Sunbird Business Services Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 16 December 2020 |
| Neutral Citation | [2020] EWHC 3459 (Ch) |
| Date | 16 December 2020 |
| Docket Number | Case No: CR-2020-003942 |
| Court | Chancery Division |
[2020] EWHC 3459 (Ch)
Mr Justice Snowden
Case No: CR-2020-003942
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
Andrew Thornton QC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Company
Mr. Rupinder Bains (a creditor) appeared in person
Hearing dates: 1 and 2 December 2020
Further written submissions 7 December 2020
Approved Judgment
This is an application by Sunbird Business Services Limited (“the Company”) under Part 26 of the Companies Act 2006 (“the CA 2006”) for an order pursuant to section 896 CA 2006 sanctioning a proposed scheme of arrangement between the Company and its creditors (“the Scheme Creditors” and “the Scheme” respectively). It raises issues as to the adequacy of financial information provided to creditors for the purposes of considering a scheme of arrangement in relation to a relatively small or medium-sized private company.
Background and overview
The Company is the ultimate holding company and provider of finance for a group of operating subsidiaries that provide flexible office space in a number of African countries including, in particular, Kenya and Tanzania. Its main directors are Mr. Michael Aldridge (“Mr. Aldridge”) and Mr. William Sykes (“Mr. Sykes”).
The Company and its group has been funded by a combination of equity and short term debt instruments from the private sector. The group found it difficult to service the level of its debt during 2019 and was planning to raise more capital in 2020, but its performance, cash generation and profitability suffered as a result of the COVID-19 pandemic. The Company's evidence is that without a restructuring of the Company's balance sheet to reduce its level of debt and an injection of new working capital, the companies in the group would run out of cash and be forced into a formal insolvency process.
To this end, the purpose of the Scheme is to pave the way for future fund raising by strengthening the Company's balance sheet by a debt to equity swap under which about US$15.9 million (plus accrued interest) of the longer-standing financial debt owed by Company will be converted into A1 Ordinary Shares in the Company in proportion to the value of the debt held. The conversion rate for the debt to equity swap will be one A1 Ordinary Share for every US$0.33 of debt held.
Then, to provide the necessary working capital for the continued operations of the Company's group of subsidiaries pending some further refinancing, and conditional upon the Scheme becoming effective, the Company will raise working capital for the group by a fully underwritten rights issue of further A1 Ordinary Shares in the Company (the “Rights Issue”). The Rights Issue will apply to all of the Company's existing shareholders, including the Scheme Creditors in respect of their converted debt, and will raise a further US$3 million at a subscription price of US$0.20 for each new A1 Ordinary Share.
This judgment follows two earlier judgments. In the first judgment given on 18 September 2020, I dismissed the Company's application for sanction of a first scheme (the “Original Scheme”) in near identical terms to the current Scheme: see [2020] EWHC 2493 (Ch). That judgment contains greater detail of the background to the restructuring proposal and the disputes that have arisen between the Company and those who have opposed the Company's plans. I shall not repeat that background here, but shall simply note that I refused to sanction the Original Scheme because I found that the information provided by the Company to the Scheme Creditors was inaccurate, incomplete and, in certain respects, misleading. I also criticised the manner in which the Company had approached the scheme process.
The Company contends that it has now rectified the defects that I identified in my first judgment. It has returned to court to promote the current Scheme with a revised explanatory statement (the “Scheme Document”). It is also important to note that for the purposes of the new Scheme, Scheme Creditors were released from the lock-up agreements under which they had previously undertaken to support the Original Scheme.
In my second judgment given on 28 October 2020, I ordered the convening of a single meeting of the Scheme Creditors to consider and if thought fit, to approve the current Scheme: see [2020] EWHC 2860 (Ch).
The Scheme was approved by the requisite majorities at the meeting of Scheme Creditors held on 20 November 2020. All but two of the Scheme Creditors (30 out of 32), holding 99% in value of the Scheme Debt, voted at the Scheme Meeting. The Scheme was approved by 24 out of the 30 Scheme Creditors who voted – i.e. 80% in number. Those voting in favour held 86% in value of the Scheme Debt voted. The required statutory majorities in favour of the Scheme were thus easily obtained. Even if all of the directors and existing shareholders were excluded, the Scheme would still have been approved by a significant majority of “pure” Scheme Creditors – albeit not by a 75% majority by value.
In spite of this strong support for the Scheme, sanction is opposed by the same parties who opposed the Original Scheme and who appeared at the convening hearing (“the Opposing Creditors”). They include, in particular, Mr. Rupinder “Mike” Bains (“Mr. Bains”) and other creditors associated with him, together with an unconnected creditor, Beach Resorts Investments Limited (“BRIL”). Mr. Bains is the ex-finance director of the Company, who has been in dispute with the Company since leaving office just over a year ago.
The essence of the Opposing Creditors' objection is that the financial information in the revised Scheme Document is still inadequate, contains numerous inaccuracies and in material respects is unverified by any independent person. They contend that no reasonable Scheme Creditor could have made an informed decision upon the merits of the Scheme on the basis of such information, and that neither the Scheme Creditors nor the court can be confident that the Company and the group will be solvent and financially viable after the implementation of the Scheme and Rights Issue, so that the court would be sanctioning the Scheme in vain.
The Scheme and Scheme Document in outline
In broad outline, the commercial and operative terms of the Scheme are unchanged from the Original Scheme. Changes have, however, been made to the definition of Scheme Debt to clarify precisely (by way of a schedule) the liabilities owed to each of the 32 Scheme Creditors to be converted into new A1 Ordinary Shares under the Scheme.
The Scheme Document is, in certain respects, unchanged from the document used in relation to the Original Scheme. Most relevantly, the most recent audited accounts of the Company still date from 31 July 2018, and the most up-to-date financial information is still unaudited pro forma balance sheets and profit and loss accounts of the Company and the subsidiaries to 31 July 2020.
In most other relevant respects, however, the revised Scheme Document has been substantially expanded and improved from the earlier version used in relation to the Original Scheme.
Importantly for present purposes, the Scheme Document includes an expanded section summarising an analysis of the estimated returns to Scheme Creditors if there were to be a formal insolvency of the Company and each of its subsidiary companies. In contrast to the document for the Original Scheme, this section of the Scheme Document provides more detailed information on the legal positions of each of the operating subsidiaries. The Scheme Document also contains an expanded section outlining the views of the directors as to a range of potential alternatives to the Scheme (none of which they consider viable).
The view of the directors as to the likely minimal return to Scheme Creditors if there were to be an insolvency of the Company is also said to be supported by an “Insolvency Analysis” prepared by two insolvency practitioners from James Cowper Kreston LLP (“JCK”). The Scheme Document summarises the view expressed in the Insolvency Analysis that if the Company were to be wound up, Scheme Creditors could expect to receive a dividend of between 0 and 1% on their debts.
It is, however, apparent from the introduction to the Insolvency Analysis that the role of JCK in preparing the Insolvency Analysis was limited. In particular, the firm did not conduct a full verification exercise or audit of the financial information provided by management upon which the analysis was based. The introduction to the Insolvency Analysis said,
“In preparing our report our prime source of information has been management information provided by the Company and responses to queries we have raised. We have not generally sought to establish the reliability of information provided to us although we have sought to confirm certain information by reference to Companies House. Our work does not constitute an audit and we will not issue an opinion relating to the financial statements, tax or internal control systems of the Company.”
In addition, the Scheme Document contained an enlarged section describing the methodology adopted by the board in valuing the Company for the purposes of setting the conversion ratio for the debt to equity Conversion under the Scheme and the pricing of the Rights...
To continue reading
Request your trial
-
Agps Bondco Plc
...the likely returns for Plan Creditors both in insolvency proceedings and under the Plan: see Re Sunbird Business Services Ltd [2020] EWHC 3459 (Ch) at [40] (Snowden J). I have found that this is the most likely of the alternatives presented to the Court and I am satisfied that Plan Credito......
-
TOP BUILDERS CAPITAL BERHAD vs SENG LONG CONSTRUCTION & ENGINEERING SDN. BHD.
...28. Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian a/l Nagappan @ Marie [2021] 5 MLJ 253 29. Re Sunbird Business Services Ltd [2020] EWHC 3459 30. The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2008] SGCA 18 31. Wah Yuen Electrical Engineering Pte Ltd v Singapore......
-
15715 Top Builders No 2 Final 2
...have not been finalised, some useful guidance can be gleaned from the English High Court decision of Re Sunbird Business Services Ltd [2020] EWHC 3459 (Ch) (‘Re Sunbird’) where it was held at [96] that the test was ‘whether any defects that have been shown to exist in the scheme documentati......