All Scheme Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 24 May 2021 |
| Neutral Citation | [2021] EWHC 1401 (Ch) |
| Date | 24 May 2021 |
| Docket Number | Case No: CR-2021-000584 |
| Court | Chancery Division |
[2021] EWHC 1401 (Ch)
Mr Justice Miles
Case No: CR-2021-000584
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Rolls Building
Fetter Lane,
London, EC4A 1NL
Robin Dicker QC and Conor McLaughlin (instructed by Freshfields Bruckhaus Deringer LLP) for the Applicant company
Tom Smith QC and Stefanie Wilkins (instructed by Ashurst LLP) for the Financial Conduct Authority
Hearing date: 19 May 2021
APPROVED JUDGMENT
Introduction
This is an application by ALL Scheme Limited (“the Company”) for the sanction pursuant to section 899 of the Companies Act 2006 of a scheme of arrangement (the “Scheme”) between the Company and certain of its creditors.
The Company was incorporated on 6 January 2021. It is part of the Amigo group of companies (“Amigo” or the “Group”). The Group, through its main operating entity Amigo Loans Ltd (“ALL”), is a provider of “guarantor loans”, offering credit to those who are unable to borrow from mainstream lenders. The lending relationship involves a borrower and a guarantor with a stronger credit profile.
There has been a marked increase of consumer complaints against ALL relating to its lending activities and, in particular, to unaffordable or unsustainable lending. Consumers are entitled to seek redress for such complaints, which is typically quantified as the amount of the costs and interest they have paid on their loans (in the case of borrowers) or any amount paid under a guarantee (in the case of guarantors), and interest at 8%. ALL has made substantial provisions for redress claims in its statutory accounts and, as a result, has suffered accounting losses.
The COVID-19 pandemic has also affected the business and finances of the Group.
The Company, incorporated for the purpose of promoting the Scheme, has assumed joint liability with ALL (and two other Group entities) by way of a deed poll, in respect of potential redress claims by borrowers and guarantors (“Redress Creditors”), and sums owed to the Financial Ombudsman Service (the “FOS”) in relation to case fees for handling previous complaints. The Redress Creditors and the FOS are the “Scheme Creditors”.
The purpose of the Scheme is, in broad terms, to provide a mechanism, including a bar date, for the determination of the claims of Scheme Creditors and to set up an earmarked fund which will be used to pay part of their claims. The Scheme Creditors will in turn release their claims against the Group. The Company's best reasonable estimate is that Scheme Creditors will receive approximately 10p in the pound, although customers may also benefit from further payments into the fund (depending on the total amount of redress as falls to be set-off against the outstanding borrowings of customers) and a share of the Group's future profits. Scheme Creditors may also receive less than 10p in the pound depending on the level of claims and other factors.
The convening hearing was held on 30 March 2021. Sir Alastair Norris convened a single meeting of the Scheme Creditors (“the Creditors' Meeting”) to consider and, if thought fit, approve the Scheme.
The Financial Conduct Authority (the “FCA”) did not appear by Counsel at the convening hearing but set out some concerns about the scheme in two letters dated 23 March 2021 and 29 March 2021. At that stage the FCA indicated that it did not intend to appear at the sanction hearing either, but reserved its position. The FCA changed its stance and announced on 10 May 2021 (two days before the Creditors' Meeting) that it would oppose the sanction of the Scheme irrespective of the outcome of the Creditors' Meeting.
The Creditors' Meeting was held on 12 May 2021. 78,740 Scheme Creditors voted on the Scheme in person or by proxy. Of those voting 95.1% in number, representing 95.7% of votes cast by value, voted in favour of the Scheme. As I shall explain further below those 78,740 Scheme Creditors represent about 8.7% of the potential class by number.
The FCA appeared at the hearing by Counsel and opposed the sanction of the Scheme. The sanction hearing (which was conducted over MS Teams) was also attended by a number of creditors and shareholders. A number of them (mostly shareholders) made representations to me. The shareholders are not party to the Scheme but I have considered all representations carefully. I do not need to address them separately in this judgment as the points were covered in the submissions of Counsel for the Company and the FCA. The written and oral presentations of both sets of Counsel were of the highest calibre.
Factual background
I turn to the background to the Scheme. I draw on the helpful skeleton arguments of Counsel. Their summaries are in turn based on the various witness statements submitted on behalf of the Company and the FCA, being the first, second and third statements of Mr Beal (for the Company); the first and second statements of Mr Jennison (for the Company); the first statement of Mr Drummond-Smith (for the Company); and the first and second statements of Mr Mills (for the FCA); all of which I have read and considered.
The Group lends to customers whose credit profile does not allow them to access credit from mainstream lenders, with the support of a guarantor. Those loans are made by ALL, the operating entity within the Group, and served by Amigo Management Services Limited (“AMSL”). The ultimate parent company of the Group is Amigo Holdings PLC (the “Parent”), the shares in which are listed on the London Stock Exchange.
The Group estimates that ALL has entered into 927,000 individual agreements with 507,144 borrowers and 536,097 guarantors since January 2005 (together “the customers”). There are approximately 137,000 customers under current loans.
ALL has faced claims for redress in cases where it extended loans to borrowers who could not afford them or where a guarantee should not have been accepted (either because the related loan should not have been made or because the guarantor could not afford to offer the guarantee). In such cases, the FCA's rules and the FOS require any interest and costs paid by a borrower, or any amount paid by a guarantor, to be repaid with interest at 8% p.a. from the date on which those sums were paid. The Group is also indebted to the FOS for about £12.5 million in respect of case handling fees relating to claims which have previously been referred to it.
The Group is facing financial difficulties and these have led to the decision to promote the Scheme:
i) The COVID-19 pandemic has had a significant impact on the Group for two principal reasons. First, ALL granted a payment holiday to approximately 63,000 customers, which negatively impacted its cash flow due to lack of collections. Second, all new lending was paused in March 2020 except to key workers, and in November 2020 paused entirely. This has resulted, year-on-year, in a 36.9% fall in revenue, a decline in customer numbers of 32.7%, and a reduction of 32.9% in the value of the net loan book.
ii) In common with other lenders in the sector, there has been a large increase in the number of customer complaints against ALL. ALL's complaints provision for known and potential claims was increased to £150.9 million as at 31 December 2020.
iii) The FCA has carried out sector-wide reviews of the entire non-standard finance sector and, in addition, is carrying out investigations into ALL's affordability assessment process, as well as the governance and oversight of this process and complaints handling.
ALL recorded a statutory loss of £86.8 million for the nine-month period to 31 December 2020, compared to a £45.9 million profit for the same period the previous year.
The current management and non-executive directors of the Group joined in the second half of 2020. This includes Mr Jennison, who became Chief Executive Officer on 23 September 2020.
The Company's evidence is that in December 2020, the directors of the Parent formed the view that, absent the Scheme, ALL would be likely to enter administration because it would be unable to pay its creditors in full. It has repeated this position in public statements, in its statements to creditors in its communications about the Scheme, and to the financial markets (including shareholders) through RNS (i.e. regulatory news service) announcements.
On 12 May 2021 Mr Mills said (in his first statement) that the FCA considered that the probable alternative to the Scheme would be a revised scheme or reorganisation with stakeholders, rather than an imminent insolvency. The board of the Parent convened a meeting to consider this on 13 May 2021. Mr Jennison says in his first statement that the board confirmed its earlier views that, if the Scheme is not sanctioned, there is no viable option other than administration. I shall return to this point below.
An estimated outcome statement (showing returns in the event of a formal insolvency procedure) has been prepared by the directors of ALL (the “EOS”). PwC provided a letter (“the PwC Letter”) which commented on the financial information considered by the directors and the reasonableness of the directors' assumptions. The EOS and the PwC Letter were made available on a website dedicated to the Scheme. The EOS concludes that, in the event of an administration, Scheme Creditors would not receive any payment.
This is because there is secured lending which ranks ahead of the claims of the Secured Creditors. There is a series of senior secured bonds issued by a...
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