SWS Holdings & Anor, Re

Tuesday, 2 September 2025 MR JUSTICE RICHARDS

1. I am asked to make two convening orders for schemes of arrangement under Part 26 of the Companies Act 2006 (“ CA 2006 ”). The first is a scheme or arrangement (the “SWS Scheme”) between SWS Holdings Limited (“SWS HoldCo”) and certain of its creditors. The second is a scheme or arrangement (the “MidCo Scheme” and together with the SWS Scheme, the “Schemes”) between Greensands Financing plc (the “MidCo Scheme Company”) and certain of its creditors.

2. The MidCo Scheme and the SWS Scheme are inter-conditional. The question whether to convene a meeting of creditors in connection with both Schemes is being considered at the same hearing today. I am grateful for the skeleton arguments and oral argument from Mr Willson and Mr Lupi on behalf of the MidCo Scheme Company, from Mr Bayfield KC and Mr Perkins on behalf of SWS HoldCo, and from Mr Curl KC on behalf of creditors who support the MidCo Scheme.

3. No one has appeared in court today urging me not to convene the meetings sought. No-one has suggested that either the MidCo Scheme Company or SWS HoldCo have wrongly formulated the proposed classes who should vote on the Schemes. I have been told that a creditor affected by the MidCo Scheme, Commonwealth Bank of Australia (“CBA”), is reserving its position, and I have heard about certain matters relating to CBA’s position from Mr Willson.

4. Today’s hearing is emphatically not an opportunity for me to consider the fairness or otherwise of the Schemes. That is a matter for the court at the sanction hearing, if creditors approve the Schemes. The matters I must consider today are the following: a. questions of jurisdiction including whether there would be a jurisdictional “roadblock” to the court sanctioning the Schemes if approved; b. the adequacy of notice of the proposed meetings; c. the correct constitution of classes for voting purposes at those meetings; d. practical arrangements for the meetings; and e. the sufficiency or otherwise of the proposed explanatory statements. BACKGROUND AND OVERVIEW OF THE SCHEMES The relevant commercial background

5. Because of the limited nature of the questions I have to consider at today’s hearing, I set out the background to the Schemes, and their proposed terms, at a high level in sufficient detail only to enable me to consider those questions.

6. Both SWS HoldCo and the MidCo Scheme Company are part of a group of companies (the “Group”) that carries on the Southern Water business of supplying water and sewerage services to customers in various regions in the southeast of England. The Group is divided into three subgroups: a. The “WBS Group” with “WBS” standing for “whole-business securitisation”. The WBS Group includes Southern Water Services Limited (“SWS OpCo”), which is the company that carries on the Southern Water business. The WBS Group has in issue a large number of debt instruments together with associated derivatives and hedging instruments to which I refer generically as “debt” without distinguishing between true debt and derivatives unless the distinction matters. The debt instruments are not issued by SWS HoldCo itself, but are issued by various other members of the WBS Group. The returns on the debt instruments are intended to be paid out of revenues generated by SWS OpCo’s business. The WBS Group’s financial obligations are secured on substantially all assets of the WBS Group. As is typical with securitisations, legal and practical steps are taken to ring-fence the WBS Group from other liabilities so that holders of the Group’s financial obligations can look to revenues generated by SWS OpCo and its affiliates without other liabilities intruding. b. The MidCo Group sits above the WBS Group in the structure of the Group. The MidCo Group includes the MidCo Scheme Company and has been described as an “outcome taker” that is reliant on returns generated by the WBS Group for its financial wellbeing generally, and in particular its ability to pay its debt. c. Above the MidCo Group, there is the HoldCo Group, which I do not need to say much about in today’s judgment. d. The equity in the Group is held by Macquarie Asset Management and its affiliated investment funds, (together “the Sponsor”).

7. The performance of the Southern Water business is important to all of these subgroups, and indeed to the Sponsor. SWS OpCo is not said to be in any immediate financial distress, but its performance in recent years has been lacklustre and no dividends have been paid upstream by SWS OpCo since July 2022.

8. SWS OpCo is regulated by the Water Services Regulation Authority (“OFWAT”). On 11 July 2024, OFWAT said that it had rejected SWS OpCo’s business plan. OFWAT will not permit SWS OpCo to raise prices by as much as SWS OpCo requests. That decision is the subject of challenge but, as matters stand, SWS OpCo considers that it needs new money from somewhere to permit it to honour its regulatory obligations.

9. The Sponsor is, in principle, prepared to make the new money available by way of equity injection into the WBS Group. It has entered into an equity injection commitment agreement. However, that agreement is conditional and is subject to at least the following important conditions: a. The Sponsor requires some debt of the HoldCo Group to be converted into equity. Some of that debt is under the Sponsor’s control, and I am told that agreement has been reached on that element of the restructuring. b. There be an amendment and extension to the debt of the MidCo Group. That is what the MidCo Scheme seeks to achieve. c. That terms of debt issued out of the WBS Group are amended so as to prevent a “Ratings Downgrade” from constituting an event of default in relation to that debt. That is what the SWS Scheme seeks to achieve.

10. Both the MidCo Scheme Company and SWS HoldCo consider that giving effect to these conditions would result in a good outcome, both for the companies and for their creditors. In essence they consider that the Sponsor’s terms represent a good deal for creditors as they enable the WBS Group to obtain much-needed money as equity which is subordinated to the rights of existing creditors. That, both companies believe, would benefit both the WBS Group and the MidCo Group, given its position as an “outcome taker”. The SWS Scheme

11. The SWS Scheme seeks to prevent a “Ratings Downgrade” from triggering an event of default in connection with debt, governed by a common terms agreement, that is issued by members of the WBS Group. As matters stand, there would be a “Ratings Downgrade” if any two credit rating agencies downgrade debt of “Class A” bonds issued out of the WBS Group to below investment grade. Mr Ledger’s evidence is that that such an event of default is no longer market standard and operates as something of a hair trigger, since it could result in a default being called, even if the WBS Group is in no financial distress, simply because the rating agencies are influenced by market sentiment relating to businesses such as that of SWS OpCo.

12. There is a myriad of debt that is affected by the SWS Scheme, which I call the “SWS Scheme Debt”. None of it, as I have explained, is issued by SWS HoldCo itself. Rather, it is issued by SWS OpCo, SW (Finance) II Limited (“DebtCo”), and SW (Finance) I plc (“BorrowerCo”). I refer to the holders of that together as “SWS Scheme Creditors” and the issuers of it together as the “SWS Borrowers”.

13. Other amendments to the terms of the SWS Scheme Debt are being sought, outside the SWS Scheme, on a consensual, bilateral, contractual basis.

14. The SWS Scheme Debt is guaranteed by various additional obligors, including SWS HoldCo. On 4 August 2025, SWS HoldCo executed a deed of contribution in favour of the SWS Borrowers (the “Deed of Contribution”). The Deed of Contribution entitled the SWS Borrowers to seek a contribution from SWS HoldCo if the SWS Borrowers had to make payment under the SWS Scheme Debt. That is intended to ensure that the SWS Scheme can effect changes to the obligations of the SWS Borrowers as well as of SWS HoldCo itself. It uses a technique that was considered in cases such as Re Swissport Fuelling Limited [2020] EWHC 3413 (Ch) .

15. The proposal is that the various holders of the SWS Scheme Debt vote in four classes pursuant to the SWS Scheme. Those classes have been constructed by grouping together various constituents of the SWS Scheme Debt by reference to their seniority. There are some 32 debt instruments comprised within the SWS Scheme Debt. There is not, therefore, one class per instrument. Rather, the four proposed classes are constructed by grouping together different debt instruments that are considered to have similar seniorities. The proposed classes are as follows: a. Class A1 consists of debt due under two specific credit facilities. That debt is proposed to be in a class of its own because principal and interest rank senior to payments due on the other debt in Classes A2 to A4 referred to below. b. Class A2 consists of counterparties under various swaps. Those debtors are in a class of their own because they are said to rank, in respect of certain of their claims, junior to Class A1 debt and senior to Class A3 and Class A4 debt considered below. c. Class A3 and Class A4 debt ranks pari passu (and junior to both Class A1 and Class A2 debt). Class A4 debt, however, contains a provision, that Class A3 does not, entitling holders to receive a subordinated make-whole payment of the net present value of future interest following triggers of certain insolvency events. Class A4 debt is therefore perceived to carry rights that are sufficiently different from Class A3 debt to warrant being a separate class. There is a further quirk with the Class A4 debt in that some is guaranteed by a third party outside the Group called “Assured Guaranty” which I will address later when considering class composition.

16. The terms applicable to all the SWS Scheme Debt are set out in a “Common Terms Agreement”. In essence, the SWS Scheme simply empowers a security trustee to execute an agreement to amend the Common Terms Agreement. That amendment will suspend the ability to call a “Ratings Downgrade” event of default in the first instance once the first tranche of the Sponsor’s money is received. Following receipt of the balance, the “Ratings Downgrade” event of default would be removed altogether.

17. There are other administrative parties who play roles in relation to the SWS Scheme Debt such as agents, trustees and similar. Pursuant to the SWS Scheme, SWS Scheme Creditors give instructions to those administrative parties to do whatever is needed to give effect to the SWS Scheme. SWS Scheme Creditors have the right to give those instructions by virtue of contractual provisions that are already in existence and therefore exist outside the terms of the SWS Scheme. The SWS Scheme does not, therefore, impose obligations on administrative parties that are new. Rather, SWS Scheme Creditors agree to exercise their existing powers to impose obligations on the administrative parties. The administrative parties will also give undertakings, for example, to do what is necessary to give effect to the SWS Scheme. Again, the SWS Scheme does not impose those undertakings on the administrative parties who give their undertakings outside the SWS Scheme.

18. In relation to the SWS Scheme, there has been a lock-up agreement. Any SWS Scheme Creditor is entitled to accede to that agreement. If they do so, they agree to vote in favour of the SWS Scheme and, by doing so, obtain entitlement to a payment of £1,000. As matters stand, 100 per cent of Class A1, approximately 98 per cent of Class A2, 100 per cent of Class A3, and approximately 63 per cent of Class A4 by value have signed up to the lock-up agreement.

19. Finally, I note that SWS HoldCo accepts that it could conceivably seek to effect the amendments proposed to the definition of “event of default” otherwise than by means of a scheme of arrangement. It could do so, for example, contractually. Mr Ledger’s evidence is that this would be a cumbersome and unwieldy route that is inappropriate given the urgency with which the Group needs the Sponsor’s money. The MidCo Scheme

20. The MidCo Scheme affects indebtedness (“MidCo Scheme Debt”) under: a. a series of private placement notes, (“PP Notes”), issued by the MidCo Scheme Company with aggregate principal amount of some £365 million; and b. a facility agreement (the “MidCo Facility Agreement”) with principal amount of £50 million. That is a principal obligation not of the MidCo Scheme Company but of Greensands Finance Limited (“BorrowerCo”). The lender under the MidCo Facility Agreement is CBA, who I have already described. CBA has indicated that it may be intending to embark on an auction process by which it seeks to sell its interest in the MidCo Facility Agreement to any purchaser who is prepared to buy it at the right price.

21. The MidCo Scheme Debt is governed by common terms and a common security package. The PP Notes and the MidCo Facility Agreement rank pari passu. Cross guarantees are given by various members of the MidCo Group of obligations under both constituents of the MidCo Scheme Debt. The PP Notes and the MidCo Facility Agreement represent the totality of the external financial debt of the MidCo Group. The MidCo Scheme Company’s evidence is that some £269 million of the MidCo Scheme Debt falls due for payment in November 2025 and the MidCo Scheme Company lacks the funds to make that payment.

22. The PP Notes represent some 88 per cent by nominal value of the MidCo Scheme Debt, with the MidCo Facility Agreement representing some 12 per cent.

23. The proposal is to amend and extend the terms of the MidCo Scheme Debt. The debt is amended by altering the interest rate to 5 per cent and making some other changes to covenants. The extension is achieved by extending the maturity to 2030 with a possible further extension to 2031. The MidCo Facility Agreement currently carries interest at or around 8.5 per cent and the PP Notes carry interest at a variety of different rates. Therefore, the reduction of the interest rate to 5 per cent represents a reduction for all holders of the MidCo Scheme Debt, but some holders will suffer a greater magnitude of reduction than others. The MidCo Scheme also provides that that interest on MidCo Scheme Debt, as reduced, will not be paid in cash but rather by the issue of payment-in-kind notes.

24. The MidCo Scheme Company is the guarantor but not the primary obligor under the MidCo Facility Agreement. Therefore, the MidCo Scheme relies on a similar deed of contribution mechanism to that that I explained in relation to the SWS Scheme. A deed of contribution is entered into that makes the MidCo Scheme Company joint principal obligor in relation to the MidCo Facility Agreement, with that being done in order to offer the prospect that the MidCo Scheme can modify obligations owed by BorrowerCo as well as obligations owed by the MidCo Scheme Company itself.

25. There have been ongoing discussions with holders of the MidCo Scheme Debt. All of the holders of the PP Notes have agreed to the amend and extend provisions in relation to their notes which the Sponsor requires. CBA has not agreed.

26. There has been a lock-up agreement under which those in favour of the MidCo Scheme agree to vote in favour of it. However, although it was originally envisaged that MidCo Scheme Creditors who signed up to the lock-up agreement would receive a fee, the position has moved on. MidCo Scheme Creditors signing up to the lock-up agreement (including those who signed up when the lock-up agreement provided for a fee) will receive and retain no fee for doing so. The MidCo Group has, however, agreed to reimburse expenses of their professional advisors that MidCo Scheme Creditors incur in connection with their accession to the lock-up agreement. COMPARATORS

27. When I come to consider the proper class constitution, I will need to have regard to the relevant “comparator”, namely what would happen if the Schemes are not sanctioned. In that regard, I have had evidence from Mr Ledger. He is a director of various companies in the MidCo and WBS Groups, including SWS HoldCo and the MidCo Scheme Company. I have also had the benefit of a “Comparator Report” prepared by Mr Dwyer of Interpath that has been prepared subject to the rigours of CPR 35 and is tendered as expert opinion evidence. The Comparator Report cross refers to a “Valuation Report”, also tendered as expert evidence and subject to the rigours of CPR 35, prepared by Mr Ojetola of Interpath. Comparator to the MidCo Scheme

28. If the MidCo Scheme is not implemented, Mr Ledger’s witness statement and the Comparator Report between them set out the following analysis of the applicable comparator: a. The Sponsor has confirmed that it would not put in the equity without the MidCo Scheme becoming effective. Accordingly, the Sponsor would not provide the hoped-for equity to the WBS Group. b. Since the MidCo Group is an “outcome taker”, that would have repercussions for it. The MidCo Group would not be in a position, if the equity contribution is not made into the WBS Group, to repay the £269m of MidCo Scheme Debt that falls due for payment at the end of November 2025. That is because the WBS Group would itself be short of cash and would not be able to pay dividends up to the MidCo Group. c. Mr Ledger’s evidence is that the MidCo Group would be unlikely to obtain the funds necessary to repay the MidCo Scheme Debt from other sources. The MidCo Group would therefore be in a position where it could not pay the amount due in November 2025 and there would be an event of default in relation to the MidCo Scheme Debt. d. A standstill would ensue which holders of the PP Notes could terminate at any time because they hold 88% of the MidCo Group’s debt. The Comparator Report and Valuation Report consider the possibility that the WBS Group could sell assets and distribute profits arising to the MidCo Scheme Company, but concludes that the proceeds of realisation would not be sufficient to discharge the WBS Group’s liabilities so that there would be no such profits. e. The overall conclusion is that members of the MidCo Group would, if the MidCo Scheme fails, be obliged to enter an insolvency process with just £10.6m of cash available to repay the MidCo Scheme Debt which has a principal amount of many multiples of that. Comparator to the SWS Scheme

29. If the SWS Scheme is not implemented, there is no suggestion that this will cause SWS HoldCo, or indeed, any member of the WBS Group, to go into an immediate insolvency process. Rather, Mr Ledger’s evidence, and the conclusion of the Comparator Report is to following effect: a. The Sponsor would not provide the hoped-for equity because one of its conditions is not satisfied,. b. A “Ratings Downgrade” in the WBS Group would follow, and that would trigger a contractual standstill under documents governing the SWS Scheme Debt. The WBS Group would certainly suffer from a shortage of cash, but the SWS Scheme Creditors could not immediately trigger an insolvency process. c. As a result of the imposition of the contractual standstill, SWS OpCo would be obliged to perform a “look forward” test by comparing payments falling due in the next 12 months with revenues expected to be received in the next 12 months. If there is a shortfall, SWS OpCo would allocate cash towards its payment obligations in accordance with the ranking of the obligations in question. The witness evidence explains uncertainties as to how that “look forward” test would apply in practice. d. In those circumstances, Mr Ledger’s evidence is that the WBS Group would try to borrow on a super senior basis to fund its immediate needs and, in parallel, it would seek to negotiate a new deal with the Sponsor. There would be an incentive on all sides for such a deal to be done since the alternative would be some sort of insolvency process or possibly a special administration which would have the potential to be value destructive. However, Mr Ledger’s evidence and the Comparator Report between them conclude that any such alternative deal is unlikely to produce a better outcome in terms of equity received from the Sponsor. e. The Comparator Report concludes that any standstill, whether followed by a deal with the Sponsor, or a special administration, is likely to destroy value in the WBS Group. Comparators – the approach I take

30. There is certainly nothing obviously flawed with either formulation of the comparator. As a director of relevant companies, Mr Ledger can be presumed to have a good understanding of what would happen if the particular Schemes are not implemented. No one has today indicated that either formulation of the comparator is wrong. I acknowledge that CBA may wish to adduce a competitor analysis of the correct comparator to the MidCo Scheme, and I am certainly not prejudging the outcome should they do so. However, for the purposes of today I will proceed on the basis that the comparators to both Schemes are as I have summarised above. THE MATTERS FOR CONSIDERATION Jurisdiction – SWS Scheme

31. I see no jurisdictional roadblock to the SWS Scheme. SWS HoldCo is a company incorporated in England and Wales under the Companies Act 2006 . I am satisfied from Mr Ledger’s evidence that it is liable to be wound up in England and Wales under the Insolvency Act 1986 . It is a “company” for the purposes of s895(2) (b) of CA 2006 .

32. The holders of the SWS Scheme Debt are contingent creditors of SWS HoldCo, given SWS HoldCo’s obligation under the guarantee of the SWS Scheme Debt. As matters stand, those contingent creditors are entitled to call an event of default and claim under SWS HoldCo’s guarantee if a Ratings Downgrade occurs. SWS HoldCo is entering into an arrangement with those contingent creditors that means that a Ratings Downgrade cannot result in any claim. Both SWS HoldCo and SWS Scheme Creditors could realistically be said to get something out of that arrangement. I consider it to be the kind of compromise or arrangement with which Part 26 is concerned since it involves the requisite element of “give and take”.

33. That is not all that the SWS Scheme seeks to do, however. As I have explained, it also seeks to effect some changes to the underlying SWS Scheme Debt that is issued by persons other than SWS HoldCo. Today is a convening hearing and not a sanction hearing, but I note that there is some support for the proposition that the SWS Scheme can do that. The judgment of the Court of Appeal in Re Lehman Brothers (No 2) [2009] EWCA Civ 1169 , which was recently quoted with approval in the judgment of the Court of Appeal in Re Thames Water Utilities Holdings Ltd [2025] EWCA Civ 475 , acknowledges that a scheme under Part 26 of CA 2006 can operate to release claims of scheme creditors against third parties which are “merely ancillary” to claims by scheme creditors against the scheme company. I note that the technique proposed is similar to that applied in Re Swissport Fuelling , where there was an argument that the use of a deed of contribution should not be countenanced on the basis that it was a sham or otherwise improper because it sought to avoid an event of default on the issuers of the debt in question.

34. It may well be that more analysis of this issue is needed at the sanction hearing. Without expressing any view at all, as a matter of pure impression, it seems slightly odd to characterise the modification of the SWS Scheme Debt as “merely ancillary” to the SWS Scheme when it might be said that altering the terms of the SWS Scheme Debt is the true prize sought. However, there is nothing obviously wrong with the proposition that, as part of a compromise or arrangement, SWS HoldCo can ask the SWS Scheme Creditors to enter into related transactions, such as an instruction to a security trustee to agree to amend the terms of the SWS Scheme Debt. There is nothing obviously lacking in the court’s power to sanction a scheme such as this. I do not regard the Deed of Contribution as presenting a “jurisdictional roadblock”. Jurisdiction – The MidCo Scheme

35. The MidCo Scheme Company is incorporated in England and Wales. I am satisfied that it is a “company” for the purposes of s895(2) (b) of CA 2006 .

36. There is, in my judgment, a clear element of give and take, and it is clear that the MidCo Scheme embodies a “compromise or arrangement”.

37. The analysis in relation to the deed of contribution strikes me as similar to that I have outlined in relation to the SWS Scheme.

38. I was referred to the fact that there remains some conditionality about the MidCo Scheme, but that conditionality is not objectionable for present purposes. It may be necessary, when it comes to sanction, to ask whether there is a realistic prospect that the scheme will take effect, but that is not a roadblock to convening a scheme meeting. Adequacy of notice – SWS Scheme

39. The “practice statement letter” relating to the SWS Scheme (the “SWS Practice Statement Letter”) was circulated on 5 August, 28 days prior to the convening hearing. I regard that as adequate time, and no one has suggested otherwise. There has been standard notification through administrative parties and through the clearing systems. The SWS Practice Statement Letter provided details of today’s hearing, and no creditor has come forward to suggest that I should not convene a hearing in the timetable requested.

40. Mr Slyfield’s witness statement shows that adequate steps have been taken to distribute the SWS Practice Statement Letter.

41. The scheme meeting is proposed to take place on 30 September 2025, which I regard as adequate notice. The SWS Scheme is urgent as there is an urgent need for the Sponsor’s money, given the financial condition of the WBS Group and its need for cash. The notice period is adequate in that context. Adequacy of notice – MidCo Scheme

42. A similar analysis applies to the MidCo Scheme. The practice statement letter relating to that scheme (the “MidCo Practice Statement Letter”) was sent on 8 August, 23 days before today’s date. I consider that is both adequate notice and that adequate steps have been taken to bring that to the notice of affected creditors. I am reinforced in that conclusion by the fact that there have obviously been previous discussions with MidCo Scheme Creditors. Although CBA only received the Comparator Report yesterday, they have been aware that the MidCo Scheme Company is proposing some sort of “amend and extend” scheme for some time now. Holders of the PP Notes have evidently been able to consider the merits of the MidCo Scheme by reference to the MidCo Practice Statement Letter. I am satisfied that there has been adequate notice of today’s hearing.

43. I conclude also that there is sufficient notice of the proposed meetings, again having due regard to the urgency of the situation. Overall, I see no reason to decline to convene meetings because of an insufficiency of notice. Class Composition – The Law

44. The basic rule is that each class of creditors voting under a Part 26 scheme must be confined to persons whose rights “are not so dissimilar as to make it impossible for them to consult together with a view to their common interest” ( Sovereign Life Assurance v Dodd [1892] 2 QB 573 at [583]).

45. That is the overarching test. Over the years, a number of authorities have amplified the detail of that test and I draw gratefully on the following summary of the authorities provided by Zacaroli J, as he then was, in Re Gategroup Guarantee Ltd [2021] BCC 549 : (1) The creditors’ rights that fall to be considered are both their existing rights against the company and the rights conferred by the scheme/plan; (2) The existing rights must be assessed in the context of the relevant comparator, described by Hildyard J in Re APCOA Parking (UK) Ltd [2014] EWHC 997 (Ch) ; [2014] B.C.C. 538 , at [32], as “what would be the alternative if the scheme does not proceed”; (3) It is rights, not interests, that fall to be taken into account for the purposes of class composition. Without attempting an exhaustive definition, rights of the creditors against third parties (for example against guarantors for the company’s debts) will generally constitute interests as opposed to rights; differences in interests may be relevant to the discretion to sanction the scheme/plan; (4) Even if there are differences in rights as between different groups of creditors, that is not necessarily fatal to them being placed in the same class: it is still necessary to consider whether the differences are such that it is impossible for them to consult together with a view to their common interest. This has been expressed (for example by David Richards J in Re Telewest Communications Plc [2004] EWHC 924 (Ch) ; [2004] B.C.C. 342 at [40]) as whether there is more to unite than to divide the relevant creditors

46. It is important also to avoid an unnecessary proliferation of classes. As Snowden J, as he then was, said in Re Noble Group Ltd [2019] BCC 49 : Different judges have sought to explain how to make this judgment in various ways, but the modern trend has certainly been to resist any tendency to increase the number of classes. So, for example, in Re Anglo American Insurance Ltd [2001] 1 B.C.L.C. 755 (Ch) at 764, Neuberger J observed in the context of an insurance company scheme that practical considerations were not irrelevant, and that the court should not get “too picky” about potential different classes, or “one could end up with virtually as many classes as there are members of a particular group”. In Equitable Life Assurance Society [2002] B.C.C. 319 , policyholders with a wide variety of mis-selling claims were placed into a single class. And in Telewest Communications Plc (No.1 ) [2004] EWHC 924 (Ch) ; [2004] B.C.C. 342 at [40] David Richards J held that it was appropriate to place into the same class two groups of sterling and dollar bondholders who were treated differently by the use of a particular currency conversion date under the scheme than if there had been a winding-up, remarking that “there is a great deal more which unites the bondholders than divides them”. In making that judgment, as those cases make clear, it is also important to bear in mind that the safeguard against minority oppression is that the court is not bound by the decision of the class meeting, but retains a discretion to refuse to sanction the scheme: see e.g. Hawk at [33] (Chadwick LJ) and [59] (Pill LJ).

47. I therefore need to assess the ability of persons to consult together by reference to their existing rights against the companies and the rights that are conferred by the scheme or plan – the “rights in, rights out” analysis in the jargon of restructuring lawyers. I need to consider that analysis by reference to the comparator transaction. That is because, as explained in, for example, Re Stronghold Insurance Co Ltd [2019] 2 BCLC 11 , part of my task is to compare the rights that creditors currently have (that operate in a world in which there is no scheme) and the rights that they would have if the scheme becomes effective. That necessarily invites some consideration of what would happen if either of the Schemes is not implemented. Moreover, when I am considering the practicalities and likelihood of sensible discussion between holders of rights affected by the Schemes, it is relevant to consider what would happen if the relevant Scheme does not take effect, because that is one of the matters that the holders would need to be discussing between themselves with a view to their common interest.

48. Given the need to avoid the unnecessary proliferation of classes, some differences in the “rights in, rights out” test can be tolerated, provided those differences mean that members of the class could still sensibly consult together. Class analysis – the SWS Scheme

49. The proposal is that all holders of the SWS Scheme Debt lose the ability to call an event of default because of the occurrence of a Ratings Downgrade.

50. SWS HoldCo says that it could, in theory, require everyone to vote as a single class, and that the different maturities and commercial terms of the various individual items of SWS Scheme Debt are not relevant where everyone is facing the same effective change to their bonds. Although not suggested to be binding on me because of the different facts of the cases, examples are given where the court has accepted an argument similar to this – for example, Re Castle Trust Direct plc [2020] EWHC 969.

51. I do not need to make a decision on it, but I am not entirely sure about the single class analysis. It seems to me that it is relevant that, if the SWS Scheme is not passed, then there would be a Ratings Downgrade. The Group would continue carrying on as a going concern for a period at least, but, during the period in which it is continuing, the “look forward test” would mean that holders’ rights against SWS HoldCo could depend on the seniority of their debt. Therefore, it seems to me that, in the comparator, a creditor holding more senior debt might be less affected than a holder of more junior debt because of its rights against the company.

52. I therefore think it is correct, as SWS HoldCo has done, to seek to divide the debt into classes that reflect seniority. I agree with SWS HoldCo that, once that has been done, the different commercial terms do not make a difference. For example, the fact that one SWS Scheme Creditor holds debt with a different interest rate and maturity from another does not fracture the class. All creditors are being offered the same basic choice that is not affected by, and does not affect, the interest and maturities of the various SWS Scheme Debt. It certainly would not be right, in my judgment, to have 32 classes of debt reflecting the 32 debt instruments that are affected.

53. I will sense check that conclusion by reference to other considerations: a. I note that some of the Class A4 debt is guaranteed by Assured Guaranty. Assured Guaranty is liable to pay principal and interest on the Class A4 debt on the contractual date for payment if the issuer of the Class A4 debt does not do so. However, acceleration of the Class A4 debt does not accelerate Assured Guaranty’s liability. Therefore, holders of affected Class A4 debt simply have additional rights against Assured Guaranty. That is not enough to fracture the class (see, for example, paragraph (3) of the extract from Zacaroli J’s judgment in Re Gategroup Guarantee that I quote above). The position might have been otherwise if acceleration of the Class A4 debt gave rise to accelerated claims against Assured Guaranty since holders of the Class A4 debt might have some incentive because of their “rights in” to tolerate a winding up of the relevant member of the WBS Group so as to obtain money from Assured Guaranty sooner. b. I have considered the consent fee. In my judgment, that does not fracture the class either. The consent fee is available to anyone who chooses to sign up to the lock-up agreement. All SWS Scheme Creditors therefore have the same “right in”, namely the right to sign up to the lock-up agreement if they choose. Moreover, pragmatically, the consent fee is small. I do not consider that it would make any material difference between holders choosing to vote in favour of the SWS Scheme or against. c. Class A4 is put in a different class because of the right to make-whole payments. I am prepared to accept that on grounds of pragmatism. It seems to me that a case could have been made for putting Class A4 and Class A3 together, but it seems to me appropriate and prudent for Class A4 to be a separate class. Class Composition – The MidCo Scheme

54. I agree with the MidCo Scheme Company that it is appropriate for all MidCo Scheme Creditors to vote as a single class.

55. In terms of the “rights in”, all classes of MidCo Scheme Creditor have the same kind of rights and the same priorities in a winding up. They rank pari passu and have a similar security package. Their debt is governed by a common set of contractual terms although the maturity dates and interest rates on the MidCo Scheme Debt do vary.

56. The differences as to interest rate and maturity, for example, are not, in my judgment, sufficiently different to constitute a separate class. Given the evidence that is before the court on the comparator, in my judgment, all creditors in relation to the MidCo Scheme are voting on the same essential choice: either accept the amendment and extension of their debt, or face an alternative that is likely to involve a liquidation in short order. If they accept the amendment and extension they all obtain the same deal: a harmonised rate of interest payable in kind until 2030, and an extension of their debt to the same date. If they reject the amendment and extension proposed by the MidCo Scheme, given my conclusions for the purposes of today on the comparator transaction, they also obtain the same deal: a right to claim in an insolvency process with no alteration to their respective rankings in that process. I am reassured to note that, in similar context, Zacaroli J reached a similar conclusion at [13] and [14] of Re Lecta Paper Ltd [2019] EWHC 3615 (Ch) case.

57. Mr Willson, in my judgment, is correct to say that there is more to unite than divide the constituents of the class, given my conclusions as to the comparator.

58. The presence of a lock-up agreement does not cause me to deviate from that view. Everyone has the same opportunity to participate, and no one is even getting a fee if they do enter into the lock-up agreement.

59. I have considered the make-whole rights. The PP Notes confer a right to “make-whole payments” (namely a payment of the net present value of future interest) on the occurrence of insolvency triggers that have the effect of accelerating principal due on those notes. The right to those make-whole payments ranks behind other payments due on the MidCo Scheme Debt. The MidCo Facility Agreement confers no right to a make whole payment.

60. Therefore, ostensibly, the PP Notes confer a right that the MidCo Facility Agreement does not and I have considered carefully whether that puts the PP Notes into a different class. In my judgment, it does not. The make-whole right is subordinated to other payments due on the SWS Scheme Debt. Since the Comparator Report envisages that, in the comparator, only 2.4% of the MidCo Scheme Debt would be repaid, there is no realistic prospect of make-whole payments being paid in that comparator. Since make-whole payments would not be paid in the comparator transaction, they do not constitute a sufficiently meaningful difference in “rights in” to fracture the class. The existence of make-whole payments would be unlikely to feature in any consultation between members of a single class on the MidCo Scheme since the right to make-whole payments is not being varied under the MidCo Scheme.

61. I note that creditors who sign up to the lock-up agreement are entitled to reimbursement of the fees of professional advisers incurred in connection with that lock-up agreement. In my judgment, this does not fracture the class either. There is no element of bounty or “net benefit” in this arrangement. It simply means that people who enter into the lock-up agreement have costs defrayed. Payment of advisers’ fees is not contingent on approval or sanction of the MidCo Scheme. I respectfully share the conclusion of Zacaroli J in Re Lecta Paper [2019] EWHC 3615 (Ch) to similar effect.

62. I agree with the MidCo Scheme Company’s proposal that creditors under MidCo Scheme should vote as a single class. Explanatory Statement

63. At this convening hearing, I do not need to “approve” the Explanatory Statements for the Schemes. However, I have seen drafts of them and I consider them to be suitable for the purpose. TERMS OF THE ORDER

64. I am asked to make other directions, for example, in relation to CPR 5.4D(2), that persons give notice if anyone applies to obtain documents from the court file and to give permission for the expert evidence to be relied upon. I am content to make directions in those terms in the orders convening meetings for both Schemes.

65. I have also made directions designed to ensure that any objection to the MidCo Scheme is properly explained and evidenced in sufficient time for it to be considered at any sanction hearing. Initially the MidCo Scheme Company was asking me to order that such directions should be agreed to the extent possible or, to the extent they could not be agreed, determined following an urgent expedited application to myself. I regarded that as impracticable. It is appropriate that there be some case management directions in place now given that the court is on notice that CBA may choose to object to sanction of the MidCo Scheme if it is approved.

66. CBA has not attended today’s hearing by counsel, although a representative of CBA’s solicitors was in attendance at the hearing. Mr Willson told me of difficulties that CBA had in committing to a firm timetable for explaining or evidencing any objections given that they are attempting to sell their interest in the MidCo Facility Agreement with the auction process being run out of Australia with a consequent time difference. I did not, however, consider that to be a good reason to refrain altogether from making case management directions. CBA may, or may not, succeed in auctioning their interest in the MidCo Facility Agreement. I do not consider that case management directions designed to enable any objection to be considered at the sanction hearing should be deferred simply because CBA might find a potential purchaser. If CBA, or a prospective purchaser seek a variation to my directions, they have liberty to apply.

67. During discussions on the form of the convening order for the SWS Scheme, I discussed the role of Assured Guaranty with Mr Perkins. Both Assured Guaranty and holders of Class A4 debt are contingent creditors of SWS HoldCo in relation to the Class A4 debt that is guaranteed by Assured Guaranty (the “Class A4 wrapped debt”). Assured Guaranty is a contingent creditor because it may be called upon to pay holders of Class A4 wrapped debt. If Assured Guaranty has to make such payments it can invoke its subrogation rights to make a claim against the SWS Borrowers. That claim could in turn lead to a claim by Assured Guaranty under SWS HoldCo’s guarantee. Holders of Class A4 debt are contingent creditors because they have a straightforward right to make a claim under SWS HoldCo’s guarantee.

68. It would clearly not be right for both Assured Guaranty and holders of Class A4 wrapped debt to vote on what is in substance the same liability at the meeting of creditors. Mr Perkins has persuaded me that the right course is for Assured Guaranty to vote as to the principal amount of the relevant claim with holders of the Class A4 wrapped debt voting as to a nominal £1.

69. The reason for that is that Assured Guaranty has the status of “Class A DIG Representative” in relation to the Class A4 debt that it guarantees. As such, if there is a contractual standstill following an event of default, Assured Guaranty has the right (to the exclusion of holders of the Class A4 wrapped debt) to express views to the Debt Instructing Group (“DIG”) as to whether that standstill should continue or be brought to an end so triggering insolvency proceedings. In circumstances where Assured Guaranty has the sole voice on that issue, and the SWS Scheme will determine, given my conclusions on the comparator transaction, whether a standstill arrangement comes into being, in my judgment it is appropriate that Assured Guaranty exercise the voting rights associated with the relevant Class A4 wrapped debt. Moreover, ultimately it is Assured Guaranty who would, by virtue of its guarantee, have to bear the economic consequences connected with the relevant Class A4 wrapped debt should the WBS Group enter into an insolvency process.

70. SWS HoldCo fairly drew attention to this issue in the SWS Practice Statement letter. No objection has been raised to SWS HoldCo’s proposal. For the reasons above, I am content for the meeting to consider the SWS Scheme to proceed on the basis that SWS HoldCo proposes.

71. More generally, I went through both convening orders with counsel and was satisfied that they set out practicable and workable arrangements for meetings of creditors to consider both Schemes.

72. I have accordingly decided to convene meetings of creditors to consider, and if thought fit approve, the Schemes. ______________