent to take on a new Lease or to pay amounts in lieu of rent
will be waived and released. In exchange for those compromises, the company will pay
each Class C Landlord a payment which will be calculated as the aggregate of: an amount
equal to the lower of (i) 3 weeks' worth of the contractual rent and (ii) contractual rent for
the remainder of the contractual term; plus an amount equal to 150% of that Class C
Landlord's Estimated Insolvency Return (as that amount is calculated under the
Restructuring Plan); less any payments received pursuant to the Restructuring Plan,
provided that a such payment shall be not less than £1,000 or £2,000, depending on whether
or not the Class C Landlord benefits from a Parent guarantee.
General Property Liabilities Creditors
[57]
There are three categories of general unsecured property liabilities that will be
compromised pursuant to the Restructuring Plan. These liabilities are:
(i)
liabilities in respect of any forfeited Leases;
(ii)
liabilities in respect of compromised concession agreements; and
(iii) liabilities in respect of a contract to construct a garden centre in Reading,
entered into on or about 30 September 2022 (the "Reading Works Agreement").
[58]
It is possible that a Landlord creditor may exercise a right to forfeit, irritate or
terminate under an applicable Lease. If such a right is successfully exercised, the relevant
Lease will terminate and the Landlord creditor will instead have an unsecured claim against
the company, in which case they will be treated as a general property liabilities creditor.
30
[59]
Further, the company is a party to various concession agreements, as lessor, licensor
or grantor of a concession or occupation right (or similar capacity). Under the Restructuring
Plan, the company seeks to compromise its liabilities under some of those agreements, the
counterparties under which are retailers who operate concessions and stores, and providers
of charging terminals for electric vehicles. If a Lease is terminated under the terms of the
Restructuring Plan, then the company may be unable to comply with some or all of the
covenants under the terms of a concession agreement relating to the same premises, and will
therefore seek to compromise it.
[60]
The Reading Works Agreement obliges the company to construct a garden centre at
Grovelands Garden Centre, in Shinfield, Reading. The Parent has guaranteed the
company's obligations under that agreement. Carrying out the construction project required
by that agreement would require a significant capital expenditure by the company, which
the company does not consider it can afford at all, or at least not without seriously
threatening the financial stability of the group.
[61]
Under the terms of the Restructuring Plan, the General Property Liabilities will be
irrevocably and unconditionally compromised, released, terminated and discharged. To the
extent permitted by law, each Compromised Concession Agreement shall be terminated, as
between the company and the relevant counterparty, upon the occurrence of a
determination event in respect of the relevant premises.
[62]
To the extent permitted by law, all General Property Creditor Liabilities, other than
the Compromised Concession Agreements, shall be terminated as between the company and
the relevant General Property Creditor on the Restructuring Effective Date. This includes
termination of the Reading Works Agreement and a release of the company's liabilities and
obligations thereunder.
31
[63]
In addition, each Parent guarantee in favour of a General Property Creditor shall be
irrevocably and unconditionally compromised and released in full.
[64]
In exchange for the foregoing compromises, the company will pay each General
Property Creditor who makes a claim a compromised payment, calculated as an amount
equal to 150% of that creditor's Estimated Insolvency Return, without double-counting for
any payments previously received pursuant to the Restructuring Plan.
Business Rates Creditors
[65]
The company has liabilities in relation to payment of non-domestic rates for the
purposes of the applicable legislation for non-domestic rates to the relevant councils in the
areas where it holds Leases. Each Business Rates Creditor has the same principal right
against the company in the relevant alternative, namely an actual or contingent unsecured
claim for payment. In all cases, the Restructuring Plan seeks to irrevocably and
unconditionally compromise all Business Rates Liabilities relating to payment arrears. In
relation to a Business Rates Creditor whose claim relates to occupation under one of the
Leases, the plan also seeks to compromise all Business Rates Liabilities for the Rates
Concession Period, as that term is defined in the Restructuring Plan (which period ends on
31 March 2025, at the latest). This reflects the fact that the premises would be vacant during
this period in the relevant alternative and so no rates would be payable.
[66]
In exchange for those compromises, the company will pay each Business Rates
Creditor a compromised payment, calculated as an amount equal to 150% of the Business
Rates Creditor's Estimated Insolvency Return, without double-counting for any payments
previously received pursuant to the Restructuring Plan.
32
[67]
This is as good a place as any to deal with the informal objection by Peterborough
City Council that rates liabilities cannot be compromised. The important point to note here
is that the plan seeks to compromise rates liabilities only in respect of (a) arrears and
(b) rates liabilities which will arise between the Restructuring Effective Date and the end of
the current rates tax year on 31 March 2025. Arrears which already exist are a debt like any
other, which can be compromised. Further, it has been held that business rates payable in
respect of an entire rating year are a contingent liability to which the Plan Company is
subject from the beginning of the rating year, such that the rating authorities are creditors in
respect of the entire year's rates and are creditors for the purposes of the plan (Re Fitness
business rates have previously been sanctioned. Accordingly, I do not find there to be any
merit in this informal objection.
Restructuring Plan Creditors as shareholders
[68]
The Ares Funds, as shareholders of EquityCo, will not be compromised by the
Restructuring Plan, nor will their shareholdings be diluted as a result of the Restructuring
Plan. The Ares Funds are also the secured creditors. Accordingly, compromising or
diluting the Ares Funds ultimate shareholding in the group would risk alienating the Ares
Funds and losing their support as the secured creditors which is necessary to implement the
Restructuring Plan and for the members of the group to continue as a going concern. As set
out in the Explanatory Statement, the Ares Funds have already provided considerable
support to the group. The shares in EquityCo held by the Ares Funds currently do not have
any value due to the level of indebtedness incurred by the group.
33
The creditors not included in the Restructuring Plan
[69]
Certain liabilities of the company will not be compromised by the plan. The main
categories of excluded liabilities are: liabilities owed under the Leases which are not
included in the plan; liabilities owed to any trade creditor or supplier; liabilities owed to
customers; employee related liabilities (however so described and including any pension
contributions); liabilities owed by the company to HMRC; liabilities owed to Barclays Bank
plc; and liabilities owned other members of the group.
[70]
It is well settled that a company may propose a scheme or restructuring plan which
varies the rights of only some of its creditors. This has been described as one of the most
flexible and valuable features of the jurisdiction: Re Virgin Atlantic Airways Ltd, above
Snowden J at [60]. As the reporter has commented, at para [15] of the report, it is a feature of
many restructuring plans which have been sanctioned that certain classes of creditor are
excluded. However, there are two key requirements: first, there must be a good reason or
proper basis for doing so (Adler, above, at [166]); and second, if creditors are being treated
more favourably outside the scheme or plan, this must be fully explained to those who are
being included in the plan, in order that they can assess whether they are being fairly
treated: Virgin Atlantic, above, Snowden J at [63].
[71]
Examples of reasons which have been accepted as a good reason, or to give a proper
basis, for excluding creditors are:
(i)
where the support of the creditors in question is essential for the beneficial
continuation of company's business under the plan; for example, trade
creditors and employees (see Adler at [170]). It can also include the Landlords
of premises which are critical to the ongoing and future operation of the
34
at [39])
(ii)
where the relevant creditor would be repaid in full in the relevant alternative;
for example, HMRC, where the priority status accorded to the debts would
result in their being paid in full in the relevant alternative (see for example Re
(iii) where inclusion of those creditors would be detrimental to the company's
brand and so its future performance; for example, liabilities owed to customers
(particularly individual consumers) who the company will want to continue to
trade with in the future (see Re C-Retail Limited [2024] EWHC 1715 (Ch) at [30]);
and
(iv) where the liabilities owed to the creditor(s) in question have been
compromised, or are to be compromised, pursuant to arrangements outside the
restructuring plan (see for example Virgin Atlantic, above, Snowden J at [21]).
[72]
No creditor has objected to the plan on the basis either that they, or another creditor,
should not have been excluded. However, commenting on each exclusion in turn:
Liabilities under Leases not included in the Restructuring Plan
[73]
These liabilities fall into two categories: liabilities under the Propoco3 Leases and
liabilities under so-called "Sustainable Leases". The company's liabilities under the Propco3
Leases are not being compromised under the Restructuring Plan as the Propco3 Leases are
intra-group and so compromising the Propco3 Leases by themselves would not improve the
financial stability of the group. The Sustainable Leases (with the exception of the Leases of
the Tewkesbury premises and the Beaconsfield premises) are leases of garden centres which
35
already make a sustainable EBITDA contribution to the company's business, without any
reduction in the contractual rent being needed. The Tewkesbury premises and the
Beaconsfield premises are both of strategic importance to the company. Due to the
Sustainable Leases' existing EBITDA contribution, or strategic importance, if they were
included within the scope of the Restructuring Plan the Sustainable Lease Landlords would
have been treated as a separate class of Plan Creditors; and no reduction in the contractual
rent owed to the Sustainable Lease Landlords would have been imposed pursuant to the
Restructuring Plan. Accordingly, the company considers that compromising the liabilities
under the Sustainable Leases pursuant to the Restructuring Plan would only have achieved
minimal working capital benefits for the company and would not have led to any increases
in the company's profitability. It would also have risked the Landlords of the Sustainable
Leases taking steps to terminate those Leases which would have been detrimental to the
company's business.
Trade creditors
[74]
The liabilities of the company to any trade creditors and suppliers will not be
compromised by the Restructuring Plan because the continued supply of goods and services
is essential for and is required for the day-to-day operation of, the group's business.
Customers
[75]
The liabilities owed to customers by the company are principally in respect of gift
cards which have been purchased, but not yet used. Liabilities are also owed to customers
in respect of loyalty redemptions and points. Any attempt to compromise liabilities owed to
customers would cause considerable damage to the brand and so the business of the
36
company. Accordingly, the company does not consider it practical or appropriate to
compromise liabilities owed to its customers.
Employee related liabilities
[76]
The liabilities of the company to any employees will not be compromised by the
Restructuring Plan. The company does not consider it practical or appropriate to
compromise employee claims and related liabilities (which include pension contributions
and other contractual benefits as well as salary payments), given the business-critical nature
of these payments. Were such claims to be compromised, employees would then be likely to
withdraw their services which are necessary for the company to continue in business.
Liabilities owed to HMRC
[77]
HMRC would rank as secondary preferential creditors in the relevant alternative,
and it is expected that it would be paid in full. Accordingly, the company does not consider
it would be able to compromise HMRC under the Restructuring Plan in a way which would
leave HMRC no worse off than it would be in the relevant alternative.
Liabilities owed to Barclays
[78]
Barclays provide the group with operational banking services, including corporate
credit cards. The liabilities of the company owed to Barclays will not be compromised by
the Restructuring Plan as the continued supply of these banking services is critical for
day-to-day financial operation of the group's business. In any event, Barclays has the
benefit of a fixed charge over a bank account and a credit balance of £300,000 deposited in
that bank account. This provides cash collateral to secure the company's liabilities to
37
Barclays (principally under the corporate credit cards issued by Barclays to the company).
Consequently, the company expects that Barclays would be repaid in full and that, therefore,
it will not be possible to compromise Barclays under the Restructuring Plan without leaving
Barclays worse off than it would be in the relevant alternative.
Intercompany liabilities
[79]
The company has incurred the following intercompany balances to other members of
the group: an intercompany balance of approximately £89.4m owed to Propco3; and an
intercompany balance of approximately £30.5m owed to Bidco. Those Intercompany
Liabilities will not be directly compromised by the Restructuring Plan, nor are Propco3 or
Bidco Plan Creditors in respect of the Intercompany Liabilities. Instead, the Intercompany
Liabilities will be compromised in full pursuant to an intragroup deed of waiver which was
entered into by the company, Propco3 and Bidco on 27 September 2024 and which will take
effect on the Restructuring Effective Date. The compromise will discharge and eliminate the
Intercompany Liabilities. For the purposes of calculating the Estimated Insolvency Return
in the relevant alternative, it has been assumed that Propco3 and Bidco will not prove for the
Intercompany Liabilities in an administration of the plan company. This results in an
increase the amount of the Compromised Property Liability Payment payable to the
Compromised Property Liability Creditors.
Reasonableness of the exclusions
[80]
I am satisfied in each case that there are good reasons for the exclusion of the above
categories of creditors from the plan. Either the plan would be of limited or no effect on
38
their rights, or the commercial interests of the company are best served by its not seeking to
compromise their liabilities.
Class composition
[81]
The next issue which arises is the class composition of the Plan Meetings. Unlike
England, where class composition is considered at the outset (at the so-called convening
hearing, the equivalent of the first hearing in Scottish procedure), there has been no prior
judicial consideration of whether the classes proposed by the petitioner are fair and
appropriate. There are many authorities on the issue of class composition, although many of
those relate to Part 26 (rather than 26A) situations. The Court of Appeal in Adler, above,
recently summarised what it considered to be the proper approach to class composition
under Part 26A. As the only appellate authority in the UK on the application of Part 26A,
I accept it as an accurate, and convenient, overview of the law and the relevant
considerations. The basic principles (per Snowden LJ at [109] to [112]) are as follows. A
class must be confined to those persons whose rights are not so dissimilar as to make it
impossible for them to consult together with a view to their common interest. The
application of this test requires an exercise of judgment depending on the facts of each case.
The authorities show that a broad approach is to be taken and that differences in rights may
be material, without leading to separate classes. In considering dissimilarity of rights, the
court must analyse (i) the rights which are to be released or varied under the scheme and
(ii) the new rights (if any) which the scheme gives by way of compromise or arrangement to
those whose rights are to be released or varied. Further, where a scheme is proposed as an
alternative to a formal insolvency procedure, the court must identify the rights that the
39
creditors would have in the insolvency proceeding, rather than the rights that they would
have if the company were to carry on its business in ordinary course.
The company's analysis of the classes
[82]
The company's reasoning underlying the proposed class composition is as follows.
Secured creditors
[83]
The rights of the secured creditors are sufficiently dissimilar from those of other
creditors that they form a separate class. In contrast to the other Plan Creditors, they hold
securities, including a floating charge, for the sums due to them by the company. In the
relevant alternative, the secured creditors would be expected to receive between 51.97p in
the £1.00 from the group. Of this, 45.4p in the £1.00 would come from the company. By
contrast, with the exception of preferential creditors who are not included within the
Restructuring Plan, all the other creditors would recover considerably less than this. The
secured creditors are sufficiently similar to enable them to consult together with a view to
their common interest. In particular, they are all parties to the facilities agreement, and they
all benefit from a common guarantee and security package.
Landlord creditors
[84]
The rights of the Landlords as a whole are sufficiently dissimilar from those of the
other creditors that they form a separate class. They have different rights from the secured
creditors, after whose claims their claims would rank in the relevant alternative. They also
have different rights to the general property creditors and to the business rates creditors.
Both the nature of their rights and the manner in which they are to be revised mean that
40
they could not consult together in the same class. Further, the rights of the Landlord
creditors under the Restructuring Plan are sufficiently dissimilar from each other that they
could not consult in one class together. In particular: the Class B1 Landlords, the Class
B2 Landlords, the Class B3 Landlords and the Class C Landlords receive different treatment
under the plan. There is a significant difference in the reduction that each proposed class
will receive in the rent payable to them under the plan. As within each of the four classes of
Landlord creditors, the rights of the Landlord creditors are sufficiently similar to enable
them to consult together with a view to their common interest. The Landlord creditors all
have proprietary rights pursuant to the Leases. There are certain differences in the rights of
the Landlord creditors under their respective Leases. The plan does not propose to align the
terms or duration of the Leases. It follows that this might be said to result in different rights
under the plan. However, the petitioner submits that that is not sufficient to result in their
being unable to consult together with a view to their common interest.
[85]
The fact that eleven of the Landlord creditors hold guarantees from the Parent in
relation to the company's obligations does not mean that they could not consult together
with a view to their common interest. The FTI Report has identified that a party who has
the benefit of a Parent guarantee would expect to receive an additional dividend of 0.03p in
the £1.00 in the relevant alternative under the Parent guarantee. This difference is accounted
for in the returns under the Restructuring Plan. The petitioner submits that this difference is
not sufficient to require the creation of further classes.
[86]
Two of the Class C Landlords would benefit from a Landlord's hypothec in the
relevant alternative. Of those, only one is expected to have arrears of rent at the relevant
time. The total sum which that Landlord would be expected to receive under the hypothec
would be £3,612.90. That is equivalent to an additional dividend of 0.95p in the £1.00. This
41
difference is accounted for in the returns under the plan. The petitioner submits that this
difference is not sufficient to require the creation of a further class.
General property creditors
[87]
The rights of the general property creditors are sufficiently dissimilar from those of
the other creditors that they form a separate class. They have different rights from the
secured creditors as they do not have securities over the assets of the company. They also
have different rights from the Landlord creditors because they do not have the benefit of
proprietary rights pursuant to the Leases. The rights of the general property creditors are
sufficiently similar to enable them to consult together with a view to their common interest.
The company does not consider that it would be appropriate to sub-divide the class further
despite the fact that the types of rights held by the three different categories of general
property creditors are not identical. In particular, in the relevant alternative, each general
property creditor would have an unsecured claim against the company. Those claims
would rank pari passu among themselves. The general property creditors would have the
same rights against the company in respect of their unsecured claims.
[88]
The Reading Works Agreement is secured by a guarantee provided by the Parent
which, according to the FTI Report, as already noted, would result in an additional 0.03p in
the £1.00 in the relevant alternative. This difference is accounted for in the returns under the
Restructuring Plan. As with those Landlord creditors who hold a Parent guarantee, the
company submits that this difference is not such as to require the creation of a further class
and that it would be impractical and unworkable for the general property creditors to be
sub-divided further. In particular, it would not be possible to identify an alternative class
formulation which would not result in a proliferation of classes.
42
Business Rates Creditors
[89]
The rights of the Business Rates Creditors are sufficiently dissimilar from those of the
other creditors that they form a separate class. They have different rights from the secured
creditors as they do not have securities over the assets of the company. They have different
rights from the Landlord creditors because they do not have the benefit of proprietary rights
pursuant to the Leases. They also have different rights from the general property creditors
on the basis that:
(i)
In the relevant alternative the Business Rates Creditors would receive full
repayment of business rates for the period during which the administrators of
the company caused the company to occupy the premises for the purposes of
the administration; and
(ii)
The Business Rates Creditors are involuntary creditors who cannot take
commercial or other measures to mitigate the risk of their credit exposure to
the company.
[90]
The rights of the business rates creditors are sufficiently similar to enable them to
consult together for their common interest. In particular, the nature of their claims are the
same.
Is the proposed classification of creditors justified?
[91]
The company submits, and I agree, that the proposed division of the Plan Creditors
into the above seven classes is justified by an analysis of the respective creditors' rights both
under the plan and in the relevant alternative; and because, in particular:
43
·
the secured creditors all benefit from the same amendments to the Facilities
Agreement; and their rights are sufficiently dissimilar to those of all other
creditors;
·
the four classes of Landlords all benefit from:
(i)
the inclusion of a break clause in the Leases to enable the Landlords the
option to terminate their Leases if they so elect; and
(ii)
the payment of a sum which represents at least 150% of the return that
would have been received in the relevant alternative.
·
the General Property Creditors all benefit from a payment which represents at
least 150% of the return that would have been received in the relevant
alternative.
·
the Business Rates Creditors all benefit from a payment which represents at
least 150% of the return that would have been received in the relevant
alternative.
[92]
As regards the division of the Landlord creditors into four separate classes treated
differently under the plan, which is driven essentially by reference to the different EBITDA
contributions made to the business on a site-by-site basis and on the contribution made to
the business by each site, such an approach has been accepted by the courts in England and
Wales in a number of Part 26A cases, for example In the matter of C-Retail Limited, above,
at [8]
;
[93]
For completeness, in the event that the company enters an insolvency process within
3 years of the Restructuring Effective Date, the Plan Creditors' rights against the company in
that process will be calculated by reference to their pre-Restructuring Plan rights as more
fully described in clause 8 of the Restructuring Plan.
44
[94]
In consideration of approving the Restructuring Plan, the Plan Creditors will receive
the rights and economic benefits, which are described above. Those rights and economic
benefits will result in a better return for all Plan Creditors than they would receive in the
relevant alternative.
[95]
The Restructuring Plan will not otherwise have a very clear, or a materially different,
effect, in commercial, or economic, terms, on each Plan Creditor in one class, from the
commercial, or economic, effect which it will have on other Plan Creditors in the same class.
[96]
Finally under this chapter, I must deal with the assertion, in correspondence, by ABC
Adventure Golf Ltd, a concessionaire at the company's premises in Wyton, which operates a
miniature golf course there, that it should not have been treated as a General Property
Creditor but that it should have been placed in a class of its own. The reason advanced is
that it is in a unique position because, unlike other concessionaires, it is unable to remove its
stock, principally being the miniature golf course, which had incurred fit-out costs
of £300,000.
[97]
As should be clear from the foregoing discussion, and as senior counsel for the
company submitted, the composition of any particular class must be in accordance with the
comparative rights of the creditors in that class in the relevant alternative, rather than the
impact of the plan upon them. Further, as is made clear in Adler, even where rights differ,
the interests of the creditors may be sufficiently similar that they are able to consult together.
ABC does not benefit from any security. Accordingly, in the relevant alternative it would
rank as an unsecured creditor, pari passu with the other General Property Creditors. Like
those creditors, it would be entitled to be paid a Compromised Liability Payment of an
amount equal to 150% of the estimated return on its unsecured claim in an administration of
the company in the relevant alternative. I therefore consider that it was correctly classified
45
as a General Property Creditor, although I would observe that the point is of little practical
significance given that ABC voted against the plan at the court meeting of General Property
Creditors, with the result that only 10% in value of those present and voting approved the
plan; and so ABC is in a dissenting class of creditor in any event.
[98]
Further, and for completeness, I should record that the company does not accept that
ABC is in a unique factual position, pointing out that other General Property Creditors also
have structures, including electric vehicle charging points and garden buildings, which it
may be challenging to remove; and that another such creditor also has a miniature golf
course which it is already in the process of dismantling and removing.
[99]
Finally in relation to ABC, the company has put it in touch with the Landlords of the
premises, and it may be able to negotiate a direct Lease.
The first hearing
[100]
A first hearing in the petition took place on 18 October 2024. In advance of it, in
accordance with the practice and procedure in England and Wales, and in accordance with
its general approach of engaging with Plan Creditors as fully and as early as possible, the
group gave notice of the Restructuring Plan and of the first hearing by way of a letter dated
30 September 2024 to the Plan Creditors. Such a practice statement letter is not a
requirement in this jurisdiction but the company considered it was appropriate to issue one,
in order to keep creditors informed of the company's intended course of action. It prompted
correspondence from a small number of Plan Creditors, which included requests for further
information in relation to the plan.
[101]
At the hearing, the company sought an order for the convening a meeting of each of
the seven classes of the Plan Creditors, in terms of section 901C of the 2006 Act. I granted
46
that order, which also gave detailed directions as to the procedure regulating the
summoning, and conduct, of those meetings.
The Explanatory Statement and other information provided by the company
[102]
In accordance with the requirement in section 901D of the 2006 Act the company
prepared an Explanatory Statement which was distributed to Plan Creditors on 18 October
2024. The statement, inter alia:
·
set out in full the terms of the Restructuring Plan;
·
explained the effects of the Restructuring Plan on the Plan Creditors and on the
interests of the directors (described above at para [44]; and
·
incorporated a composite notice of the court meetings.
[103]
The company subsequently distributed an update to Plan Creditors on 5 November
2024, bringing to Plan Creditors' attention (a) certain developments with regard to certain
Leases; (b) the advance of £1 million by the secured creditors, referred to above, with the
consequent reduction in the new facility from £24 million to £23 million; (c) a clarification in
relation to inclusion of sums received as an expense of the administration under the relevant
alternative in a Plan Creditor's Estimated Insolvency Return; and (d) the correction of a
typographical error in the Explanatory Statement. A further update to creditors was
distributed on 21 November 2024, notifying Plan Creditors of certain further developments,
including consensual arrangements agreed between the company and the Landlords of
premises in Antrim; the surrender of the Cheltenham Lease; and the assignation of the
Clifton Lease.
[104]
I am satisfied that the Explanatory Statement complied with the provisions of
section 901D. It contained all of the required information and all reasonable steps were
47
taken to bring it to the attention of Plan Creditors. Ms Harding has confirmed in her
affidavit that each director was aware of the obligation under section 901E of the Act to give
notice of any material interest of the directors, and of the effect on those interests of the
compromise or arrangement insofar as it is different from the effect on the like interests of
other persons. The Explanatory Statement is, of necessity, a lengthy document dealing with
complex arrangements between the company and the Plan Creditors and as the reporter
observes its scale would be intimidating to many readers. Nonetheless, the reporter has
advised that from the perspective of a Plan Creditor whose principal interest will be the
reasons for the plan (including the financial position of the company), its effect on that Plan
Creditor and what that Plan Creditor must do to indicate whether or not it agrees to the plan
or whether it wishes to object to it, it is adequately clear. I agree.
[105]
The company also appointed FTI as an "information agent" to circulate information
on the Restructuring Plan. FTI established a website for the Restructuring Plan which is
referred to in the Restructuring Plan itself.
[106]
The website includes the following:
·
the Explanatory Statement;
·
the Restructuring Plan document;
·
a Proxy Form;
·
an email address, which was specified in the Explanatory Statement, for
obtaining certain information about the Restructuring Plan and requesting a
paper copy of the Explanatory Statement; and
·
the anticipated date of the first hearing and that of the sanction hearing. The
website, and the process for obtaining access to it, were also be referred to in
the notice. The covering letters to the Practice Statement Letter also provided
48
each Plan Creditor with unique log-in details for the website for that Plan
Creditor. The Explanatory Statement has continued to be available on the
website until the Restructuring Effective Date.
The court meetings
[107]
The court meetings took place on 13 November 2024, on a period of notice of 21 days.
The meetings were advertised once in each of the Edinburgh Gazette, The Metro and the
Financial Times, in accordance with the interlocutor of 18 October 2024. The meetings were
conducted via Microsoft Teams which, given that the Plan Creditors are located throughout
the United Kingdom, was the fairest and most convenient means of holding them. Provision
was made for creditors to vote through a proxy. The chairperson at each of the meetings
was Ms Lindsay Hallam of FTI. She is a licensed insolvency practitioner who has experience
of acting as a chairperson in meetings of this type. The value of the plan claims was
determined for voting purposes by the chairperson as at what is referred to in the
Restructuring Plan as the "Voting Record Time", being 5.00pm on 12 November 2024.
[108]
The calling of the court meetings, the conduct of the meetings and their outcome is
described by Ms Hallam in an affidavit dated 14 November 2024. The reporter was able to
attend each of the meetings and has reported that they were all conducted properly. I am
satisfied that the meetings were convened, and conducted, properly.
[109]
Each meeting considered, and voted on, the following resolution:
"THAT this Court Meeting approves, with or subject to any modification, addition or
condition approved or imposed by the Court, the restructuring plan under Part 26A
of the Companies Act 2006 between Dobbies Garden Centres Limited and the Plan
Creditors as set out in the Explanatory Statement dated 18 October 2024 and
published by Dobbies Garden Centres Limited and as amended by the update to
Plan Creditors dated 5 November 2024, a copy of which has been submitted to this
Court Meeting."
49
[110]
The outcome of the court meetings, as reported by Ms Hallam as Chairperson, is
shown in tabular form as follows:
Meeting
No
Class of plan
creditor
Number of
Plan
Creditors
present and
voting
(either in
person or
by proxy)at
the Court
Meeting
Percentage
of number of
the relevant
Class of Plan
Creditors
present and
voting
(either in
person or by
proxy)at the
Court
Meeting to
approve the
plan
Percentage in
value of the
relevant Class
of Plan
Creditors
present and
voting (either
in person or
by proxy) at
the Court
Meeting to
approve the
plan
Approved/
Not
Approved
1
Secured
creditors
9
100%
100%
Approved
2
Class B1
Landlords
5
60%
51%
Not
approved
3
Class B2
Landlords
2
50%
33%
Not
approved
4
Class B3
Landlords
1
0%
0%
Not
approved
5
Class C
Landlords
11
27%
20%
Not
approved
6
General
Property
Creditors
9
78%
10%
Not
approved
7
Business Rates
Creditors
7
71%
63%
Not
approved
[111]
The following table records the attendance of Plan Creditors in person or by proxy
(where either a vote for, a vote against or an abstention was received) at the court meetings
in percentage terms both by value and number (the number of creditors attending being
shown in parenthesis in the second column):
50
Meeting No.
Class of Plan Creditor
(and number present
and voting either in
person or by proxy)
Attendance at the Court Meetings
Attendees as a
percentage by value
of the relevant Class
of Plan Creditors
Attendees as a
percentage by number
of the relevant Class
of Plan Creditors
1
Secured creditors (9)
100%
100%
2
Class B1 Landlord (5)
creditors
100%
100%
3
Class B2 Landlord (2)
creditors
100%
100%
4
Class B3 Landlord (1)
creditors
12%
50%
5
Class C Landlord (11)
creditors
54%
65%
6
General Property (9)
creditors
46%
17%
7
Business Rates (7)
creditors
7%
10%
[112]
As can be seen, each meeting was attended by at least two Plan Creditors (either in
person or by proxy (including where the chairperson was appointed as proxy)), other than
the meeting of the Class B3 Landlords, which was attended by a single Plan Creditor
attending by proxy. For the meetings of the secured creditors, and the Class B2 Landlords,
only the chairperson as proxy (for at least two Plan Creditors) was in attendance.
[113]
The reporter has raised the issue of whether the Class B3 Landlords can be treated as
having held a meeting at all, where only one creditor attended the meeting. Additionally,
senior counsel addressed the related but separate issue of whether a meeting can take place
where the only person attending is the chairperson holding proxies for more than one
creditor. The first issue is largely academic since whether or not the B3 Landlords met, they
did not vote in favour of the plan, and so, either way, are to be treated as a dissenting class,
in respect of which the cross-class cram down power is available: see Re Listrac Midco Ltd
51
issue is of critical importance in relation to the secured creditors the only assenting class,
since, if they did not hold a meeting, the resolution purportedly passed would be of no effect
and the cross-class cram power could not be exercised.
[114]
Both issues raise the question: what is a meeting? Does it always require the coming
together of two or more persons? The preponderance of English authority is that it does. In
authorities as to what constitutes a meeting (in the context of an application under what is
now Part 26) held that the conventional legal meaning of meeting in the context of
companies was an assembly or the coming together of two or more persons; and where
Parliament had used the word "meeting", there was no real basis for concluding that it was
intended to have anything but its ordinary legal meaning (para [18]).
[115]
I confess that I have some sympathy with the unsuccessful arguments advanced in
that case, one of which (adapting it so as to apply to the present case) is to the effect that, at
least for the purposes of Part 26A, it is enough to constitute it a meeting within the meaning
of the provision that a meeting was convened on proper notice, thereby giving all members
of the class the opportunity to consult together, and that a meeting was held in the sense that
the resolution was put to a vote at the time and place specified in the notice. If that were not
so, then, at least in theory, if there was a class consisting of only two creditors, one
holding 95% in value of the claims who favoured the plan, the other holding 5% who did
not, the latter could potentially thwart the operation of section 901G by the simple device of
not attending the meeting in person or by proxy. Or, if there were, say, only two classes,
each consisting of only one creditor, it would be impossible for the scheme ever to be
approved. Another argument is that the Act does not provide for a quorum, and the
52
structure of the section makes the decision of the meeting only a threshold to the exercise by
the court of its discretion.
[116]
I also note that section 318 of the 2006 Act provides that in the case of a company
which has only one member, one qualifying person present at a meeting is a quorum, which
rather suggests that Parliament was of the view that the presence of one person could
constitute a meeting (otherwise, one might have expected Parliament to have deemed what
would otherwise not have been a meeting, to be a meeting).
[117]
That all said, I have not heard full argument on the issue, and I recognise the force
of David Richard J's observation that the foregoing submissions involved not an exception
to the ordinary meaning of meeting, but its complete replacement; and he also found it
significant that express provision was made in other parts of the Companies Act for
meetings to be attended by only one person.
[118]
Other cases have considered the issue. In Listrac Midco, above, Adam Johnson J cited
Attitude Scaffolding with approval, holding that a meeting attended only by one creditor was
not a meeting in the "strict" sense. In Chaptre, above, the issue also arose, in that of the class
comprising two Hedging Banks in that case, one cast a vote at the meeting, in favour of the
scheme, but the other did not attend. Miles J discussed the issue at paras [90] to [93],
observing that in a traditional scheme of arrangement under Part 26 of the Act, such a
meeting would be regarded as defective, which would be fatal to the scheme; but he went
on to say, at paragraph 92, that under Part 26A the position is different, since "even if" the
meeting is "technically" defective the court could still cram down the relevant class under
section 901G, as I have observed above. The Hedging Banks could be treated as a dissenting
class (although no dissenting votes were actually cast). Thus, he appeared to leave open the
53
possibility that a meeting of only one might not be defective, but did not find it necessary to
decide the point.
[119]
I take the same approach here. Even if the meeting of the Class B3 creditors was
"technically" or "strictly" defective (on which I express no concluded view) it makes no
difference; they are a dissenting class whether by reason of the non-approval of the scheme
by the one creditor who did attend, or by dint of the fact that they are not an assenting class.
I will leave for further consideration on another day the issue of whether, where the court
authorises the convening of a meeting of a class in which there is only one creditor, the
subsequent attendance of that creditor at the due time and place can constitute a meeting or
not.
[120]
However, the issue of what is a meeting arises much more acutely in relation to the
secured creditors, which was the only class to approve the plan. All nine secured creditors
provided a proxy to the chairperson that she vote in favour of the plan, resulting in 100%
approval. Thus, only the chairperson, as proxy, was physically in attendance at the meeting
(or at least, she was the only person representing the class which had been summoned to the
meeting: other persons were physically present). In this regard, senior counsel drew my
after observing at [5]b that two classes of creditors had held "quorate" meetings (although
the statute does not provide for a quorum), Richards J said the following, at [5]c:
"The Class B1 Landlords and General Property and Business Rate Creditors,
approved the Plan by the statutory majority, but at least arguably did not do so at
`meetings' since only one person was physically present at each apparent `meeting'
even though the chair held proxies issued by different creditors in each case.
Although Re Attitude Scaffolding...did not expressly deal with this situation, the
judgment of David Richards J suggests that it is appropriate to proceed on the basis
that there was no `meeting of Class B1 Landlords or of General Property and
Business Rate Creditors.'" (emphasis in original)
54
Despite having said that it was only "arguable" that there had been no meetings of the
relevant classes, Richards J went on to proceed on the basis that those classes of creditor, in
addition to two other classes were all dissenting classes. I do not have that luxury, since in
the present case the secured creditors were the only assenting class. Senior counsel
submitted that this approach was not correct, and that all nine of the secured creditors were,
for the purposes of section 901G, to be treated as having been present "in person or by
proxy"; in this case, by proxy.
[121]
I agree with senior counsel. The matter must be approached as one of statutory
interpretation. There is nothing in the language of section 901G to suggest that a meeting
can take place only if two or more natural persons come together. On the contrary, the
section expressly provides for two methods by which a person may attend a meeting: "in
person or by proxy". Those words appear in subsection (1), and again in subsection (5)
which requires agreement of the compromise or arrangement by: "a number representing
75% in value of a class of creditors...present and voting either in person or by proxy at the
meeting summoned under section 901C" (emphasis added). The words "either in person or
by proxy" clearly qualify the words "present and voting", both as a matter of grammar and
common sense: it would make no sense that a creditor be present in a physical sense, but
vote by proxy (even if that were competent), the very purpose of a proxy being to exercise all
of the rights of a creditor to attend, speak at and vote at the relevant meeting. Even allowing
that a meeting requires the coming together of two or more persons, at least for the purposes
of section 901G that can be achieved either by two or more creditors attending or being
represented in person (in the case of a company, through a corporate representative), or by
proxy, or by a combination of the two. To hold otherwise would be to ignore the plain
wording of the section.
55
[122]
It follows that there is, with respect, no logic to the view that a meeting which is
attended by two or more creditors by proxy, is not a meeting simply because both or all
have appointed the same person to act as their proxy. The requirement, if it be a
requirement, that two or more creditors must participate in order for there to be a meeting is
satisfied by the appointment, by two or more creditors, of a proxy who is in attendance. The
section does not require that at least two proxies must be so appointed. That would also be
illogical and, indeed, unworkable in practice. Illogical, because, there being nothing to
prevent a proxy representing more than one creditor, why then should the proxy not
represent all? And unworkable, because it would in effect result in a race to instruct the
chair first; moreover, a creditor would not know if its vote would count, lest all other
creditors had attempted to appoint the same proxy.
[123]
I therefore find that the meeting of the secured creditors, at which all nine secured
creditors appointed the chairperson to act as their proxy, was a valid meeting at which the
Restructuring Plan was unanimously approved by that class, which paves the way for
further consideration of section 901G.
Are the jurisdictional requirements of section 901G satisfied?
[124]
For section 901G to operate, conditions A and B must both be satisfied. As regards
condition A, the "no worse off" test in the relevant alternative, I place reliance on the
Grant Thornton and FTI reports. I have already found that the relevant alternative is the
administration of the company, with the consequences described at paras [39] and [40]
above. As the reporter has observed, the evidence as to what would then happen is
necessarily forward-looking, and is based on assumptions rather than arithmetically exact
calculations. However, those assumptions are in my view reasonable. Further, the plan
56
allows for a margin of error in the figures by providing that the compromised payment
which each dissenting plan creditor is to receive is 150% of that creditor's estimated return
in the relevant alternative, subject to a minimum of £1,000 or £2,000 depending on whether
or not a Parent guarantee is held. Insofar as the Landlords are to receive 3 weeks contractual
rent (less than that, if the remaining contractual term is shorter than 3 weeks), that equates to
the 3 weeks rent they would receive in an administration, the administrators having
insufficient cash to trade for longer. The estimated returns in the relevant alternative are
based upon the FTI report. FTI have prepared an Estimated Outcome Statement showing
the estimated outcome for each class of creditor in the relevant alternative in comparison
with the consideration they would receive under the plan. In each case, the class is better off
under the plan. The company has lodged a spreadsheet showing the relative outcomes for
each individual plan Landlord, and all are demonstrably better off, in some instances
materially so. The reporter has also appended a helpful table to his report, summarising the
outcomes for each class in the relative alternative, and under the plan, an abridged version
of which is as follows:
Class
Return on
RP (£'000)
Return on RA
(£'000)
Return on RP
(p/£)
Return on RA
(p/£)
Secured Creditors
102.1
54.4
100.00
51.97
Class B1 Landlords
5.2
0.2
23.88
0.87
Class B2 Landlords
2.9
0.1
17.23
0.86
Class B3 Landlords
1.4
0.1
14.44
0.89
Class C Landlords
0.9
0.5
1.19
0.65
General
Property Creditors
0.1
0.0
0.66
0.23
Business
Rates Creditors
0.0
0.0
0.81
0.20
57
[125]
On the basis of all of this material, I conclude that it has been shown that no
dissenting Plan Creditor will be worse off under the plan than under the relevant
alternative. Condition A is therefore satisfied.
[126]
As regards condition B, as noted above, the court meeting of secured creditors
unanimously approved the plan. Given the 100% turnout and the 100% vote in favour,
those who attended and voted in favour were necessarily a true representation of the class
as a whole. The estimated recoveries of the secured creditors are set out in the Explanatory
Statement, and shown in the reporter's table referred to above, and as a class, the secured
creditors would both receive a payment from, and have an economic interest in, the
company, in the relevant alternative. I therefore conclude that condition B is also satisfied.
Is the Restructuring Plan fair to the creditors as a whole?
[127]
Having found that the cross-class cram down power is available, the key question,
and the nub of the petition, is to decide whether it should be exercised. Ultimately, as the
Court of Appeal made clear in Adler, that turns on whether or not the plan is fair to the
creditors as a whole, which will always be a question of circumstances; but in considering
that question, Adler gives guidance as to which factors are, and are not, relevant. The first
point is that it is not appropriate to apply some form of rationality test based upon the level
of voting in an assenting class, or upon the overall value of claims voted in favour of the
plan across the assenting and dissenting classes as a whole (Adler, para [134]). However, the
fact that an "out of the money" class voted against the plan should not weigh heavily or at
Snowden J at [24]9]. Second, it is appropriate to carry out both a vertical and a horizontal
comparison (Adler, para [149] ff). A vertical comparison - that is, of the return to a creditor
58
under the plan with the return in the relevant alternative - will already have been carried out
in finding that condition A in section 901G is satisfied, but that raises no presumption of
fairness in favour of sanction (ibid, paras [153] to [154]. A horizontal comparison requires
the court to identify whether the plan provides for differences in treatment of the different
classes of creditors inter se and, if so, whether those differences can be justified. An obvious
reference point for this exercise is the position of creditors in the relevant alternative (ibid,
para [159]). This involves consideration of whether the restructuring surplus is fairly
distributed among the creditors; or whether any class of creditor is getting "too good a
deal" (ibid, para [161]). It may be justifiable that creditors who provide new money to
facilitate a restructuring plan should be entitled to receive full repayment of the new money
under a plan, in priority to pre-existing creditors (ibid, para [168]). Finally, the court should
ask itself whether a better or fairer plan is available (ibid, paras [173] to [182]).
[128]
Applying that approach to this case, there are clear differences in treatment of the
classes here particularly as regards the secured creditors and all other Plan Creditors. In the
relevant alternative, the Plan Creditors do not rank pari passu with each other. The secured
creditors have the benefit of their security which results in their achieving an enhanced
recovery in that scenario. By contrast, the return to the unsecured creditors is limited to a
very small share in the prescribed part - they are effectively "out of the money". It is also
relevant that the secured creditors are to provide additional funding of £23 million, which is
critical to achievement of the plan. I am of the view that the already enhanced status of the
secured creditors under the relevant alternative by virtue of their security and the provision
of additional finance to allow the plan to proceed at all, amounts to sufficient justification for
their enhanced return under the plan in comparison with the other Plan Creditors.
59
[129]
Further, the overall effect of the plan is not to treat the rights of any Plan Creditor, of
any class, in a way which is materially different from its treatment of the rights of any other
Plan Creditor in that class. The commercial advantages of the Restructuring Plan are
described above. As regards the dissenting Plan Creditors, the plan does provide for a fair
distribution of the restructuring surplus. All are to receive 150% of their estimated
insolvency returns. It is also fair that the Class B Landlords should receive a payment
equivalent to 3 weeks of contractual rent. As regards whether a better or fairer scheme
could have been devised, none has been suggested, and it is not appropriate for the court to
go off on a frolic of its own, or to speculate, as to what other schemes there might have been.
As senior counsel submitted, some regard must be paid to the urgency of the situation, and
the company's imminent insolvency if this plan is not sanctioned. Further, the secured
creditors' willingness to advance further funds is conditional on this plan, not some other
one, being approved. In all the circumstances, I have reached the view that the plan is fair to
all creditors.
Blot or defect
[130]
There is no blot or defect in the plan.
Overall exercise of discretion
[131]
Having decided that there has been compliance with the 2006 Act, that the procedure
has been regular and that the plan is both fair and blot-free, the question remains as to
whether there is any other factor which might make it appropriate, or not appropriate, to
grant sanction. The only additional observation I have is that the company has made every
effort to ensure that creditors have been kept fully informed, and to address the informal
60
objections which it received, and to reach an accommodation with individual creditors
(which it has achieved in a small number of cases). There are no contra-indications to the
granting of sanction. I therefore consider that it is appropriate that the power in
section 901G be exercised, and that I should exercise my discretion by granting sanction.
Other matters
[132]
I should mention several matters for the sake of completeness.
Power of Attorney
[133]
Following sanction of the Restructuring Plan, a provision of the plan grants a power
of attorney to the company to sign the relevant transaction documents on behalf of the Plan
Creditors, who will thereby become bound to the plan.
The effective date
[134]
The Restructuring Plan is not subject to conditions precedent and so, now that it has
been sanctioned, it will have become effective on the date on which the certified copy Court
Sanction Order was delivered to the Registrar of Companies in Scotland for registration (the
Restructuring Effective Date).
Recognition of the Restructuring Plan
[135]
The company sought legal advice in England and Wales, as the jurisdiction which is
significant in the context of the Restructuring Plan. In particular, the vast majority of the
Leases relate to properties in England which are governed by English law. The company
has received an Opinion from English Counsel, Jeremy Goldring KC, confirming that the
61
Restructuring Plan will be effective under English law. No difficulty is anticipated, in so far
as the Restructuring Plan is to apply to those obligors which are incorporated in England
and Wales.
[136]
The company also has one Lease in Northern Ireland. It has no other assets in that
jurisdiction. The company's advisers have advised it that no difficulty is anticipated insofar
as the Restructuring Plan is to apply to this Lease.
Postscript
[137]
As a result of the company's solicitors lodging copies in process (very properly, in
the interests of full disclosure), I became aware of a series of detailed notes the company's
English solicitors had sent to the reporter while he was engaged in carrying out his
enquiries. I fully accept that these were well intentioned, and in so far as they properly
updated the reporter with regard to discussions between the company and certain of its
creditors, and drew to his attention authorities of which he might otherwise have been
unaware, they were both appropriate and, in the latter case, possibly helpful.
[138]
Nonetheless, to an extent, at least on one reading, the notes at times strayed into the
realm of attempting to persuade the reporter of the merits of the petition, rather than simply
providing him with information which he might reasonably require. I have in mind
particular elements of the note of 15 November 2024 which speculated as to what the
outcome of one meeting would have been had a certain creditor abstained instead of voting
against. I do not consider that it is appropriate that communications of that nature should
be sent to a reporter, who is, after all, there only to report to the court on the facts and
circumstances set forth in the petition and on the regularity of the proceedings, rather than
to reach any decisions or to form a view on the law, which is, after all, the province of the
62
court. I am conscious that other interested parties, at least those who are not legally
represented, do not have the opportunity (or at any rate, are unlikely) to write to the
reporter. Given that the practice of appointing a reporter is in part to avoid the need for a
detailed examination of the evidence by the court at the sanction hearing, it is essential that
the process is perceived as fair by all those affected by the outcome of the petition. The place
for making submissions as to the law is in court, through counsel. No harm was done in the
present case as the reporter has sufficient experience and independence of mind not to have
been influenced. However, agents should take care that they do not cross the line between
supplying the reporter with information in order to update him on the factual position as
outlined in the petition, and being seen (rightly or wrongly) to be attempting to persuade
him to reach a certain conclusion in his report. If there is a need to update the reporter, an
approach which could not attract criticism would be to lodge supporting documentation in
process, and forward that to the reporter with a minimum of comment. I say all this not to
censure the company's solicitors, who have after all endeavoured to be helpful and have
provided Plan Creditors with full information throughout the process, but for the guidance
of practitioners in future cases.