Trends loses again in top court judgment on creditor compromises

Trends Publishing has again been refused an appeal in relation to a creditor compromise, which was found to favour interests linked to its founder David Johnson.

The long-running case was brought by a group known as the “challenger creditors” against the publishing company. The group includes recruitment firm Advicewise People, Mediaworks Radio and Webstar.  

At issue was a creditors' proposal, which would have meant the challenging firms who were owed money would have received 11-18% of the debts owed to them.

Such deals are made when insolvent or nearly insolvent companies want to strike a repayment deal with the companies they owe money to.

The general rule is a numerical majority of the creditors making up 75% of the value of the debts can strike a deal that commits all of the creditors. 

In the case of Trends, the creditor's proposal did not separate the interests of the “inside creditors,” being those with interests linked to Mr Johnson, from other creditors who voted against the proposal but were unsuccessful as Mr Johnson’s interests made up a lot of the vote.

In a 3-2 decision, the majority of Justices William Young, Susan Glazebrook and Mark O’Regan said there should be different classes of creditors voting on the proposals.

“Where creditors whose pre-compromise rights and interests are materially the same are treated differently under the proposed compromise, however, separate classes will almost certainly be required,” the majority ruling says.

The majority said the creditor compromise should be set aside.

But not all agree
Chief Justice Sian Elias and Justice Ellen France said that Advicewise, Mediaworks and Webstar were unfairly prejudiced, and that they would order they aren’t bound by the compromise.

They judges said that they would also dismiss the appeal but for different reasons. 

Their interpretation of the law was that it didn’t matter whether creditors had different economic motives in a liquidation so long as they had substantially the same legal rights.

“Similarly, it is immaterial if creditors have interests as employees or directors in the continuation of the company. If their legal rights are essentially similar, they are properly included in the same class for the purposes of voting on a proposal.”

The decision notes that, separately, Trends is still awaiting the trial of its court case against Callaghan Innovation. In that suit Trends wants damages for alleged breaches of the funding agreement and alleged defamation. The defamation occurred, Trends claims, when Callaghan said it had complained to the Serious Fraud Office about Trends.

The SFO has since completed its investigation and taken no action.