Back to the drawing board for Amigo: FCA succeeds in challenging its proposed Scheme of Arrangement


In more detail…

The matter concerns the application to the court by the Company for the sanction of a Scheme between the Company and certain of its creditors. Through its main operating entity, Amigo Loans Limited (“ALL”), the Group provided “guarantor loans”, i.e. credit to customers unable to borrow from mainstream lenders. The Company was incorporated on 6 January 2021 for the purpose of promoting the Scheme and, as is now customary in such matters, assumed joint liability with ALL (and two other Group entities) by way of a deed poll, in respect of potential redress claims by borrowers and guarantors and sums owed to the Financial Ombudsman Service in relation to case fees for handling previous complaints (the “Scheme Creditors”).

It is not necessary to relay the details of the Scheme in detail, save as to say that the purpose of the Scheme was, in broad terms, to provide a mechanism for the determination of the claims of Scheme Creditors and to set up a fund (the “Scheme Fund”) which would be used to pay part of their claims (estimated at 10p/£). The Scheme Fund was to be comprised of an initial contribution of £15 million, an additional contribution (capped at £20 million) and 15% of its annual consolidated profits before tax for each of the next four years starting from 1 April 2021. The Scheme Creditors would in turn release their claims against the Group.

The convening hearing was held on 30 March 2021, pursuant to which Sir Alastair Norris convened a single meeting of the Scheme Creditors to consider and, if thought fit, approve the Scheme. The FCA did not appear by Counsel at the convening hearing but set out its concerns in writing. At that stage, the FCA indicated that it did not intend to appear at the sanction hearing either, but reserved its position. The FCA changed its stance and announced on 10 May 2021 that it would oppose the sanction of the Scheme irrespective of the outcome of the creditors’ meeting. The requisite majorities were obtained at the creditors’ meeting. On 19 May 2021, the sanction hearing took place.

The Hearing

On the facts, no issues were taken with the composition of the class for the creditors’ meeting, the steps taken to enable creditors to vote, or the manner in which the scheme meeting was held. Mr Justice Miles was satisfied that the meeting complied with the Convening Order and that those present were able to consult together; he was also content to waive the minor immaterial defects. The Judge was also satisfied that there was no “blot” (a “technical or legal defect in the scheme, for example, that it does not work according to its own terms, or that it would infringe some mandatory provision of law”).

Basis of the FCA’s challenge

The FCA raised three main points:

First, the FCA did not consider that the Scheme Creditors were being treated fairly in being required to suffer a 90% haircut, whilst the shareholders retained their economic interest in the Group. The fact that the share price had increased by 250%+ since late December 2020 (when the Scheme was announced) demonstrated that the proposed Scheme had generated shareholder value. On the contrary however, in an insolvency the shareholders would rank last and would be unlikely to receive anything.

The second point related to the likely alternatives to the Scheme, particularly in view of the directors’ consistently stated position that absent the Scheme being approved, the Amigo Group “will likely enter administration”. The FCA’s view was that at no time had the Company provided evidence which demonstrated any immediate (or even medium-term) liquidity crunch. Furthermore, no other possible alternatives had been relayed to the Scheme Creditors; the position had been presented to them as binary – either the Scheme (where the Scheme Creditors would get 10p/£) or administration (where they would get nothing). On the FCA’s case, it was open to the Company to attempt to put in place a different Scheme, on more favourable terms. The Company disagreed: it argued that the question of ‘alternatives’ was one for the Group’s directors to consider. Those directors were duty bound to assess the financial position and to draw their own conclusions accordingly. Although there may be no imminent cashflow crisis, there were powerful objectively intelligible reasons for the directors’ stated position that an administration was both probable and imminent. Further, to consider an ‘alternative scheme’ (as opposed to filing for administration) would take significant time and employ funds which the Group did not have.

Finally, the FCA argued that the authorities on the test to be applied when sanctioning a scheme pre-supposed a proper and effective decision- making process had taken place. In the present case there were five factors that cast doubt on that, namely:

  • the Scheme Creditors are often financially vulnerable people who are unlikely to be financially experienced or sophisticated and are unlikely to have any knowledge or experience of schemes/corporate reorganisations;
  • there was no evidence of Scheme Creditors having received legal advice;
  • the Scheme Creditors were not independently represented (as has been the case in other matters) and the Scheme had not been negotiated. There was no creditors’ committee or similar;
  • turn-out at the creditors’ meeting was low (some 8.7% by number); and
  • the Explanatory Statement presented the Scheme to Scheme Creditors as a ‘take it or leave it’ choice. There was no information about alternatives or why shareholders were benefitting to the detriment of Scheme Creditors.

Counsel for the Company argued that the Scheme proposed did not have to be the ‘best scheme’. Instead, it must be a Scheme on which an intelligent person could reasonably approve, the rationality test. On the facts, the Scheme Creditors had voted in favour of the Scheme by an overwhelming majority. The Company argued that there was no free-floating test of “fairness”.


Mr Justice Miles provided a useful summary of the legal principles/guidance extrapolated from the legal authorities to be applied when considering fairness. These included:

  • the need for the court to properly assess whether it is right for it to approve a compulsory process which overrides the rights of creditors or members;
  • creditors or members are to be properly consulted (which includes the provision of fair and sufficient information (in an appropriate form) to enable them to make a rational voting decision;
  • a reasonable creditor or member will, when voting, need to consider the alternatives to the company’s proposal (which ought to be fairly set out);
  • fair turn-out at the meeting;
  • the court does not apply its own free-floating views of what it sees as “fair” or “just” in preference to the views of the creditors or members themselves, who will be regarded as better judges of their own commercial interests. In such cases, the test is whether an “intelligent and honest member of the class and acting in respect of his interest might reasonably approve”. But this relies on the fact that the creditors have been properly informed and consulted and the nature/make-up of the creditors must also be taken into account;
  • in a scheme or restructuring in which the existing shareholders, who would, by definition, receive nothing in a formal insolvency, are being permitted to retain a material stake in the restructured company, it is likely to be essential for the scheme company to provide a detailed statement of the underlying assumptions and valuation methodology that are said to justify such an outcome so that creditors can reasonably assess, objectively, whether the allocation of losses and the division of benefits among stakeholders is appropriate and fair.

The Judge sympathised with the FCA’s concerns, as above. However, the Judge stated that of themselves, these points would not be sufficient to refuse sanction if the Company was nevertheless able to demonstrate that the Scheme Creditors, having been properly consulted and informed of their options, had consented to this outcome. In that case the test to be applied was the rationality test. But if the Court was not satisfied that the Company had fully and fairly informed the Scheme Creditors so that the scheme meeting had been properly consulted, that test would not be relevant.

On the facts, the Judge accepted the FCA’s arguments against sanction.

In particular, whilst the Judge found that the Explanatory Statement was carefully and plainly written, it was insufficient to inform creditors about the Scheme and the realistic alternatives to it, or why shareholders retained their stake to the detriment of Scheme Creditors. The directors should have, instead (and particularly in view of their statutory and fiduciary duties), continued to liaise further with the FCA and given careful thought to further restructuring proposals.

Taken together, the Judge was of the view that the Scheme Creditors were unable to form a reasonable judgment as to whether or not the Scheme was in their interests. This itself meant that the court was most unlikely to be able to place any reliance on, or give effect to, the affirmative vote at the creditors’ meeting. Sanction was refused.


The Amigo matter has generated significant interest. It represents the first time that the FCA has made a formal challenge (query whether the result would have been the same, absent such representations). Counsel for the FCA stated that the FCA does not itself negotiate the terms of any such restructuring. Equally (and as relayed by Counsel for the Company) the FCA is unwilling to rubber-stamp any deal or indicate what it considers to be an “acceptable” arrangement. The FCA has however, now demonstrated, with some force, that it is willing to take a more interventionist approach where it considers that there is an inherent unfairness and/or its consumer protection objectives are being breached.

In the circumstances, the decision in Amigo turned on the fact that there was ‘no burning platform’, yet the creditors were neither given sufficient information (or support) as to the alternatives to administration, nor were they sufficiently consulted as to the Scheme’s terms. The fact that new management and NEDs joined the Group in the second half of 2020 seemed to be of little consequence. Instead, the fact that the Group intended to continue to trade and shareholders prosper, where the creditors were to receive a very small dividend, was key.

It will be interesting to see what happens next. Will Amigo appeal and if so, on what basis? Will Amigo propose a further Scheme and if so, how would this be structured? The comments made by Mr Justice Miles certainly pave the way for creditors to be provided with more support/independent advice to assist with the negotiations. Or, will Amigo proceed to file for administration, in which case the creditors will be left with nothing.

Whilst on its own facts, the decision in Amigo sets a precedent which will no doubt cause other lenders in this sector to carefully re-assess any restructuring proposals and how these are presented. Notably, the Sanction Hearing in respect of the Provident matter is due to be heard before the court on 30 July 2021. Whilst the FCA has not indicated that it will formally challenge that scheme, it has relayed various concerns, including the sale of debt to third parties (and the inequality that this gives rise to), the level of the redress pot and what may be considered a “fair allocation of the benefit of retaining solvency”. These concerns have already clearly been taken on board by Sir Alastair Norris who, at the convening hearing, made some preliminary observations regarding fairness and will look to review these matters in full at the sanction hearing. We note however, that in Provident, an ‘Independent Customer Advocate’ has been appointed and it will be interesting to see whether this makes a material difference.

At paragraph 143 of the Amigo sanction judgment, Mr Justice Miles states “The FCA expects the directors to continue to explore and promote a restructuring which fairly allocates the benefits and losses among the various ALL Scheme Limited stakeholders. I agree with that, and would urge the directors to continue their efforts to promote a suitable restructuring”. This statement carries with it much force and again, it will be instructive to see how Sir Alastair Norris chooses to approach things later this Summer. It is likely, however, that we can expect similar issues to be debated.