He Two Amigos Become One Amigo

• Published date: 08 July 2022
• Subject Matter: Consumer Protection, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Insolvency/Bankruptcy, Consumer Law
• Law Firm: Mayer Brown
• Author: Mr Ben Ward

Co-authored by Tony Cunningham, Trainee Solictior

Summary

Almost a year to the day since the High Court rejected the Amigo loans group's previous proposal for a scheme of arrangement, on 23 May 2022, Mr Justice Trower sanctioned the group's latest scheme proposal which would create the conditions for the group to resume lending and resolve the claims of thousands of the group's customers arising from its lending practices.

Following its aborted effort in Summer 2021, Amigo loans had taken the novel approach of proposing two alternative schemes: one which would result in an orderly work-out of the group's existing loan book, and another which would either allow the group to resume lending and settle customer claims, depending on the outcome of an FCA investigation into the group's lending practices and its ability to raise funds in the market, or to work out the existing loan book with a prospect of a better return than the first scheme.

Creditors approved both schemes and at the request of the group the Court sanctioned the scheme that gave the group the prospect of returning to trading.

The Court's approach to the two-scheme strategy, and the conditionality built into the New Business Scheme, will inform many schemes and restructuring plans in the future. The judgment also provides helpful guidance on the appropriate comparator and the approach to communicating with consumer creditors, which were both important factors in light of the reasons Mr Justice Miles gave for refusing to sanction the group's scheme proposal in 2021.

Highlights:

• Mr Justice Trower sanctioned a scheme of arrangement proposed by the Amigo group, the provider of guarantor loans which had taken the novel approach of proposing two alternative schemes.
• Trower J sanctioned the scheme that provided for the alternative options of the continuation of Amigo's lending business, or an orderly wind down of the group's loan book depending on the outcome of an FCA investigation and the group's ability to raise additional equity financing.
• The Judge considered the appropriate comparator to the schemes in light of Amigo's failed attempt to promulgate a scheme in 2021 and the subsequent work done by the board, concluding that it was mostly likely that if the schemes failed the group would be wound down through a distributing administration.
• Amigo had gone to great lengths to consult creditors on the schemes, appointed an independent customer advocate to review the schemes and report to the court, and taken steps in the lead up and at the meetings to address the questions and concerns of customer creditors. This all lead Trower J to conclude that consumer creditors had been provided with the necessary information to be able to vote on the scheme and to understand the contingencies in each scheme.
• Trower J re-emphasised the principle that, when applying the "rationality test" to the scheme, the court should be slow to differ from the majority vote of the creditors.

Re ALL Scheme Limited¹

Almost a year to the day since the High Court rejected the Amigo loans...