Re Altitude Scaffolding Ltd; Re T&N Ltd

Hearing dates: 7 and 9 June 2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of thisJudgment and that copies of this version as handed down may be treated as authentic.

The Honourable

This is a single judgment in two unrelated applications which raise the same issue. Does the attendance in person or by proxy of only one member of a class of creditors at the time and place fixed for a meeting convened to consider a scheme of arrangement under section 425 of the Companies Act 1985 constitute a meeting of the class for the purposes of the section.

The application of Altitude Scaffolding Limited (ASL) was for the sanction of the court to a scheme of arrangement. ASL is a subsidiary of Cape plc. Cape and a number of its subsidiaries proposed a scheme with creditors who have made, or may in the future make, claims resulting directly or indirectly from past exposure to asbestos dust. For these purposes the relevant creditors were divided into two classes, those whose claims are or may be covered by insurance taken out by the companies (recourse scheme creditors) and those whose claims are not covered by insurance (general scheme creditors). As the existence and extent of insurance cover is uncertain in the case of recourse scheme creditors, they were also members of the class of general scheme creditors and entitled to vote at the meetings of that class. In the case of eleven subsidiaries, either both or one of the meetings were not attended by any creditor. The scheme could not therefore be sanctioned as regards those companies. None of those companies was key to the operation of the scheme and, in accordance with an express provision of the scheme, they were excluded. The scheme was approved by overwhelming majorities at the meetings of creditors of Cape and twelve subsidiaries and I have sanctioned the scheme as regards those companies. In the case of ASL, one creditor with a claim valued at £31,000 attended each meeting.

The applications in the case of T&N Limited and a large number of associated companies, made by their administrators, are to convene meetings of their creditors who have or may in future have rights to claim under employers' liability policies which were taken out by the companies and were in place between October 1969 and April 1995, such claims resulting directly or indirectly from past exposure to asbestos dust. A number of issues of jurisdiction or principle were raised for decision. My decisions on those issues will enable orders to be made to convene the meetings. The administrators are concerned that in the case of one or more companies, there will be a small turn-out at the meetings and that it is possible that only one creditor will attend. Accordingly, they seek a direction that the attendance of one creditor shall constitute a meeting. This raises the same issue of principle as ASL's application.

On 7 June 2006, I heard submissions from Sir Thomas Stockdale on behalf of ASL on this issue, as part of the applications of Cape and its subsidiaries for sanction of the scheme. Before giving judgment I became aware that T&N's application raising this issue would be heard by me on 9 June 2006. I therefore directed that ASL's application should be re-listed at the same time, so that both matters could be considered together.

The requirement that a meeting of creditors or members, or of each class of creditors or members, with whom a scheme of arrangement is proposed to be made must be summoned by order of the court, and that the scheme must be approved by a majority in number representing three-fourths in value of the creditors or members present and voting in person or by proxy at the meeting, are set out in section 42Unless those conditions are satisfied, there is no jurisdiction to sanction the scheme so as to be binding on the class in question. Section 425 (1) and (2) provide:

"(1) Where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them, the court may on the application of the company or any creditor or member of it or, in the case of a company being wound up, or in administration, of the liquidator or administrator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.

(2) If a majority in number representing three-fourths 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, agree to any compromise or arrangement, the compromise or arrangement, if sanctioned by the court, is binding on all creditors or the class of creditors or on the members or class of members (as the case may be), and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company."

The three stage process involved in section 425 has been emphasised in the authorities. In In re Hawk Insurance Co Ltd [2001] 2 BCLC 480, Chadwick LJ said at [11] and [12]:

"[11] There are, as I sought to point out in Re BTR plc [2000] 1 BCLC 740 at 742, when this court refused permission to appeal from the order made by Parker J, three stages in the process by which a compromise or arrangement becomes binding on the company and all its creditors (or all those creditors within the class of creditors with which the compromise or arrangement is made). First, there must be an application to the court under s 425(1) of the 1985 Act for an order that a meeting or meetings be summoned. It is at that stage that a decision needs to be taken as to whether or not to summon more than one meeting; and, if so, who should be summoned to which meeting. Second, the scheme proposals are put to the meeting or meetings held in accordance with the order that has been made; and are approved (or not) by the requisite majority in number and value of those present and voting in person or by proxy. Third, if approved at the meeting or meetings, there must be a further application to the court under s 425(2) of the 1985 Act to obtain the court's sanction to the compromise or arrangement.

[12] It can be seen that each of those stages serves a distinct purpose. At the first stage the court directs how the meeting or meetings are to be summoned. It is concerned, at that stage, to ensure that those who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present (in person or by proxy) at the meeting or meetings at which the proposals are acceptable to at least a majority in number, representing three-fourths in value, of those who take the opportunity of being present (in person or by proxy) at the meeting or meetings. At the third stage the court is concerned (i) to ensure that the meeting or meetings have been summoned and held in accordance with its previous order, (ii) to ensure that the proposals have been approved by the requisite majority of those present at the meeting or meetings and (iii) to ensure that the views and interests of those who have not approved the proposals at the meeting or meetings (either because they were not present or, being present, did not vote in favour of the proposals) receive impartial consideration."

Each of these stages represents an essential element in the protection provided by the section for the creditors or members to be bound by the proposed scheme.

Section 425 requires approval by the stated majorities to be given at a meeting, rather than for example in writing. The purpose would seem to be to enable each class to debate the merits of the scheme among themselves and, if given the opportunity, to question the scheme's proponents. It is to be noted that in the classic definition of a class given by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, the fact that a meeting of each class was to be called was a central consideration:

"The word "class" is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term "class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."

Speaking more generally, Sir Nicolas Browne-Wilkinson V-C said in Byng v London Life Association Ltd [1990] Ch 170 at 183:

"The rationale behind the requirement for meetings in the Companies Act 1985 is that the members shall be able to attend in person so as to debate and vote on matters affecting the company."

The conventional legal meaning of meeting in the context of creditors and shareholders of companies is an assembly or the coming together of two or more such persons. This is clearly established by the decision of the Court of Appeal in Sharp v Dawes (1876) 2 QBD 26, and later applied in a number of cases: In re...