News | February 9, 2023

Re Listrac Midco Ltd & Ors [2023]

Despite the “elegance” of the arguments challenging  the calling of creditors’ meetings on behalf of the former CEO, who argued that the rights of “B” shareholders including himself, would be adversely affected, Trower J found that as neither the contractual terms of the rights themselves nor their economic value would be affected by the plans, he would order calling of the meetings under section 901C(3) Companies Act 2006. There was no real change to the economic value for the B shareholders.  

In Re Listrac Midco Ltd & Ors [2023] EWHC 78 (Ch) Trower J considered an application by seven companies in the Lifeways Group for orders convening meetings of certain creditors under s 901(C)(1) Companies Act 2006 for the purpose of considering and voting on restructuring plans under Part 26A of the Act.

Four of the plan companies were subsidiaries of Lifeways Finance Limited, which itself was a subsidiary of Listrac Bidco Limited; Bidco, in turn, was a subsidiary of Listrac Midco Limited (Midco). Bidco and Midco were intermediate holding companies within the group. The plans under consideration were proposed as part of a broad restructuring intended to ensure the continued operation of Bidco and its subsidiaries by putting in place a sustainable capital structure.

Midco had two classes of issued shares: A ordinary shares and B ordinary shares. Its majority A shareholder was Listrac Intermediate Holdings Limited. The  B shares were issued to existing and former members of the group’s management as part of a 2019 management incentive plan, which was put in place with the consent of secured creditors with a view to a sale of the group. There was a put option associated with the B shares.

The group’s former CEO, Mr Justin Tydeman, appeared by counsel at the hearing. He was being treated as a creditor in respect of a disputed claim arising out of his alleged unfair dismissal and, as such, he had been sent a copy of the plan. It had also been sent to him and others as Midco B shareholders with rights under the management incentive plan. The plan companies did that in the interests of transparency: they did not accept Mr Tydeman’s assertion that the B shareholders were plan creditors or that they were affected by the plans in a manner which entitled them to be summoned to any plan meeting. An issue before the court was, then, whether  shareholders who had the benefit of the B shares put option were entitled to participate in any meeting to consider and vote on the restructuring plan.

Section 901C(3) CA 2006 provides that every creditor or member of the company whose rights are affected by the compromise or arrangement [the proposed plan] must be permitted to participate in a meeting ordered to be summoned under subsection (1). Sub-section (3) is qualified by sub-section (4)  which provides that subsection (3) does not apply in relation to a class of creditors or members of the company if the court is satisfied that none of the members of that class has a genuine economic interest in the company.

Counsel for Mr Tydeman argued that the B shareholders’ rights would be affected by the Midco plan so as to engage the right to participate in a meeting conferred by s 901C(3). She relied, among other things, on the judgment of Zacaroli J in Re Hurricane Energy plc. In  that case he found that the phrase “affected by” had a broad ambit. He also said, however, that it was “an important part of the context that section 901C does not apply to any group of creditors or shareholders who have no economic interest in the company: see section 901C(4)”. For present purposes, Trower J expressed the view that the important point emerging from Hurricane was that, even though the shareholders’ contractual rights against the company in that case were unaffected by the proposed dilution of their shareholdings, the plan proposed would affect the economic value of those rights because their shareholder rights to participate in the capital and profits of the company would be diluted, so it could not be said that the shareholders had no economic interest in the company so as to engage section 901C(4) of CA 2006.

Trower J found that in the case before him neither the contractual terms of the rights themselves nor their economic value would be affected by the plans so as to engage section 901C(3). The plans did not vary any of the B shareholders’ existing rights under the relevant articles; all that they did was to give effect to existing rights. It followed that their economic value was unaffected.

Accordingly, whilst acknowledging the elegance of the submissions made by counsel on behalf of Mr Tydeman, the judge made the orders asked, namely that meetings of creditors be summoned under section 901C(1) Companies Act 2006 for the purpose of agreeing the plans.