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Judge asking Mr Dicker how long he will be. Answer will be 15mins or less. Mr Dicker asking if the court would like to consider whether anyone else would like to speak. People already piping up without being asked. This is where is descends into chaos... Lloyd the shareholder and previous customer basically asking whether the FCA have considered the drop in share price from £2.50 down to 25p-ish. [I am not sure if share holder speaking and encouraging this to go through is a great look, IMHO. Have a good think if any of you want to speak, please]. Lloyd challenging the FCA and asking why they have stepped in. Mr Smith laughed... judge says this isn't a question and answer session [yep - didn't do good]. FCA acknowledging the share price drop. They are looking at the position from scheme announcement to where it is now i.e. up. [feels like they're saying shareholders had an opportunity to get out].
Smith: your honour is right to question this as it goes to the heart of what we're concerned about; a situation where the company put forward a unilateral unnegotiated proposal where the alternative is insolvency/nothing. Creditors of course vote for something better than nothing. Then the company come to the court and say you're not allowed to consider the possibility of there being another deal. FCA argument is it's one or the other and the court should consider these 5 points together and not separately. Judge: so there are cases where it may be reasonable for AMGO to do this i.e. the creditors were sophisticated and advised. But taken together for these creditors; the court should not trust AMGO [to paraphrase]. the creditors deserve more [to paraphrase]. Smith: is this scheme fair? The FCA believe not. No justification for the terms on offer and favouring shareholders! alternatives may be available. finally, to deal with the FCAs change of position. Mr Dicker is right that there has been a change but he has overstated it. The FCA said they reserved the right to involve themselves, held senior meetings and have decided they do need to get involved. The FCA's points are either good or bad and that is up to the court decide but the FCA felt they should make them to the court. Summing up - request the curt does not sanction the scheme. Judge: convenient moment to raise the fact that one customer has written a question to be read out instead of speak. Judge reading it out "should this scheme not be approved and AMGO decides to renegotiate the scheme, how long would it take and would there be a benefit, etc, etc, etc" [that's written by a creditor my ar$e]. Ok, there you go, a creditor and a shareholder, so we know who that is from the board! FCA says they can't answer those questions. From a creditor perspective, it's perhaps more about the equity and profit share going forwards. Why should shareholders retain the equity and not the redress creditors. Gone quite... may be the end for Mr Smith/FCA... yep, done!
Smith: 2nd point - question of access. No evidence redress creditors had access to any advice. Makes them unsophisticated and unadvised. 3rd). no proof of negotiation with creditors or someone acting on their behalf. FCA say that this is not a requirement but it is a relevant factor. Creditors shouldn't have to deal with a unilateral proposal without advice, negotiation, etc. 4th). Turnout - FCA are not saying because turnout is low they shouldn't sanction BUT the FCA do note the turnout was low and that is a relevant factor that is to be born in account as to the effectiveness of the creditors meeting and the outcome. We know the turnout is 8.6% by numbers and in the FCA submission; they consider this low compared to normal finance creditor schemes the court is used to seeing [as well as other examples]. the 915k figure for potential redress creditors included people who may not end up being claimants, which is fine, but the 78k who did vote may ALSO include people who won't have a claim. The 915k is the relevant population. 5th/final point). explanatory statement itself. FCA say the issue is that it very clearly presented the scheme as a binary choice (a little vs nothing). Smith: taking the judge through opening paragraphs of statement, reading the bits about you'll get more under the scheme than alternatives, which was only proposed as insolvency. So of course people voted for something over nothing. The FCA say this is wrong and the reality is that it is nuanced and there are many alternative ways of negotiating a scheme etc and could creditors have pushed for something more. FCA say that unless all those options are laid out to the creditors, it is completely meaningless for creditors to vote for something small over nothing. It's not in the best interests of creditors if they don't have options. Judge: I want to test this a bit. In many cases it would be very surprising if they explanatory statement set out other options. It would be usual for creditors to take a view on what is put in front of them. the FCA are saying this is unusual because you're dealing with creditors who don't understand. Mr Dicker had said there could be any number of schemes. Judge is asking if AMGO really have to propose an "a la carte" menu of schemes that have not been formulated and are not on offer. Smith: AMGO can't have it both ways, it can't just put forward one proposal AND come to the court and tell the court they must close their eyes to the possibility of any alternative. [basically, it's not AMGO's way or the highway]. FCA say either put out alternatives schemes OR don't come to the court and defend it by telling the court another deal isn't possible [to paraphrase].
Smith: One circumstance (from case law) as to why the outcome of the meeting may not be reliable is where full and accurate information has not been given to the creditors. Now bringing up the judgement on Provident Financial. Judge is just familiarising himself with that judgement as it only came through this morning... Smith says the scheme is rather similar (PROVI), dealing with similar issues. The judgement here is from the convening, not yet sanctioned, but there was some discussion about the fairness of that scheme and that was not a convening issue but it was none-the-less interesting as the scheme (PROVI) said "this scheme or nothing" but the FCA (Smith) said "this is too simplistic" and the judge (Norris) said that it may well NOT be enough for the court to simply say this is the only scheme and ALL the court could look at at the sanction hearing, even if approved by a scheme meeting. [point being that the court should consider if there could be another scheme]. FCA say there are 5 factors that cast material doubt on the creditors meeting outcome, which should be considered by the court under fairness. 1). sophistication of the creditors - it's clear redress creditors will include people who have had financial difficulty and vulnerable. Almost by definition they are restricted from other lenders and have poor credit scores and poor financial literacy. At the convening hearing the judge said the customers using this facility tend to be outside consumer credit facilities with low financial literacy. One is dealing with a creditor base who are unsophisticated in the context of restructurings, which are not the most straight forward matters. The second is access to advice. to paraphrase - they didn't have access. Judge: asks to pause.. someone unmuted...
Smith: turning to the question of the law... [how is this going to be done in ~30mins?]. Smith now pointing at previous case law about the intelligent and honourable man, etc brought up by our counsel. FCA saying that the key point about these statements is that they pre-suppose that an effective decision making process has been undertaken by properly informed creditors who understand all the issues [to paraphrase]. From previous cases; there are circumstances where the outcome of the meeting can't be considered as effective and the vote shouldn't apply [to paraphrase]. Unless the class has not been properly consulted or the class don't understand all the options [to paraphrase] the vote will carry [i.e. he is saying that the vote shouldn't count because they don't know there may be another scheme available]. There are circumstances where the outcome of the meeting may be affected i.e. creditors are acting with a lack of info and were not properly advised or don't have the ability to understand it all. In that case; the court need not take the outcome of the meeting as direction. If creditors are told it's this scheme or insolvency and this is how they decide then this is simply a wrong assessment and there are other options. If the court considers that this has happened i.e. the voted in fear without reasonable options, the court should look into the matter. [to paraphrase].
Smith: FCA believe it is possible to enter into negotiations with all interested parties to come up with a different scheme. AMGO could pay for the redress creditors to have a lawyer. Then, when the time came for the SOA to go to the court, the court could be more satisfied that it is a fair scheme [to paraphrase]. There are a number of different means by which redress creditors could be represented by experienced advisors who could negotiate with AMGO directly. Smith: AMGO said negotiating with shareholders was difficult because they're small PIs but, in fact, based on the latest filings 27% of shares are held by 3 IIs. JPM Morgan hold 9.63%, MIC capital 5.83%, Bybrook capital 12.01% and there may be others but it is wrong to say there is NOT meaningful IIs in the shareholder basis [recent price action has really come back to haunt us]. Judge: Mr Dicker said the FCA hasn't set a target and asked what would be a fair scheme. Do you have a submission on that point? Smith: observation is that it's the FCAs practice NOT to involve itself in negotiation. How does one deal with that in this situation? Answer: through the mechanism described; a representative acting on behalf of the redress creditors to get to a fair scheme. A deal that has been negotiated out and accepted is likely to be "the target" that provides a letter of no objection from the FCA.
Smith: There is no imminent cashflow issue that would force AMGO into insolvency. There is no explanation for the position, only assertion, from AMGO that they would go bust. GJ just says that the board decided they would go bust. What is interesting is that no board minutes or paper are provided to give the court/FCA more colour/context. It doesn't explain what would compel an insolvency now. It is completely opaque on timing. FCA position on this is that the court is not bound to accept a bare assertion of this nature. If the company want it accepted, they need to provide the evidence. AMGO "may be holding a gun to the head of the creditors and the court" [yep - he's called them on the threat. Making AMGO out to be the bully - he's handy this fella]. If the directors say that it's this or insolvency and you just have to accept it, they're wrong. The court is not bound by that. Judge: he does not expect directors to act in a "dogs in a manger" way [not 100% sure what that means]. Judge: is it right to take into account that directors would act responsibly. [bit confusing here]. FCA: seems to them that ~£180M in the bank and no urgency for insolvency, it's very difficult to think that any director who is acting properly will rush the company into insolvency and destroy that company value. A director would be bound to preserve as much value as they can [again, all seems to be a GJ bluff that he won't take then straight into insolvency].
Smith: ALL have said they can't pay all their creditors. The critical missing evidence is the timing. When would that have to happen? One searches in vain throughout the evidence for any indication of timing. All of the evidence has been put in very general terms. AMGO lacks sufficient funds, the alternative is insolvency. But why? Why in the short term? Second point; no cashflow forecast has been produced by AMGO and provided to the creditors and court. There is no financial material or analysis provided that shows a requirement to go insolvent in the short term. AMGO must have a cashflow estimate as part of business as usual. Why hasn't this been provided? Why in a 13wk period, for example, would there be a cashflow issue? 3rd point - AMGO has ~£180M in cash at the moment. FCA identified the current cash position document as saying from Jan 2020 the cash has increased hugely as a result of the group no lending i.e. it has been collecting and preserving its cash. By the FCA's reckoning they have not far short of £200M today and the amount is increasing. If you look at that material; one asks one's self what is it that will force them into insolvency in the short term? There seem to be no cash liquidity issues at the moment. No reason at all a company in this position wouldn't be extremely able to do a restructuring. this is not a burning platform with cash running out and no liquidity. This is a cash rich company in a strong position to restructure itself. FCA assessment is that if the court does NOT sanction it then they believe AMGO would come back with an alternative scheme [FCA calling AMGO bluff]. Judge; Mr Dicker made clear that without sanction, AMGO would go into admin. Now FCA have a consumer protection function; just so I am clear "the FCA's view is that AMGO will NOT go bust if the court doesn't approve" [judge clarifying bluff call]. FCA - yep! FCA do not believe AMGO will go bust - bluff called.
Smith: There is no possibility of AMGO to be able to blame the shareholders for this offer because they admit to not consulting them. so, as far as fairness goes; it's simple. there is a plain disparity of treatment between creditors and shareholders and no justification is given for that or the profit share. 2nd topic - what is the alternative to the scheme? AMGO has given a binary choice. This or insolvency - that's how it has been sold. Jist is; if you don't vote for the scheme, you're getting nothing. FCA believe this does NOT reflect the reality of the situation and a modified version or alternative is available. FCA believes it is critically necessary to distinguish between 2 issues; what is the likely alternative for ALL with no scheme/restructure. The second is the likely alternative to the current scheme, if it is not sanctioned. As far as 1 goes - it may well be the case that without restructuring, before 2024, ALL may well fall into admin. But it does NOT follow that the only alternative to THIS scheme is that ALL will go into insolvency in the short term. What isn't addressed by AMGO is the timing of any insolvency. What is driving the timing here? FCA proposes that there is an obvious incentive for ALL to do a deal and avoid insolvency. It's clearly worth something as the shares are worth something. Why wouldn't the shareholders give up some of that value if they receive nothing in insolvency?? Secondly; there is no reason to think that ALL face an imminent cashflow or liquidity crisis. Evidence filed by AMGO does NOT say they face an imminent cashflow crisis.
Smith: No material is available to justify any of this profit share. Nothing has been provided to creditors as to why it isn't 20/30/40% even. The point the FCA are making w.r.t. secured creditors is that they're likely in the money whether AMGO fails or not. The relevance is that where creditors are in the money, it's a matter for those creditors as to how the benefits of the company are to be divided. Basically; share/bondholders can dictate how any value coming out of a restructuring is distributed. Point being; company has instructed the terms here and NOT the secure creditors, who are in the money, so should be consulted and give direction. [this is slightly confusing but I think he is making the point that by AMGO NOT consulting with bondholders, they are not in the position to make these profit distribution etc offers].
Smith: the chairman received questions for the creditors meeting and each was dealt with in turn by AMGO's management. However, the FCA says that the question to AMGO around do you have any concerns about the FCA concerns and AMGO didn't give a good answer. That answer was "all our shareholders are PIs and they won't have the ability to provide further capital in a rights issue" [to paraphrase]. [getting nervous now]. Apparently now GJ is seeking to justify the 15% figure on a future rights issue being highly likely. basically, there is no reason given for why PIs can do a rights issue later and not now. Same people, same company - shareholders don't have the money but do later [to be fair, I think Mr Dicker has covered this i.e. certainty around future business but lets see what the judge says]. FCA says there has been no explanation for the 15% but the belated explanation appears "on its face inconsistent to what creditors have bene told". The 15% is not supported by any analysis or underlying material. [this guy talks a lot - basically strongly challenging the 15% and 4yrs].
Smith - GJ now says that the figure of 15% was chosen arbitrarily but later goes on to say that future contributions were modelled and discussed with the board at length. Later again, GJ seems to be saying the 15% figure was fixed as the maximum offered because they need to retain profit to do the later rights issue for future investment in AMGO 2.0. There seems to be some inconsistently between what GJ has said to the court and materials given to the FCA. The FCA think it's also at odds with what was said to creditors at the creditors meeting. [sending more of these out as I think this is the most interesting bit to us].
Judge: could the shares be held in a vehicle/trust for redress creditors, while they work out the entitlements? Smith: it certainly seems possible to do a debt for equity swap as they are commonplace. This is the FCAs primary position i.e. wipe out shareholders and give it to creditors. It would appear the board has not even contemplated this. the second point is AMGO have given no justification for the terms of the profit share. Currently 15% over 4yrs but why [to paraphrase]? This point isn't dealt with at all in the explanatory statement. FCA have looked in vain for it. It is, however, dealt with in GJ evidence but it is not satisfactory to the FCA.
Smith: AMGO is largest riser across the index in the last 3 months of 272% (or something). The market quiet correctly perceives the scheme to be hugely beneficial to the shareholders and this is creating a greater value to the shareholders than to the creditors [the FCA]. There is no proper justification for the shareholders keeping all the equity. Why isn't AMGO giving some or all of the equity to the creditors. AMGO could do a debt to equity swap against the wishes of the shareholders but AMGO appear not to have considered it at all. Judge: what would happen if that [debt for equity swap] happened? The company could then carry on with new shareholders? FCA: EXACTLY [ouch]. Wipe out existing shareholders and make the redress creditors the shareholders [this just got crazy].
FCA/Smith: Since the scheme was announced, the market value of the share has more than tripled [uh oh, told you not to heat it up ;)] [so it looks like he is saying that shareholders are profiting - judge just looking through figures, etc in investors chronicle].
Smith: shareholders are treated, under the scheme, better than the redress creditors. As far as the shareholders are concerned; they'll get to keep their equity in full, only giving up 15% of profits over the next 4yrs. The market has valued that equity at £140M [shows judge evidence in bundle] using the share price as of 10th May. Fair to say share price has dropped since then as the market has priced in potential scheme failure. However, the number seems reasonable as a quantum of value. AMGO doesn't appear to dispute that and doesn't provide another estimate to the court. So, shareholders have £140M worth of equity but redress claimants, who should rank above shareholders, only get ~10% return of their claim or a 90% reduction in their claims. AMGO has not produced it's own estimate of total amount of claims to be written-off. On the FCA's evidence, it could be £540M (90% of total estimated). Other estimates can be produced BUT it's going to be a very substantial sum indeed redress creditors are losing [to paraphrase]. FCA say problem is AMGO have made no attempt to quantify the benefit of shareholders vs loss of redress creditors - no type of financial analysis to help the court see the quantification when it considers fairness [this guy talks quicker than our QC - ugh] [bear with me].
Dicker: talking about the "no blot", won't be discussed further but it's about releasing AMGO from their liabilities post-scheme. Mr Dicker has finished... Mr Smith steps up to the plate on behalf of the FCA and is saying that they oppose the scheme because of the disproportionate benefit to shareholders. AMGO is an authorised business regulated by the FCA and they are free to attend to benefit the interests of redress creditors. They are opposing 3 areas. 1). why FCA say the deal is unfair. 2). question of alternatives to the scheme as formulated. 3). the approach his lordship should take as a matter of law and the weight he should apply to the 95% vote pass. The burden is on the company to prove to the court they should sanction the scheme, not on FCA to prove it's wrong.
Dicker: the issue is for scheme creditors to vote for or against what's proposed. That's always how it used to work. However, it's more common today that ad hoc creditors do form small groups. The FCAs stance is that redress creditors couldn't meaningfully get together to discuss and understand the scheme [effectively] so the FCA stepped in on the basis they were there to help creditors [to paraphrase]. Dicker: however, it would appear the FCA had 6 months to involve themselves and didn't. They could have asked AMGO to have redress creditors to form a group and work with them. [struggling a bit with two calls ongoing]. Dicker: doesn't see this is an issue in other schemes and there weren't negotiations of the sort. All of that said; there was no attempt by AMGO to ignore FCA letters or not try and address their concerns. Dicker asks the judge not to forget that 95% voted for the scheme. The court should conclude an intelligent and honest man has reasonably approved this fair scheme by voting for it, with the question of best/alternative scheme is not to be considered. The basic choice was a simple one - distribution in the scheme or nothing in insolvency. the board formed the view that admin was the alternative and that's what they told creditors. It would have been wrong to tell them anything. In number and value, the creditor vote was overwhelming and, in his opinion, enough creditors voted. [Dicker is basically summing it all up]. Recovery is preferable to no recovery. And FCAs contention another scheme is possible is neither here nor there. Nor is it feasible to doubt that GJ and the board's calcs are wrong and there is more to put in.
Dicker: Lordship should proceed on the basis that GJ means what he says and what he says is the truth of the board [to paraphrase] and nothing more means nothing more based on the company interests, not their own. [Dicker struggled a bit here IMHO - judge is very sharp. So, he's basically picked up the long term incentive plan]. Judge: would like more details of the management incentives. Dicker: doesn't have them to hand... Judge: how many shares are in issue? Dicker: another number we don't have at our fingertips. [taking a little punishment here]. Dicker: re. shareholder position - in our submission we are in an odd position because until Weds last week, we didn't expect the FCA to oppose. More importantly; although the FCA says this isn't in its view a fair scheme, they haven't actually made any attempt to convey what would be a fair scheme or how we could negotiate it [to paraphrase]. Part of the difficulty is that it's not clear what target the company should meet. Nor is it clear what evidence it needs to produce to explain why it doesn't believe it is possible to meet that target. Dicker: if the lordship asked the FCA to say what they do want, he would be overstepping [to paraphrase]... [bold - so, they are playing hard ball and not negotiating today????]
Dicker: after the scheme has been approved and the FCA has approved AMGO 2.0, further money WILL BE REQUIRED via a rights issue. What's different is that by then there is a sanctioned scheme and approval from the FCA, with all redress liabilities dealt with and a business plan in place to move forward [when asked why a rights issue later and not now]. Dicker: GJ thinks it's not possible [rights issue] now but will be later. Dicker: this is not an unusual position as a company needs to be in a position to make profits [point being the future isn't clear today]. Dicker: refer to the argument the decision from a previous bank case (1893!!!)... Dicker now showing his lordship relevant bits... Will be some reading to be done... In that case; the judge came to the conclusion that it was best to keep the bank going in one way or another to ensure creditors are paid. That case then proposed some methods for how to do that. In that case; the judge said it was clear the scheme was not for resuscitating the bank but in the best interests of the creditors. That is what AMGO are doing. Judge: want it to be understood I am asking questions so it's all clear - what weight if any should I give to the fact that Directors themselves are interested in shares in the company as it appears to me that there may be some element of incentive for them [GULP].. Is that something that was explained adequately to the creditors and what weight should I give to that when assessing directors statements that there is "nothing more to give" [double gulp].