OutsideClinic Ltd (The Companies Act 2006), Re

MR JUSTICE ADAM JOHNSON:

1. This is an application for a convening order made by OutsideClinic Ltd, which I will refer to as “ the Company ”. The Company has put forward a restructuring plan (“ the Plan ”). It seeks an order under section 901 C of the Companies Act 2006 summoning meetings of certain of its creditors to vote on the Plan, so we are in the territory of Part 26A of the Companies Act 2006 and thus in an environment where the Company may seek to ask the Court to sanction the Plan, even though one or other group of affected creditors has not approved it; that is to say, we are in the territory of the cross-class cram down, or at least potentially so.

2. The Company has operated for some 35 years as a provider of in-home audiology and optometry services, primarily to elderly and otherwise vulnerable customers, as an alternative to the High Street provision of those services. Recently though the Company has run into a period of financial turbulence and thus seeks to restructure certain parts of its indebtedness.

3. As to the form of the restructuring I can make the following comments.

4. Certain categories of creditor are left out of the Plan altogether. These include employees and certain other creditors which the Company has designated as essential. Such creditors will be paid in full. Certain other creditors are also excluded from the Plan, but are treated less favourably, including, as I understand it, the Company’s parent and an associated company who will write off their debts. There will be new money from existing shareholders of the Company’s parent company in the amount of some £2 million which will be made available subject to the Court sanctioning the Plan.

5. Moving on to those creditors who are affected by the Plan, it is suggested there are seven such categories or classes. They are as follows.

6. First there is a secured creditor. Amongst other aspects of the Plan, it is to write off some £2 million of its secured debt in exchange for an equity interest in the Company. There will also be a capital repayment holiday and an extension of the term of the relevant loan or finance arrangement.

7. As to the other six categories of creditor, the Company’s evidence at any rate is that they will receive zero in the relevant alternative, which is an administration, but broadly will each receive a return of some 5p in the £ under the Plan. However, their positions in other respects are different and thus it is said that they constitute different classes in addition to the secured creditor.

8. HMRC is owed approximately £1.45 million. It is a secondary preferential creditor, or would be on any insolvency affecting the Company. Next, there are certain creditors who have the benefit of retention of title clauses. Then there is an entity referred to as the “ Swindon Landlord ” which is the landlord of the Company’s head office premises. Next there are certain shop landlords who are owed outstanding rent; I understand there are four of those. Next there is an energy provider referred to in the Plan as the “ Onerous Contract Creditor ”. The proposal under the Plan is that it will be paid 5p in the £ in respect of outstanding indebtedness, but otherwise its contract will be terminated. Finally, there are the general unsecured creditors who will receive 5p in the £ under the Plan.

9. Turning then to the matters necessary to be dealt with at this convening hearing, the first is the adequacy of notice of the hearing. I am satisfied that adequate notice has been given. The purpose of the convening hearing is a relatively limited one and the creditors have had the relevant practice statement letter since 24 January, that is to say for about a month now, although the practice statement letter was supplemented on 14 February and then again on I believe 21 February. That was not in material respects as far as the majority of creditors are concerned, because the amendments related almost exclusively to the position of the Swindon Landlord. It is true that one creditor was inadvertently omitted from the first circulation of the practice statement letter and supplemental practice statement letters, but that creditor has now been given notice and has raised no objection. There was also a further wrinkle, in the sense that the convening hearing was originally scheduled to take place on 17 February. The date was then moved to today, 24 February, but notice was given about 10 days ago on 13 February. Taking all those matters into account, it seems to me that adequate notice of this hearing has been given and any party wishing to make observations has been given an appropriate opportunity to do so. Those parties include HMRC, who have attended today but not made oral representations. I have though had the benefit of some written submissions from them and have taken those into account in giving this ruling and in giving the directions I have already discussed with the parties.

10. The next question is whether there is jurisdiction under the terms of the Act . That is a straightforward matter in this case because the Company is registered in England and Wales and is liable to be wound up by this Court. The Plan does not impact any non-UK based creditors, so there are no jurisdictional concerns it seems to me, either as regards jurisdiction under statue or in terms of the Court’s exercise of its international jurisdiction.

11. The next question is whether the relevant threshold conditions A and B under the statute are met. The first of those is that the Court must be satisfied that the company proposing the plan has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on its business as a going concern. I am so satisfied on the basis of the evidence of the Company’s Director, Mr Pitman, which is to the effect that the Company is balance sheet insolvent. Figures I have been given today indicate that the Company is also likely to run into significant cashflow difficulties and will have to cease trading from about 4 April this year onwards.

12. The next condition, condition B, is that the Court must be satisfied that a compromise or arrangement is proposed between the company and its creditors and that the purpose of the compromise or arrangement is to eliminate, reduce or prevent, or mitigate the effect of, any of the financial difficulties it is troubled by. It seems to me that the Court can be satisfied that condition B is met here. A compromise or arrangement is proposed, the terms of which I have described, and its purpose is plainly to seek to put the Company back on an even footing and to allow it to continue to trade.

13. The next question is class composition. As I have mentioned, the Company’s case is that seven different categories of creditor exist. I am satisfied that that is the position in light of the points already made above and for the following brief reasons.

14. First, there is the position of the secured creditor which plainly stands in a class of its own. Second, there is HMRC which again stands in a class of its own as secondary preferential creditor. Third, there are the creditors with retention of title clauses - they have particular contractual and/or proprietary rights which put them in a category of their own. Fourth, there is the Swindon Landlord. It has proprietary rights under the lease of the head office premises. In addition, under the Plan it is proposed to be given certain new termination rights. Fifth, there are the shop landlords. They also have the benefit of relevant contractual and proprietary rights arising under their leases. Sixth, there is the Onerous Contract Creditor. It stands in a particular position because the terms of the Plan contemplate that its contract will be terminated upon sanction. Seventh and finally, there is the general body of unsecured creditors, whose rights are different again. For all those reasons, I am satisfied there are seven different classes of creditor and that separate meetings should be convened in respect of each of them.

15. The next matter to be satisfied is the adequacy of the explanatory statement. I have considered this. As Mr Weaver KC for the Company has conceded, this is a rather lengthy document. Nonetheless, I am satisfied that it is in a form and style satisfactory for its purpose. It contains a great deal of information, but still I am satisfied that it will enable the affected creditors to consider their respective positions in time to allow them to vote on a properly informed basis at the meetings which I propose to convene.

16. Finally, I need to be satisfied as to the adequacy of notice of both the meetings to be convened and the hearing date for sanction. Both matters have been the subject of discussion in court this morning. That discussion has included the benefit of some input from HMRC and happily the parties and the Court have been able to settle on revised dates. The meetings will take place on 17 and 18 March and the sanction hearing will be listed for a day and a half on 27 and 28 March. I would also propose that if HMRC is minded to serve any expert evidence of its own, which it has indicated it may wish to do in response to the report from Interpath Advisory relied on by the Company, then it should do so by 4pm on Friday 21 March which will then allow a period of three working days before the sanction hearing begins on 27 March. Subject to those variations and amendments to the timetable as originally proposed I will make the convening order sought. - - - - - - - - - - - - - (This Judgment has been approved by the Judge) Digital Transcription by Marten Walsh Cherer Ltd 2 nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP Tel No: 020 7067 2900. DX: 410 LDE Email: [email protected] Web: www.martenwalshcherer.com