Chandlers Building Supplies Holdings Limited & Ors, Re

MR JUSTICE HILDYARD:

1. This is an application on behalf of the 13 companies set out in the heading to these proceedings (which I shall call “the Plan Companies”), seeking the court’s permission to convene meetings of their creditors (whom I shall refer to as “the Plan Creditors”) to consider and, if thought fit, approve 13 inter-conditional restructuring plans (which I shall call “the Plans”) under Part 26A of the Companies Act 2006 .

2. The Plan Companies form part of the Turbo Group which operates a builders merchants business selling building, heating, decorating, electrical, plumbing, timber and ancillary products to trade and retail customers in the UK, and has its centre of gravity in the south of England. The Turbo Group has a network of some 176 branches and employs approximately 2,000 people.

3. Mr Ryan Perkins, who has presented the application on behalf of the 13 Plan Companies with characteristic clarity, has warned me against focusing on that figure of 176 branches. The more relevant figure is that there are a total of 210 leases which are, for the large part of them, to be compromised under the Plans, and it is with regard to the arrangements in respect of those compromised leases where the major complexities arise.

4. The Plan Companies are not the only companies in the Turbo Group. The Turbo Group as a whole consists of a company called Turbo Acquisitions 10 Topco Limited, which I shall call Turbo Topco, and its subsidiaries. There are useful structure charts to be found in the evidence, in fact, at core bundle, tab 10, page 1078 through 1080. Some 88 per cent of the equity in Turbo Topco is owned by investment funds managed by Cairngorm Partners LLP, which I shall call “Cairngorm”. The remaining 12 per cent or so is presently owned by the Turbo Group’s management team. The arrangements constituting the wider context of the Plans also address the equity interest.

5. Put shortly, the background of the Plans is that the Turbo Group has fallen into financial distress in recent years, triggered by inflation and rising interest rates in the aftermath of the pandemic which dampened the demand for the Turbo Group’s products; no doubt this was exacerbated also by the Ukraine war, but it is impossible not to have in mind the quite energetic acquisition programme which was adopted and which has resulted in bringing together so many companies at considerable cost, necessitating perhaps excessive borrowing.

6. In 2024 the Turbo Group made a loss, after tax, of £105.7 million. The liquidity position of the Turbo Group has become increasingly strained, and the latest liquidity forecast shows that the Turbo Group will run out of cash in early August 2025 if the Plans are not sanctioned. Mr Perkins illustrated the difficulties which have arisen by taking me to the valuation of the Plan Companies as a whole undertaken by Grant Thornton and included within their valuation report. The mid-enterprise value I think was stated at some £114.2 million. A comparison between the losses for a single year of £105 million and the overall indebtedness in excess of £350 million illustrates the problem of the Turbo Group as a whole. I should add that the progress of these difficulties is chronicled at some length in the evidence and although it has been useful for me to read it, I do not think that for present purposes it is necessary to recite it at length. I think the end point is the important one and that is to be illustrated as I have described.

7. As a matter of law there are 13 inter-conditional Plans that are submitted; but as a matter of drafting expediency there is a single restructuring plan document which sets out the terms of all 13 plans. In arrangements of this kind, of course, the provisions of the law requiring a separate analysis in respect of each of the Plan Companies must be observed but the truth is, as is obvious from the inter-conditionality, that the Plans are intended to address the problems which have arisen as a whole.

8. The Plans have three central features. First, the Plans provide for release of about £200 million-worth of liabilities owed to the Plan Companies’ secured loan lenders, whom I shall refer to as “the Secured Plan Creditors”. Further, the remaining liabilities owing to the Secured Plan Creditors will be amended and extended. These will include a further loan facility of up to £20 million available to the Turbo Group. Secondly, the Plans will compromise the unsecured liabilities owing to several classes of landlords whom I shall refer to as “the Landlord Creditors”. This involves the division of the Landlord Creditors into various categories by reference to the total of 210 leases which I have previously mentioned. The approach adopted is, I am assured and understand from a quick read of the authorities, in accordance with the accepted approach in previous Part 26A plans. Thirdly, the Plans would compromise certain unsecured liabilities, (a) in respect of amounts owing to local authorities in respect of business rates which I shall refer to as “the Business Rate Creditors”, and (b) in respect of various other unsecured creditors whom I shall refer to as “the General Unsecured Creditors”. It may be worth noting at this point that the Plan Companies’ ordinary trade creditors are not to have their positions compromised under the Plans.

9. The objective of the Plans is to restore the Plan Companies to financial health so that the Turbo Group can continue trading as a going concern by a compromise extending to the four broad groups which would be apparent, that is to say the Secured Plan Creditors, the Landlord Creditors, the Business Rates Creditors and the General Unsecured Creditors.

10. As I have indicated, the Plans are an integral and necessary part of a wider restructuring transaction which will also affect the Turbo Group’s capital and ownership structure. This has been described in some detail in the first witness statement of Martin Stables, the chief executive officer of each of the Plan Companies. At paragraph 67, Mr Stables has described that as at 17 April 2025, the Turbo Group holding companies, the Secured Plan Creditors and the Cairngorm entities entered into a restructuring framework agreement in order to establish the framework for this wider turnaround or restructuring. Pursuant to that agreement the parties have agreed steps to support and implement a proposed restructuring and recapitalisation of the company referred to as Subco, which can be found in the chart which I have mentioned, and the subsidiaries and the Turbo Group. This will include an ownership interest transfer involving the transfer of equity in Bidco to a special purpose vehicle established or nominated by the Secured Plan Creditors for a nominal consideration with the members of the Turbo Group, whether directly or indirectly, acquired as a result of the ownership interest transfer and forming the restructured group conditional on (amongst other things) the sanction and implementation of the restructuring plans. The overall restructuring will also involve a restructuring of the ownership interest in Subco and its subsidiaries; the senior debt restructuring which I have described; and the operational liabilities restructuring which I have also referred to. Those four elements comprise the pillars of the overall restructuring arrangements.

11. The directors of the Plan Companies have, in the circumstances which I have set out, concluded that if the Plans are not sanctioned then they will have no choice but to place the Plan Companies into administration, save for a company called Fairalls (Builders Merchants) Limited which is not a trading entity and would enter into liquidation instead. Administration or liquidation are put forward as being the relevant alternative to the Plans.

12. Identification of a relevant alternative and what its consequences would be is a central element in the architecture of Part 26A plans. In this case it will become of particular importance only at the stage of a sanction hearing, assuming that these Plans proceed. But it is also of relevance in considering how the classes of creditors are to be constituted, which is the most important business at this stage. Here, no detailed analysis of the relevant alternative is required, beyond noting that it is clear that the unsecured creditors would be under water.

13. The most important features of each Plan are therefore, first, that no assets would be available for distribution to the unsecured creditors of the Plan Companies save for ‘the prescribed part’ mandated by the Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020 in respect of any floating charge assets. Mr Perkins has made it clear in his skeleton argument, and emphasised in his submissions before me, that the unsecured creditors would not just be slightly or marginally out of the money: they would rank behind hundreds of millions of pounds of unpaid secured debt which would have no prospect whatsoever of being repaid in the relevant alternative. In the relevant alternative, the Secured Plan Creditors or any other purchaser would not acquire all of the Turbo Group’s branches, as many of the branches are unprofitable and/or unsustainable due, in part at least, of being heavily over-rented. As will become of importance later in the process, assuming that arises, the Plan Companies submit that the premise of the Plans is that in the relevant alternative of an administration all of the Plan Creditors would be worse off than they would be under the Plans.

14. Turning to the main business of the day, I must remind myself that at this stage of the process, that is to say at the convening hearing stage, the court has a more limited function that it would subsequently have at the sanction stage if the Plans are approved at validly constituted meetings of creditors. The matters to be considered at this stage are first, the adequacy of the notice of this hearing provided to members and creditors; secondly, whether the court has jurisdiction to sanction the Plans if approved by the relevant creditors in properly constituted meetings; thirdly, whether certain threshold conditions prescribed by Part 26A of the Act have been satisfied; fourthly, what is the composition of a class or classes of creditors to be summonsed to a meeting or meetings; fifthly whether any roadblocks have been identified which would prevent sanction of the Plans; and sixthly what directions are to be given for convening the meetings and for the process at the meetings if the Plans proceed and permission is granted. The hearing is not, in other words and in the words of David Richards J, as he then was, in the Telewest Communications Plc [2004] BCC 342 at paragraph 14, “emphatically not” the occasion in which to consider whether the Plans are fair nor whether the Court would be likely to exercise its discretion to sanction the plan in due course. Those are matters for the sanction hearing if the Plans are approved by the class meetings.

15. I shall deal first with the issue of adequate notice of this hearing. That is important in order to ensure that creditors have an early opportunity to express any opposition to the class meetings proposed, and to satisfy the Practice Direction applicable to applications of this nature. The practice statement (which, as is well known, is shortly to be revised) contemplates and requires that Plan Creditors would be given notice of the convening hearing. The appropriate period of notice is a fact-sensitive matter, it depends on the complexity of the plan, the urgency of the company’s financial position, the sophistication of the creditors and other factors of a similar sort as Adam Johnson J described in Re Selecta Finance UK Ltd [2021] BCC 168 at paragraphs 37 to 41.

16. In the present case, the position is admirably clear. The Practice Statement letter (which I shall refer to as “the PSL”) was circulated to the Pla Creditors on 9 May 2025, just one day over a full month before this hearing. This exceeds the 21 day or 28 day period which has now become relatively standard. Further, the Plans are plainly urgent given that the Plan Companies will run out of cash by August, so that a sanction hearing would have to take place in July; and the timetable has to be viewed in that light. I also bear in mind that the Secured Plan Creditors were already locked up to support the Plans and they have been fully engaged in the process for some time.

17. In addition, the Plan Companies have appointed Interpath to act as information agent and to disseminate the PSL. Prior to the circulation of the PSL moreover, the Plan Companies provided the Plan Creditors’ contact details to Interpath and the Plan Companies, along with their advisors, reviewed the Plan Companies’ books and records in detail in order to ensure that the contact details were accurate and up-to-date. The email was then circulated by email and/or post to all of the Plan Creditors by Interpath. In total there are 403 Plan Creditors, of those creditors 321 have been contacted by email and post, 14 of them contacted by email only and 68 have been contacted by post only. Interpath received error notifications such as bounce-back or failure to deliver messages in relation to a relatively small number, 18. In relation to those 18 Plan Creditors, the Plan Companies endeavoured to provide an alternative email address and contacted the relevant planning directors by telephone. In the event, Interpath succeeded in contacting all 18 of those Plan Creditors via alternative email addresses. This should illustrate why I started this particular section of the judgment by indicating that the notice requirements of the PSL have been clearly and fully satisfied in this case and it is unusual in my experience to have such a clear record that each and every one of the identified creditors has been directly contacted in this way. (Mr Perkins took me in that regard to a useful analysis of the notification effective in respect of the PSL which is, in fact, at tab 14 at page 1094 to 1096 of the core bundle provided for this hearing.)

18. In addition, the Plan Companies have hosted a virtual town hall meeting on 8 May 2025 to which Landlord Creditors were invited to attend by video call. This gave them the opportunity to ask questions, insofar as they wished to do so, and chose appropriate level of engagement with stakeholders as I see it. The Plan Companies did not organise virtual town hall meetings for the General Unsecured Creditors or the Business Rate Creditors on the anticipation that very few, if any, would be likely to attend such an event.

19. Since the PSL was issued, the Plan Companies have been contacted by various Landlord Creditors who have requested clarification or a simplified explanation of the effect of the Plans; the Plan Companies have responded to all these requests. Several of the Landlord Creditors apparently brought to the relevant Plan Company’s attention minor errors in the lease description and addresses in the schedules to the PSL, which have been corrected in the corresponding schedule of the restructuring plan document. Taken as a whole, I am entirely satisfied that the PSL was sent in appropriate form, that the Plan Creditors have been notified in due time and that the record of engagement with interested stakeholders has been exemplary.

20. Insofar as the second issue or jurisdiction is concerned, there is really very little to say in this regard since all the 13 Plan Companies are incorporated in England and Wales and there is no cross-border element. There is no difficulty in terms of the court’s strict jurisdiction under Part 26A.

21. Turning next to the threshold conditions, as I have described them, mandated by section 901 of the Companies Act 2006 , there are two provisions relevant at this stage, referred to as condition A and B. Condition A is that the company has encountered or is likely to encounter financial difficulties that are affecting or will or may affect its ability to carry on a business as a going concern; that is clearly satisfied in this case. Condition B is that a compromise or arrangement is proposed between the company and its creditors or any class of them and the purpose of the compromise or arrangement is to eliminate, reduce or prevent or mitigate the effect of any of the financial difficulties mentioned in Condition A. In the ordinary course, the court has often noted that these conditions are not difficult to satisfy. In this case there seems to be little doubt that they are satisfied and I think that for present purposes I need say no more about them.

22. As a footnote to the issue of jurisdiction it is customary for the Court, even at the convening hearing stage, also to consider whether there are, at this stage, obvious roadblocks which might prevent the exercise of the jurisdiction at the end of the day. In circumstances where no-one has suggested any such thing and none is discernible on the face of the papers before me, I need not address in any detail what roadblocks could arise in similar circumstances. None is evident on the evidence before me.

23. I should address two more detailed points. The first, in general terms, is the treatment of Landlord Creditors under the Plans. This is not a matter which I have personally confronted before and I was very much indebted to Mr Perkins’ skeleton argument and his helpful elaboration in his oral submissions in explaining to me the general architecture which has become appropriate and is proposed to be adopted in this case. Put shortly, in dealing with leases, there are certain do nots: for example, the court cannot interfere with a right of forfeiture nor can it require or approve a surrender of a lease under the general law; put more generally, it cannot alter proprietary rights. Since the Court has no jurisdiction to do either, a plan should not provide for such a thing. What the Court can do and what the Plans provide for in this case, is to alter the financial obligations under the relevant leases, if necessary by entirely reducing the rent payable to zero, provided that the landlord is given the right to bring an end to the lease. That general architecture has informed the arrangements for those classes of landlords concerned and I am satisfied that what is proposed is in line with the general architecture approved in case law (see, for example, Lazari Properties 2 Ltd v New Look Retailers Ltd [2021] Bus. LR 915 at [238] to [239] per Zacaroli J (as he then was).

24. The second point to note is that the Plan Companies are guarantors of the secured debt, but they are not the principal borrowers. The principal borrower in each case is another company in the Turbo Group, that is to say Turbo Acquisitions 10 Bidco Limited (which I shall call “Bidco”) and the Plans will compromise Bidco’s liability by way of ancillary release. The Plan Companies have assumed the position of principal debtors by executing a deed of contribution. Pursuant to the deed of contribution the Plan Companies confer a right of contribution on Bidco just as if the Plan Companies and Bidco were joint principal debtors. This ensures that Bidco has or would have a ricochet claim against the Plan Companies which, in turn, creates a legal justification for the Plans to release the claims of the Secured Plan Creditors against Bidco as well as the Plan Companies. I have questioned Mr Perkins in the course of the hearing about this contrived ricochet arrangement because any step which is not entirely necessary and looks artificial is bound to excite the interests of the court to a greater or lesser extent. However, I am satisfied, at least for present purposes, that this process has become routine in order to ensure that ricochet claims do not upset the Plans such as these and Mr Perkins referred me to E D & F Man Holdings Ltd, Re ( Companies Act 2006 ) [2022] EWHC 687 (Ch) at 65 to 66, a decision of Trower J, where he records the practice as it has developed. Mr Perkins furthermore submitted that in, as he put it, the scale of artifice or artificiality rates very low; and for the reasons which he explained at some length and that I need not recite, I accept that depiction.

25. I turn to the most important objective of the hearing today, as will be apparent from the name ‘Convening Hearing’ given to hearings of this kind: directions as to the class meetings to be held to consider and approve the Plans. The essential principles of class composition are very well established in the authorities, particularly in the decision of the Court of Appeal in AGPS BondCo PLC [2024] BLR 745 at 109 to 114 in the judgment of Snowden LJ. The basic rule is long established that a class “ must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interests” : those are the words of Bowen LJ in Sovereign Life Assurance Co (In Liquidation) v Dodd [1892] 2 Q.B. 573 at 583 which have been adopted as the relevant golden thread in all the subsequent cases.

26. The modern practice, as emanating from the decision of Chadwick LJ in Re Hawk Insurance Co Ltd [2002] BCC 300 at 30, is to enquire, first of all, whether there is a difference either in rights, if they exist, or in the rights to be conferred in exchange for those rights under a scheme or plan. If there is a difference the question then is whether nevertheless it is possible for the persons concerned to confer together with a view to their common interest.

27. In the OQ Chemicals Holding Drei GmbH [2024] EWHC 2036 (Ch) at paragraphs 38 to 40 Trower J succinctly identified the three most important principles of class composition as follows: “38. There are three important principles which it is worth emphasising. The first is that, in answering that question, the court is required to carry out a comparative exercise. The court must consider and compare the position that creditors will be in if the schemes do not become effective and the position they will be in if they do become effective. For that purpose the proper comparator, akin to the relevant alternative in the context of a part 26A restructuring plan, must be identified.

39. The second is that the court must ask whether there is any difference between the creditors' strict legal rights and, if there is, to consider whether, objectively speaking, there would be more to unite than divide those creditors in the proposed class, ignoring for these purposes any personal or extraneous motivation operating in the case of any particular creditor.

40. The third is that material differences in the rights of creditors do not necessarily fracture the class. A proliferation of classes should be avoided if possible and the court should be careful to ensure that the test is not applied in such a manner that it becomes an instrument of oppression by a minority.”

28. It is important to note that the test for class composition does not involve an assessment of whether any differential treatment under the plan is fair: as I have emphasised previously, issues of fairness are matters for the sanction hearing.

29. In the present case, the Plan Companies propose (and it is to be noted that the onus is on them as applicants to propose class meetings for the court to consider) that the following be convened: (1) a single class of Secured Plan Creditors; (2) five classes of Landlord Creditors comprised of (a) what are called the Class A Landlords; (b) the Class B1 Landlords; (c) the Class B2 Landlords; (d) the Class C1 Landlords and (e) the Class C2 Landlords (I shall return to explain these classes shortly); (3) a single class of the Business Rates Creditors; and (4) a single class of the General Unsecured Creditors. Mr Perkins explained that some consideration had been given as to whether the third and fourth class might safely and appropriately be combined: but it was eventually decided their interests were too disparate to be sure that they could discuss together with a view to a common interest, and I quite see that that is an entirely reasonable conclusion to have drawn.

30. It was submitted by Mr Perkins that it is plain that these classes are appropriate. The Secured Plan Creditors should plainly comprise a separate class from the other Plan Creditors given that the Secured Plan Creditors’ claims are secured and rank in priority to all other claims.

31. Returning to the Landlord Creditors, the five classes are intended to reflect differences in the contractual rights under respective leases and differences in the way that they are to be treated in the new regime if the Plans continued. The position there is both complex and fairly detailed. Rather than burdening this already long judgment with the classification of the individual leases and the treatment which is proposed, I propose simply to include as Part 1 of an annex to this judgment the table which should also include the defined terms which are set out under the table and contained in paragraph 37 of Mr Perkins’ skeleton argument.

32. I accept that, once the different terms and different treatments of those landlord classes are identified, there can really be no doubt that the five classes are required. That is so even though of course the ultimate result is that five Landlord class meetings are to be constituted in respect of each of the 13 Plan Companies, so that the number of meetings is very extensive indeed and has to be carefully choreographed.

33. The Business Rates Creditors and the General Unsecured Creditors are all unsecured creditors with broadly the same rights. However, the Business Rate Creditors will be treated differently under the Plans. In particular, because any liability in respect of business rates for the Class B2 premises, Class C1 premises and Class C2 premises attributable to a date on or after the Restructuring Effective Date (as defined) will be compromised in full for the relevant Rates Concession Period (also defined). Accordingly I accept that it is prudent and conservative to constitute separate classes of the Business Rates Creditors and of the General Unsecured Creditors as I have explained.

34. In the context of a Part 26A plan, the Court must be vigilant to ensure that there is no unnecessary proliferation of classes. However, in this case, I agree that there is no justification for either a larger or smaller number of the classes: neither the Plan Companies nor the Plan Creditors would have anything to gain from doing so and I do not think it is necessary in all the circumstances.

35. I should perhaps, as an addendum to my comments about the position of the Business Rates Creditors, explain that the court would not have jurisdiction and it is not part of any of the Plans to compromise future business rate liabilities, only past business rate liabilities which include liabilities for the present year since those accrued as due on the very first day on which the business rate period runs.

36. In all the circumstances therefore the remaining question is how the Plan meetings should be summonsed and conducted. This is set out in the draft order which I will invite Mr Perkins to take me through, in accordance with a chronology which is also set out in the skeleton argument at paragraph 73, which is included as Part 2 of the Annex to this judgment. At present, the sanction hearing has been listed with an estimate of one day, this is standard, but if any developments may occasion a longer hearing then the court is to be advised as soon as possible.