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Ashurst acted for the Financial Conduct Authority (FCA) on its successful Court opposition to the scheme of arrangement proposed by Amigo Loans. The judgment, handed down in May 2021, refused to sanction the scheme on the basis it was unfair. This landmark decision for schemes of arrangement raises points that are fundamental to all UK based court restructurings, which affect regulated businesses in particular.

The restructuring team at Ashurst has acted for the FCA on a number of high-profile mandates, tracing back to the first ever Investment Bank special administration, MF Global in 2011, on which Giles Boothman and Drew Sainsbury led.

Sainsbury led again on the Amigo Loans case, supported by senior associates Richard Bulmore (leading) and Andrew Clarke, as well as dispute partner Lynn Dunne and dispute resolution associate Louise Youngman.

“A feat I am particularly proud of was leading and preparing the court opposition in around a week – something that would usually take months of preparation. It would not have been possible but for the Ashurst team’s seamless collaboration with the FCA who also worked tirelessly to achieve the result, and with Tom Smith QC and Stefanie Wilkins at South Square. And, to deliver on that timeline, I was very fortunate to have the energetic assistance of Louise Youngman and Andrew Clarke and the wider team, and the supervision of Drew and Lynn,” Bulmore says.

The tight timeline on this case made efficient remote working of critical importance, according to Bulmore. “We were very mindful of the importance of staying connected: the team were in constant contact throughout the period, and it was so important to try to replicate as far as possible having everyone in the same room to develop ideas. The hearing itself was also remote – and although some of the romance of appearing in person in court was lost, being able to openly discuss the matter from afar while the proceedings were ongoing was useful. From a personal perspective, the flexibility involved in home working was invaluable – I have two very young children, so it was great to be able to have the flexibility that home working offers,” he explains.

Richard Bulmore, Ashurst
Richard Bulmore, Ashurst

“Working under the constraints of the pandemic really hammered home the importance of personal contact, as everyone adjusted to the circumstances and tried to balance work and home life. The best outcomes are often produced when you can come together and collaborate and share ideas, rather than working in silos, so maintaining that personal contact is vital.”

Bulmore joined Ashurst in June 2018, having qualified at Slaughter and May in September 2013. He works closely with the restructuring and special situations partners at Ashurst, particularly Boothman, including on the first use of a Part 26A restructuring plan by Virgin Atlantic in 2020, as well as Olga Galazoula, Ru-Woei Foong and Sainsbury.

“I have been working closely with Drew and Lynn Dunne on financial services matters, including special administration of SVS Securities plc, advising Curo Transatlantic on restructuring options and on its administration, and other roles for debtors, regulators and financial institutions,” he says.

“I advise on all distressed corporate situations, complex restructurings and insolvencies across all industry sectors. Recently I have been acting on a number of high-profile matters involving governmental bodies and regulators. Some highlights include advising the Official Receiver and the special managers of the Thomas Cook Group on all aspects of the group’s liquidation and the UK government on its response to the failure of British Steel, culminating in the sale by the Official Receiver of the business and assets of British Steel Limited to leading Chinese steelmaker Jingye Group. I am the only restructuring and insolvency lawyer to have advised government and the Official Receiver on all three of the recent large compulsory liquidations, Carillion, British Steel and Thomas Cook.”

The Amigo Loans case

Amigo Loans alleged that it faced financial difficulties as a consequence of a large increase in compensation claims for breaches of regulatory standards and inappropriate lending from 2005 onwards.

Amigo’s scheme sought to dramatically haircut valid compensation claims of its approximately one million customers. The claims were estimated at around £500m. In exchange Amigo was proposing paying each redress creditor only 10 p/£ of their claims. It claimed that if the scheme was not approved, it would enter an insolvency process. It was submitted in court that the directors were holding a ‘gun to the head’ of the redress creditors.

The aim of Amigo’s scheme was to enable the company to continue its (otherwise profitable) lending business. The scheme was extremely controversial and was commented on in the House of Commons by MPs from both parties, by consumer campaigners, and was – and continues to be – widely covered in the national press.

In the FCA’s view, the terms of the Scheme were unfair to redress creditors and placed a disproportionate burden on customers, as opposed to shareholders and bondholders, to keep the company afloat. In particular, the benefits of continuing to operate would be captured by Amigo’s shareholders, who would retain their equity in full, whereas redress creditors would be offered only a very low percentage payment and an uncertain 15 per cent of the future profits of the business for only four years.

The share price of Amigo had risen 250 per cent from the date of the announcement of the scheme to a date just prior to the hearing. This was seen by the Court as an indication that shareholders saw this as a hugely beneficial “sweetheart” scheme for them.

After a period of engagement with Amigo on the Scheme, advised by Ashurst throughout, and a clear stance that it did not support the Scheme, the FCA decided to oppose Amigo Loans’ scheme of arrangement in Court and sought to get a better, fairer deal for Amigo’s customers due redress.

“It is extremely rare to successfully oppose a scheme of arrangement – there has only been a small handful of cases in over 100 years of schemes of arrangements. In fact, since schemes of arrangement started to be more frequently used for financial restructurings in the last 20 years, the English Court has decided only once that it would be unfair to sanction the scheme – and that case was under very different circumstances including failure to comply with procedural requirements. It therefore took creative and innovative legal thinking to deliver the arguments and detailed evidence necessary to successfully challenge the sanction of a fully developed scheme,” Bulmore explains.

Historically, the Court’s test for assessing whether a scheme is unfair involves asking: could the creditors have reasonably approved the scheme? Where they have done so, the court will usually defer to the votes of creditors. In this case, the redress creditors who voted (albeit that was fewer than 10 per cent) had overwhelmingly voted in favour.

The odds were therefore stacked against the FCA to persuade the Court that the scheme was unfair and that it should refuse sanction despite the views of creditors. This required skilful, innovative legal argument and detailed evidence arguing that the creditors had not been given sufficient information to make an informed decision.

A particular challenge was that Amigo was arguing that if the Court did not sanction the scheme, then the company would be insolvent and would have to file for an insolvency process. If true, this would have had negative outcomes for redress creditors involved. The FCA therefore had to persuade the court that the firm would not be insolvent as that would likely have resulted in redress creditors getting nothing.

The FCA made its decision to oppose for policy reasons and this was made only 10 days before the hearing. Ashurst therefore had just a week to prepare and submit legal arguments with counsel and evidence to Court. Typically, a court opposition to a scheme of arrangement would be prepared over several months. By drawing on the wide expertise, bench-strength and resources available to Ashurst’s restructuring and special situations group, and the advice of Tom Smith QC, the FCA was able to mount a credible, sophisticated and (ultimately successful) challenge despite the practical challenges of timescale.

The Court accepted in totality all the FCA’s arguments that the redress creditors were not given the necessary information to enable them to properly appreciate the alternative options reasonably available to them. Nor were they given enough information to understand the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake.

The Court also accepted the FCA’s evidence that the refusal to sanction the scheme would likely not lead to the insolvency of the firm. This was a particularly important outcome because it reduced the risk that the directors would simply carry out their threats to place the company into an insolvency process. The Court was effectively stating that directors acting consistently with their duties would not do that.

The judgment set several landmark precedents for schemes of arrangement generally. First the court set a number of new criteria for future schemes involving either regulated entities or large numbers of ordinary consumers/retail creditors, including the formation of creditor committees, paid legal and financial advice and more detailed disclosure requirements.

Second, it is the first creditor scheme of arrangement to critically assess whether shareholders ought to retain the equity in a restructuring in circumstances in which ordinary consumers, who rank ahead of them, are taking a haircut. By concluding there are hurdles to consider in such “unilateral schemes,” the court has given practitioners significant pause for thought when contemplating any such outcomes whether via schemes or, indeed, restructuring plans.

“There have been a few high-profile court challenges to schemes of arrangement through the years, but successful court challenges are extremely rare. To have achieved such a landmark decision and a great outcome for our client and for consumers generally is definitely a career highlight. I have previously been involved with schemes on the company and creditor-side, so it was interesting to approach it from another perspective,” Bulmore says.

“In many reported scheme of arrangement cases, the scheme creditors voting on a scheme of arrangement will be financial institutions; in the consumer credit sector, the creditors are consumers, members of the public. As Amigo shows, that requires a careful and thoughtful change of approach to how financial creditor schemes of arrangement are used. To win a judgment which will give the opportunity for a better outcome for them is a unique aspect of this deal.”

Bulmore is still working with the FCA on Amigo, but is also back advising companies, lenders and insolvency practitioners on restructuring and insolvency situations. “The insights and experience I have from working on this will be invaluable for any distressed situation in the financial services sector and indeed for any scheme of arrangement, no matter the sector,” he says.

About Richard Bulmore

2018-present: Senior associate, Ashurst

2011-18: Associate, Slaughter and May

Who’s Who: the Ashurst team

Drew Sainsbury (partner, RSSG); Richard Bulmore (senior associate, RSSG); Andrew Clarke (senior associate, RSSG)
Lynn Dunne (partner, dispute resolution); Louise Youngman (senior associate, dispute resolution)

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