All Scheme Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 30 May 2022 |
| Neutral Citation | [2022] EWHC 1318 (Ch) |
| Docket Number | CR-2022-000612 |
| Court | Chancery Division |
[2022] EWHC 1318 (Ch)
THE HONOURABLE Mr Justice Trower
CR-2022-000612
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Royal Courts of Justice
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: 23 rd May 2022
Approved Judgment
THE HONOURABLE Mr Justice Trower
This judgment will be handed down remotely by circulation to the parties' representatives by email and released to the National Archives. The date and time for hand-down is deemed to be 2pm on Monday 30 May 2022
Introduction
This judgment is concerned with an application by ALL Scheme Limited (“SchemeCo”) for the sanction of two proposed and alternative schemes of arrangement (the “Schemes”) under Part 26 of the Companies Act 2006 (“CA 2006”). The Schemes have been referred to as the New Business Scheme (“NBS”) and the Wind Down Scheme (“WDS”) and I shall use the same abbreviations. At the conclusion of the hearing on 23 May 2022, I announced that I would make the order sought by SchemeCo in relation to the NBS. These are my reasons for making that order.
The business with which the Schemes are concerned has been conducted by Amigo Loans Ltd (“ALL”). It is an indirect subsidiary of Amigo Holdings PLC (“Holdings”), a public company listed on the Official List of the London Stock Exchange and the holding company of the Amigo group. One of its sister companies is Amigo Management Services Limited (“AMSL”). Where is it unnecessary to distinguish between companies within the group I shall refer to them as Amigo.
ALL is a provider of ‘guarantor loans’ in the UK. Guarantor loans are mid-cost credit offered to those who, because of their credit histories, cannot borrow from mainstream lenders. The loans involve a second individual in the lending relationship, typically a family member or friend with a stronger credit profile than the borrower, who guarantees loan repayments. Since January 2005, ALL has entered into approximately 927,000 guarantor loan agreements and has had 507,144 borrowers and 536,097 guarantors. There are approximately 81,000 customers with current guarantor loans.
In recent years, Amigo has received a significantly increased number of customer complaints related to ALL's lending activities. These complaints relate to the affordability of loans for both borrowers and guarantors. As at 31 December 2021, Amigo's estimate of the extent of the redress liabilities arising out of those complaints (for which any one or more of ALL, AMSL and Holdings may be liable) was £347.5 million which Amigo is unable to pay in full. These liabilities include sums owed to the Financial Ombudsman Service (“FOS”) in respect of case fees for handling previous complaints.
The consequence of these liabilities being incurred is that Amigo is insolvent on a balance sheet basis. Amigo will also be cashflow insolvent if ALL is not permitted to recommence lending. I will give a little more detail later, but I am satisfied that in those circumstances there are good and sufficient grounds for concluding that, if neither the NBS nor the WDS were to be sanctioned and come into effect, it would be proper for ALL to be placed into administration. Indeed, the directors of ALL have undertaken to the court that, if sanction of both of the Schemes is refused, they will take such action as is necessary to appoint administrators of ALL as soon as possible.
As part of the solution for addressing the problems caused by the extent of Amigo's redress liabilities, SchemeCo was incorporated as a wholly owned subsidiary of Holdings for the purpose of promoting a scheme of arrangement. It has assumed joint liability with ALL, Holdings and AMSL by way of deed poll in respect of the redress liabilities in respect of loans made between 28 January 2005 and 21 December 2020. I address the legal issues which arise in relation to this structure a little later in this judgment. For present purposes it suffices to say that I am satisfied that the structure which has been adopted did not cause me to consider that the NBS ought not to be sanctioned.
The Previous Scheme
In January 2021, SchemeCo proposed a predecessor scheme of arrangement which was approved by the statutory majorities on 12 May 2021 (the “previous scheme”). The purpose of the previous scheme was to provide a mechanism (including the imposition of a bar date) for the determination of the claims of scheme creditors and to establish a fund to be used to pay a dividend on their claims. The scheme creditors were in turn to release their claims against members of the Amigo group. SchemeCo's best estimate was that they would receive approximately 10p in the £ plus the possibility of benefiting from further payments into the fund depending on the total amount of redress falling to be set off against outstanding borrowings and a share of Amigo's future profits.
However, although approved by the statutory majorities, the previous scheme was opposed by the Financial Conduct Authority (“FCA”) and in a judgment dated 24 May 2021, reported as In Re ALL Scheme Limited [2021] EWHC 1401 (Ch), Miles J declined to sanction it. In that judgment, Miles J explained that:
i) he was not satisfied with the directors' evidence of imminent administration;
ii) it was not properly explained to scheme creditors that existing shareholders would retain their shares and thereby benefit from a reduction in customers' redress claims and a future return on their shares;
iii) the directors had not adequately explored the prospect of a better alternative to the scheme he was being asked to sanction, in particular, through a market recapitalisation to raise funds to pay creditors and / or an equitization of their claims.
Miles J held that the legal consequences of these findings were that the approval of the majority at the scheme meeting was not representative of the class as a whole. The reason for this was that the creditors were not able to take a properly informed view, having regard to the deficiencies in the explanatory statement. He decided that the Court should therefore assess whether to sanction the predecessor scheme having regard to all the circumstances, including by having regard to what other scheme of arrangement might be proposed. Having carried out that exercise, Miles J determined that the scheme in the form then proposed ought not to be sanctioned because the existing shareholdings were to remain intact with the prospect of achieving future value from their shares, in circumstances in which customers' redress claims were to be compromised by an arrangement. Miles J was not satisfied that Amigo was unable to propose better terms.
It is clear from Miles J's judgment that his decision was informed by the FCA's attitude to the previous scheme, and he agreed with a number of the submissions it had made as to its deficiencies and the processes that had been adopted for obtaining its approval and seeking its sanction. This is in marked contrast to the position of the FCA on the present application. The FCA does not oppose the sanction of the Schemes, it has not appeared by counsel and has said that it would not be in furtherance of its statutory objectives to do so. It has explained in correspondence that it has continued to engage with Amigo as its new proposals have developed and it is clear that its level of involvement has been such that it would have drawn any concerns that it may continue to have to the court's attention. It has not done so, and while it is self evident that the question of sanction is for the court and not the FCA, the FCA's attitude was a material factor in my assessment of some of the considerations I have taken into account in deciding whether I ought to grant the relief sought.
The Schemes
SchemeCo applied first for the sanction of the NBS. It made clear in its skeleton argument that it was only if I were to consider that the NBS should not be sanctioned that it would propose sanction of the WDS by way of alternative. As I decided that the NBS should be sanctioned, it is not necessary to conduct a detailed analysis of the respects in which the WDS was advanced as a better alternative than the appropriate comparator. However, it remains relevant as an illustration of an alternative to administration which Scheme Creditors have had an opportunity to consider, and which supports Amigo's view that, in the absence of sanction of one or other of the Schemes, a formal distributing administration is the only realistic alternative.
The terms of the NBS can be outlined as follows:
i) The creditors who will be bound by the terms of the NBS are customers in respect of loans advanced by ALL, guarantors of those loans (together “Customer Creditors”) and the FOS in respect of complaints handing fees (together with Customer Creditors “Scheme Creditors”).
ii) The Schemes will release ALL, AMSL and Holdings from all of Amigo's liabilities to pay any amounts to any person in relation to making or administering an Amigo loan, save for certain excluded liabilities, being intercompany debts and liabilities to customers and the FOS admitted or adjudicated prior to 21 December 2020.
iii) The release is granted in exchange for the payment of dividends from the Scheme Fund, the amount of which will depend on which of two solutions is adopted (the “Preferred Solution” or the “Fallback Solution” as to which see below).
iv) The amounts payable are to be calculated by a payment percentage calculated by the Scheme Supervisors by a method prescribed in the Schemes.
v)...
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