All Scheme Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Snowden |
| Judgment Date | 15 March 2022 |
| Neutral Citation | [2022] EWHC 549 (Ch) |
| Docket Number | Case No. CR-2022-000612 |
| Court | Chancery Division |
[2022] EWHC 549 (Ch)
Lord Justice Snowden
(sitting as an additional Judge of the High Court)
Case No. CR-2022-000612
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Rolls Building
Fetter Lane
London
EC4A 1NL
Barry Isaacs QC and Adam Al-Attar (instructed by Freshfields Bruckhaus Deringer LLP) for the Applicant company
William Day instructed on behalf of the Customer Advocate, Jonathan Yorke
Hearing date: 8 March 2022
Approved Judgment
This judgment was handed down remotely by circulation to the parties' representatives by email and released to BAILII and the National Archives. The date and time for hand-down is deemed to be 9:30 a.m. on Tuesday 15 March 2022.
This is an application by ALL Scheme Limited (“SchemeCo”) for directions to convene meetings in connection with two proposed (and alternative) schemes of arrangement under Part 26 of the Companies Act 2006 (“Part 26”).
The Schemes arise out of mis-selling of loans to consumers by the group of companies headed by Amigo Holdings plc (“Holdings plc”). The group includes, in particular, its indirect trading subsidiary Amigo Loans Ltd (“ALL”) and its service subsidiary company, Amigo Management Services Limited (“AMSL”). For ease of reference, where it is unnecessary to distinguish between them, I shall refer to these companies simply as “Amigo”.
Background
ALL is a provider of “guarantor loans” in the UK. Guarantor loans are offered to those who, because of their credit histories, cannot borrow from mainstream lenders. The loans involve a second individual, typically a family member or friend with a stronger credit profile than the borrower, who guarantees the loan repayments. For ease of reference I will refer to both borrowers and guarantors as “customers”. ALL has made approximately 927,000 guarantor loan agreements since 28 January 2005. Since the same date, ALL has had contractual relations with over one million customers. ALL is not currently writing new business but has about 81,000 customers with outstanding loans.
The need for the Schemes has arisen because ALL has received a significant number of customer complaints and claims related to its lending activities. These complaints and claims are primarily for mis-selling on the basis of the affordability of loans for both borrowers and guarantors. Consumers are entitled to seek redress for such mis-selling, including by making complaints to the Financial Ombudsman Service (“the FOS”). Such complaints and claims (whether or not made to the FOS) are defined in the documentation as “Redress Claims”. ALL has not been processing complaints, and the FOS has not been progressing Redress Claims, under an informal moratorium which has been agreed with the Financial Conduct Authority (“the FCA”) whilst the Schemes are being developed and promoted.
The amount of compensation payable if a Redress Claim is successful is typically quantified as the amount of the costs and interest the customers have paid on their loans (in the case of borrowers) or any amount paid under a guarantee (in the case of guarantors), together with interest at 8%. The average value of Redress Claims in respect of loans made by ALL is £4,600 and in respect of guarantors the average is £1,945. The scale of the potential mis-selling can be seen from the fact that the provision made by ALL for Redress Claims as at 31 December 2021 was £347.5 million.
Redress Claims made by way of complaint to the FOS also generate a statutory entitlement of the FOS to a fixed fee (currently £750, previously £650) for the handling of such claims. The fee is to be paid to the FOS by the regulated entity or person the subject of the complaint, irrespective of whether the complaint is upheld or not. The FOS claims to be owed about £12.5 million in fees by ALL in respect of the Redress Claims that have already been submitted to it. This claim by the FOS is defined in the documentation as the “FOS Fee Claim”.
There is, in addition, an on-going investigation by the FCA into Amigo's affordability assessment process which may result in a fine being imposed by the FCA on ALL. The FCA has indicated, however, that if, at the completion of its investigation, it considers that a financial penalty is appropriate, it will take into account the priority of the creditors of ALL to ensure that any fine does not have an impact upon the amounts payable to such creditors under the Schemes.
Amigo's financial position
Including inter-company loans payable, ALL's total liabilities as at 31 December 2021 are estimated to be £597 million and its assets are estimated to be £473 million. Consequently, ALL's net liabilities as at 31 December 2021 were £123 million. ALL is therefore balance sheet insolvent. The net position of the Amigo group is very similar.
In the absence of the recommencement of business following implementation of one of the Schemes, the evidence is that ALL will, in the relatively near future, run out of cash to pay its current liabilities in full, and it would in any event not be appropriate for it to make full payment to current creditors in preference to creditors who have yet to establish their claims.
For present purposes I am satisfied on the evidence placed before me that ALL is insolvent and that the relevant comparator to implementation of one of the Schemes is an insolvent administration of the Amigo group. The evidence also states that preparations have been made for the group to go into administration in the event that neither Scheme is approved and sanctioned.
In the event of such administration, the directors of ALL estimate that customer creditors with Redress Claims would be likely to receive 31p/£. The basis for this estimate has been independently reviewed by Ernst & Young LLP, who have concluded that it is reasonable.
In these circumstances the Schemes are proposed to customers in respect of their Redress Claims and to the FOS in respect of the FOS Fee Claim in order to provide those creditors with a better outcome than an insolvent administration of the Amigo group.
SchemeCo
SchemeCo is not a trading company. It is a relatively new company that has executed a deed poll to assume joint liability for the relevant liabilities of ALL, Holdings and AMSL for the sole purpose of promotion of the Schemes. SchemeCo has been used in this way because it is feared that a proposal of the Schemes by ALL itself might trigger a default under about £50 million of secured high-yield bonds issued by another group company, of which ALL is a guarantor. As I shall explain, the intended effect of involving SchemeCo in this way is that if it is released from its (assumed) joint liability by the Schemes, this will enable a mechanism to be put into place to effect a similar release of the relevant liabilities of ALL, Holdings and AMSL, together with their directors and employees, to Scheme creditors.
The Previous Scheme
SchemeCo proposed an earlier scheme of arrangement in January 2021 (the “Previous Scheme”). The Previous Scheme sought to compromise Redress Claims and the FOS Fee Claim in return for a payment to customers which was estimated at only about 10p/£, and which left the ultimate shareholders of Amigo intact and unaffected even though they would have ranked for payment behind the creditors in an insolvency.
That Previous Scheme was approved by 95% of creditors attending and voting, whose total claims amounted to about £240 million. However, the Previous Scheme was opposed at the sanction hearing by the FCA, and in a comprehensive and penetrating judgment of 24 May 2021, Mr. Justice Miles refused to sanction it: see [2021] EWHC 1401 (Ch).
In essence, Mr. Justice Miles considered that he could not rely upon the affirmative vote of creditors at the scheme meetings as an indication of the fairness of the Previous Scheme because customers with Redress Claims had not been given the necessary information to enable them properly to appreciate the alternative options reasonably available to them, or to understand the basis on which they were being asked to sacrifice the great bulk of their Redress Claims, while the ultimate shareholders of Amigo were to be allowed to retain their shareholdings unaffected.
Mr. Justice Miles also did not accept the directors' evidence that a failure to sanction the Previous Scheme would result in the immediate administration of Amigo. He did not think that the directors had explored the prospect of a better alternative to the Previous Scheme, and in particular he observed that they had not considered a market recapitalisation to raise funds to pay creditors and/or a conversion of creditors' claims to equity.
Mr. Justice Miles' judgment was prescient. Amigo did not go into administration following his rejection of the Previous Scheme. Instead, it developed and has now proposed the current Schemes which now include the prospect of a market recapitalisation of Amigo which will dilute the existing shareholders of Holdings plc down to about 5% of the new expanded share capital, and which will enable a significantly increased estimated return to creditors under the Schemes of over three times that offered under the Previous Scheme.
Neither Scheme proposes the conversion of customer claims to equity because, having consulted with an independent committee of creditors formed since the failure of the Previous Scheme (the “ICC”), ALL believes that customer creditors with Redress Claims were unlikely to want shares in Amigo, and would rather have an enhanced cash return on their claims delivered as quickly as practicable.
The two Schemes are being put forward simultaneously and as alternatives to give Scheme creditors a greater...
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