Ai Scheme Ltd (Applicant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 01 April 2015 |
| Neutral Citation | [2015] EWHC 1233 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. 683 of 2015 |
| Date | 01 April 2015 |
In the Matter of Ai Scheme Limited
And in the Matter of the Companies Act 2006
2015 EWHC 1233 (CH)
Mr. Justice Norris
Claim No. 683 of 2015
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISIONCOMPANIES COURT
Rolls Building
MR. William Trower QC and MR. Adam Goodison (instructed by Stephenson Harwood LLP) appeared on behalf of the Applicant
(2.07 pm)
APPROVED JUDGMENT 1 April 2015
These are my reasons for my decision to approve the convening of meetings in accordance with the directions sought in the application.
Affinion International Limited ("Affinion") is an English company forming part of an American group of companies. It provided a credit card security product under various brand names, including Card Protection, Sentinel, Sentinel Gold, Sentinel Protection, Sentinel XL, and Safe and Secure Plus.
The security product marketed under those names was sometimes sold by Affinion direct to its customers, but was often sold with the assistance of business partners. Those business partners might introduce a customer to Affinion by way of marketing materials, or the business partner itself might sell the product direct to its customers.
The card security product had several elements. It provided a service, namely the ability to cancel lost or stolen cards by a single phone call to a permanently open centre. It also provided insurance cover, for example, to replace a lost or stolen handbag, to provide emergency cash, to replace personal cash, to cover the costs of dealing with the loss of a credit card, to cover the cost of keys that were stolen at the same time as the credit card was lost or stolen and, lastly, it provided insurance cover for fraudulent use of lost or stolen cards. This last element I will call "fraud insurance cover".
In relation to the fraud insurance cover, in fact customers probably did not need such cover because they were otherwise covered for the loss occasioned by fraudulent use of the lost or stolen credit card, either under consumer protection law or under banks' Codes of Conduct.
There is accordingly the potential for a mis-selling claim in respect of which purchasers of Affinion's product may be able to seek redress. It is thought that there may be 1.991 million potential claimants who might each have claims perhaps worth £180.
In such circumstances, the Financial Conduct Authority seeks the putting in place of a redress procedure which is simple, quick and effective. In relation to an earlier scheme approved by the FCA, this included access to a dedicated website and a call centre which processed claims without the requirement for any extensive supporting documentation.
Affinion intends to achieve that objective in relation to the potential claims which it and its business partners face. The chosen mechanism is that of a scheme of arrangement, which was a method utilised in relation to similar claims against Card Protection Plan Limited, and which was approved by Mr Justice David Richards.
In bare outline, the structure involves the establishment of a company, in this case an orphan vehicle (that is to say one that is not in the ownership of either Affinion International or its business partners, but in the ownership of a discretionary trust in favour of charities) which will enter into a scheme of arrangement. This scheme company has secured funding from Affinion and from the business partners under which Affinion and the business partners will pay what is called "the redress amount" to the scheme company in order to cover the redress required to be paid to successful claimants. Deeds of undertaking have been completed to secure that funding.
The scheme company has also entered into what is called a "Co-obligor Deed poll", a deed by which, in return for a single capital payment of relatively modest amount, it assumes primary liability alongside Affinion and the relevant business partners in respect of the claims which might be brought by potential customers of the card product.
With those arrangements in place, the scheme company will then enter into a scheme of arrangement, under which direct redress will be provided to successful claimants within the compensation scheme, and there will be a release by the scheme creditors of their direct claims against Affinion and the business partners and a release of claims between Affinion and the business partners themselves.
There has been extensive publication of the bare outlines of the scheme and there will be extensive publication of the details of the scheme to be promoted. This is the convening hearing in relation to the proposed scheme of arrangement.
As is familiar, this being a convening hearing, it is not an occasion to consider the merits or fairness of the proposed scheme. As Mr Justice David Richards pointed out in Re Telewest Communications [2004] EWHC 924, the purpose of this hearing is to consider the jurisdiction of the court to sanction the scheme, if it proceeds, which is principally a matter of the consideration of the classes; see paragraph 14 of that judgment.
Whilst this is not an occasion to consider the merits of the scheme, or even to express a provisional view about them, it is, I think, important not to proceed with the scheme if it is plain, even at this stage, there is such a blot upon it that it has no real prospect of succeeding at the sanction hearing. That degree of initial oversight is, I think, particularly important in the case of a scheme of this sort, where the scheme creditors will be customers, each of whom has a relatively small claim and none of whom may have sufficient access to advice in relation to the complex issues arising. I have borne that consideration in mind as I have reviewed my central function at this hearing, although I have sought to avoid expressing any provisional view.
The jurisdiction of course arises under Part 26 of the Companies Act 2006, section 895 of which says that its provisions apply:
"… where a compromise or arrangement is proposed between a company and its creditors, or any class of them."
There is no doubt that the scheme company is a "company" within the provisions of section 895, as subsection 2 provides:
"A company for the purposes of section 895 means a company liable to be wound up under the Insolvency Act 1986".
The scheme company is a company registered in England and Wales and is plainly so liable.
I am satisfied that the nature of the proposal is an "arrangement" within the meaning of the section. The nature of an "arrangement" has been considered on a number of earlier occasions and it is clear that the term has a broad meaning. There are certain criteria which must be met. The arrangement must be proposed with a creditor; it is implicit that it must be so proposed to them in their capacity as creditors; and that it must at least concern their position as creditors. Beyond that, the...
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