Provident SPV Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Anthony Mann |
| Judgment Date | 04 August 2021 |
| Neutral Citation | [2021] EWHC 2217 (Ch) |
| Docket Number | Case No: CR-2021-000675 |
| Court | Chancery Division |
[2021] EWHC 2217 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Sir Anthony Mann
Sitting as a High Court Judge
Case No: CR-2021-000675
Barry Isaacs QC, Adam Goodison and Ryan Perkins (instructed by Clifford Chance) for the Applicant Company
Philip Hinks (instructed by McCarthy Denning) for the Customer Advocate
Hearing date: 30 th July 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application for the court sanction of a scheme of arrangement under Part 26 of the Companies Act 2006 (“the Scheme”). The court's sanction is sought pursuant to a Part 8 claim form dated 12 April 2021. The application is made by Provident SPV Ltd (“the Company”), a special purpose vehicle company set up to assume liability for certain debts of two companies, namely, Provident Personal Credit Ltd and Greenwood Personal Credit Ltd (“the Lenders”), which are companies in the Provident Finance group of companies (“the Group”). Mr Barry Isaacs QC appeared for the applicant company.
An outline of the background to the Scheme is as follows. The Lenders are companies whose business was the provision of small loans to individuals on low or moderate incomes. The interest rates charged were very high. Those companies now perceive that large numbers of their borrowers, or guarantors of the borrowers, have or may have claims against them based on a number of statutory and other provisions, and in particular that they failed to carry out checks as to the creditworthiness of proposed borrowers or to assess the suitability of proposed loans or guarantees. Over a period of years various borrowers/guarantors have brought claims, but recently the number of claims being brought has increased to a level which has caused the group to consider how, and whether, it can deal with them. Until 2018, the number of claims made for redress from “Redress Claimants” was about 2000 per year. Since April 2018, however, the number has risen dramatically to 60,000 in the year ended 15 March 2021. It seems that claims management companies have played an increasingly prominent role in the process. Since April 2007 the Lenders have paid over £80m to settle claims, funded by the overall parent company of the Group (Provident Finance plc).
It is not known how many more people might wish to assert claims. In the period to which the Scheme applies (6 April 2007 to 17 December 2020) approximately 4.2 million customers borrowed money. However, it is not considered that all of those customers would wish to make a claim. The best estimate that has been made is that between 10% and 30% of those loans might attract Redress Claims against the Lenders. The assessed worst possible case of liability amounts is said to exceed £3 billion but, again, it is not considered likely that claims will be made in anything like that sum. Nonetheless, the anticipated level of claims could well exceed £1 billion. The Lenders are said to be not in a position to pay liabilities of that order (though some may take effect as a set-off against outstanding loan amounts).
The proposed Scheme
The group proposes the Scheme in order to deal with these liabilities, and liabilities for fees to the Financial Ombudsman Service (which fees are relatively small compared to the potential liability to borrowers). The essential features of the Scheme are as follows.
The Company has been set up as a special purpose vehicle. It has by deed poll assumed liability for the claims or potential claims of borrowers against the two Lenders, and for outstanding fees to the Financial Ombudsman Service. It is those liabilities which are to be the subject of the proposed Scheme. The Company is to be funded to the tune of £50 million by Provident Finance plc, the ultimate parent of the Lenders, to provide a pool from which the liabilities can be paid. A mechanism is proposed for Redress Claimants to submit claims, and for the adjudication of claims both as to their validity and value, the details of which do not matter for these purposes. It suffices to say now that I consider the mechanism to be fair in the circumstances. Claims against the Lenders will be released and substituted by claims against the Company. There is a time bar on claims of six months from the commencement of the Scheme. Any claimant who does not make a claim within that period has his or her claim barred. On the best estimates of the Company at present, it is thought that those with claims will not recover more than 6% of their claims under the Scheme. Since the typical claim is likely to be between £500 and £1,000, recoveries by any given individual are likely to be small. The costs of running the Scheme are also to be provided by the parent. The current estimate is that those costs are likely to be around £20m (an increase of £5m over original estimates).
Other creditors of the company are not within the Scheme. Those other creditors are those arising in the normal running of the companies, which will now be run down. They will paid out of the assets of the companies as they are realised. Employees will be a significant part of that. There is a substantial inter-company debt, but that is to be subordinated in the manner referred to below.
The basis on which the redress mechanism I have just described is said to be a benefit to Scheme claimants is that if the Scheme does not operate, the Lenders will be forced into an insolvency procedure. It is said (and I accept) that in an insolvency the claimants will receive nothing because the claims of preferential creditors will swamp such assets as might be available for the payment of creditors. Accordingly, the limited fruits of the Scheme are said to be better than the nothing which will otherwise arise from insolvency.
The original proposal was that the Lenders (or at least Provident Personal Credit Ltd) would carry on trading in some form. However, as a result of the views of the Financial Conduct Authority (“FCA”), it is now proposed that the Lenders should be wound down. The costs of winding down their activities will be met from their assets (principally the fruits of loan recoveries) and, insofar as they are insufficient, the costs will be met by the ultimate parent company. It is anticipated that there will be no surplus after that exercise has been conducted but, if there is, then that surplus (calculated without the payment of inter-company debt, which is to be subordinated) will be added to the Scheme funds. The best possible outcome is anticipated to add no more than £4 million in this way, though, as I have said, the likelihood is that there will be no surplus.
That is, in broad terms, the Scheme which the court is asked to sanction.
Jurisdiction
Section 899(1) of the 2006 Act provides:
“If a majority in 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 896, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement.”
That is the jurisdiction which is invoked in this case.
Formalities
I can get compliance with the formalities out of the way at this stage in this judgment. As is required in these cases, a prior hearing has taken place to order the convening of a meeting of the relevant persons (in this case the Redress Creditors). That hearing took place before Sir Alastair Norris on 22 April 2021 and is reported at [2021] EWHC 1341 (Ch). The convening order made by Sir Alastair provided for meeting advertisements and other notifications to be placed in a number of places, specifically geared in their placement and content to the large number of small claims and unsophisticated claimants that there undoubtedly are in this matter. All those requirements have been complied with. A Scheme meeting was to be held on 19 July 2021 and electronic systems for voting and participation were provided. The meeting duly took place and a total of 420,717 Scheme Creditors cast votes at the meeting, in person or by proxy. There was an overwhelming vote in favour of the Scheme – approximately 98% in value and 98% by number of those voting. I am satisfied that, in terms of the technical matters which must be complied with under the 2006 Act, they were all complied with and there was the requisite statutory majority in support of the Scheme.
The only additional observation to be made at this stage is that, whilst it is not known how many claimants, or what value of claims, there might be under the Scheme, the number of creditors voting, though large (and I am told it is the largest number of creditors ever to vote in a scheme of arrangement) might represent as little as 10% of the potential claimants.
Other detailed requirements in the convening order, with which I do not have to deal, were all complied with.
The Customer Advocate
One distinguishing feature of the Scheme when compared with most schemes of arrangement was the appointment by the Company of an independent “Customer Advocate” in the person of Mr Jonathan Yorke, an experienced solicitor, acting independently of the Company, to report on various matters for the benefit of the Redress Claimants. His brief was essentially one of assessing the material provided by the Company to the Scheme Creditors and expressing a view as to whether or not it will be likely...
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