NGI Systems & Solutions Ltd v The Good Box Co Labs Ltd [2023] EWHC 274 (Ch) records the court’s reasons for sanctioning a restructuring plan made between the defendant company, The Good Box Co Labs Limited, its members, and separate classes of its creditors pursuant to section 901F Companies Act 2006. It also deals with other matters arising out of the company’s administration.
The business of the company was the provision of payment terminals to charities and fundraisers. The company had over 2,200 clients in the UK and was regulated by the Financial Conduct Authority as a small payment institution. It got into financial difficulties and went into administration. The joint administrators appeared at the sanction hearing to make representations. They had also issued an application for directions that they should sell the business and assets of the company.
The restructuring plan itself was conventional, providing for new funding from a consortium of “rescue funders”, including NGI, a shareholder, supplier and creditor of the company, which was to receive 85% of new equity in the company; certain noteholders were to receive 14% of the new equity in exchange for their debts; trade creditors were to be paid in full; existing shareholders’ interests would be diluted to 1% of the new equity in the company. A new constitution for the company and a new shareholders’ agreement were to take effect, there were to be changes to the board, and there was to be a “Services Cost Reduction Agreement” between the company and NGI.
In spite of some early creditor dissent, which appears to have been largely dealt with before the final hearing, and voting against the plan by noteholders, His Honour Judge David-White KC, sitting as a judge of the Chancery Division, sanctioned the plan, concluding,
“[T]hat [it] is justified on the practical grounds that the goodwill of trade creditors is essential to the continued trading of the Company and the debts as a whole are significantly smaller. Further, and significantly, although NGI will receive its trade debt back and part of that trade debt will not be subject to challenge, it (as agent for a number of funders) is providing significant funding for the Company going ahead, is turning its secured debt arising as an administration debt into equity and is agreeing to revised terms of business with the Company. I accept that the size of the equity to be received by NGI…is considerably more than that which the Convertible Loan Holders receive but the relevant business and assets of the Company (stripped of their liabilities) must be regarded as currently worth little more than the value that would be achieved on the possible sale identified by the Administrators. Once liabilities are taken into account the Company is hopelessly insolvent. Any future value of the Company will be achieved through the efforts of the new board, continued trading and the relevant injections of capital.”
In the circumstances, he was satisfied that it was appropriate to sanction the scheme, invoking the “cross-class cram down” provisions of s 901G Companies Act 2006, but subject to a jurisdictional issue, namely whether the company consented to the scheme, which depended on whether it was appropriate to direct the administrators to provide such consent.
For a number of reasons he held that they should:
(1) Although no formal application had been made for directions, the administrators were prepared to proceed and all relevant material was before the court.
(2) The issues as to the classes of creditor identified by the administrators were generally not such as to prevent sanctioning of the plan.
(3) Although on a sale by the administrators, employees would transfer under TUPE and their jobs would be secured, whereas under the restructuring plan some would lose their jobs, that protection would only deal with the immediate future: there was no certainty that jobs would be protected once the sale had taken place, and it was not suggested that redundancies might not occur after the sale. “This matter is not one,” he said, “that of itself would cause me not to give the relevant direction to the Administrators.”
(4) The administrators had not identified any other interests of the company above and beyond those of its shareholders and creditors, all of whose interests were protected and considered under the Part 26A process:
“Having decided under that process that sanction should be given (subject to the jurisdictional issue of company consent), I do not consider that there remains any separate company interest needing protection and which might justify the Administrators refusing to give consent for the Company.”
(5) The administrators were not actively opposing the order sought: they remained neutral, simply drawing relevant matters to the court’s attention.
Accordingly, he dismissed the administrators’ application for a direction for sale, directed them to provide the company’s consent to the restructuring plan, and thereupon sanctioned the plan, making consequential orders to bring the administration to an end.