Part 26 scheme of arrangement rejected by the court on the basis, inter alia, of defects in the explanatory statement.
The court refused to sanction a Part 26 scheme. The court reasoned as follows:
- The explanatory statement, in presenting formal insolvency as the only alternative to the scheme, failed fairly and fully to explain to those creditors the realistically probable alternatives in view of the fact that there was still some breathing space to explore alternative restructurings.
- The explanatory statement should also have explained the basis on which it was being proposed by the directors that the shareholders were to retain their full equity.
- For these and other reasons, the explanatory statement was insufficient to inform the scheme creditors about the scheme to enable them to form a reasonable judgment on whether or not the scheme was in their interests. This conclusion was reinforced by other features: that the scheme creditors lacked any advice; that there was no steering group; that there was no negotiation; and that the turnout at the meeting was less than 9% by number.
- It followed that this was not a case where the only issue was whether the rationality test has been satisfied. That test applied where the court was satisfied that creditors had been sufficiently informed.
- The company had submitted that the FCA was in reality inviting the court to compare different possible schemes. The court accepted that there was authority against doing that where the court was satisfied that the creditors had been properly consulted but that was not the case here where the possibility of a better scheme was relevant to the court's exercise of the sanction discretion.
In re All Scheme Limited [2021] EWHC 1401 (Ch)
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