Copperbelt Energy Corporation Plc v Konkola Copper Mines Plc (In Provisional Liquidation) (Appeal No 259 /2024) (9 October 2025) – ZambiaLII

IN THE COURT OF APPEAL OF ZAMBIA Appeal No 259 /2024 HOLDEN AT LUSAKA (Civil Jurisdiction) BET WEEN: COPPERBELT ENERGY CORPORATION PLC APPELLANT ro'f: 21,Me;~ AND ,,c;•tJ~ al of APP.:AL -, '\~" e,o<J•· _ _, . ' / I r--; - '; ---- \ .I-~ KONKOLA COPPER MINES PLC / . , 'l)CI 1~1S \ RESPONDENT (In Provisional Liquidation) CORAM: Chashi, Ngulube and Banda-Bobo, JJA On l'Jt", September, 2025 and 9t1r October, 2025. For the Appellant: Mr. M. Mwenye, SC and Mr. E. K. Mwitwa of Messrs Mwenye, Mwitwa Legal Practitioners For the Respondent: Mr. E. S. Lilanda of Messrs Mulenga Mundashi Legal Practitioners JUDGMENT Banda-Bobo, JA, delivered the Judgment of the Court. Cases referred to: 1. Re Oak Pits Colliery Company Limited (1882) 21 Ch D 322, 2. Printing and Numerical Registering Company v Sampson2 (1875) 19 EQ 462 3. Colgate Palmolive (ZJ Inc. v Shemu and Others (SCZ Appeal No. 11 of 2005) 4. James Mataliro v Occupational Health and Safety Institute ( CAZ-Appeal No. 106/2020) 5. Philip Mutantika & Mulyata Shea! v Kenneth Chipungu (SCZ Judgment No. 13 of2014) 6. Re Horizon Knowledge Solutions PTC Limited (2004) SGHC 270 • • 7. Royal Bank of Scotland v TT International Limited (2012) SGCA 9 8. Central London Property Trust Limited v High Trees House Ltd [1947] KB 130) 9. UDI Argos Engineering & Heavy Industries Company Limited v Li Oi Lin {2001) 10. Attorney General v Law Association of Zambia (SCZ Appeal No. 199 of 2006) 1 l. Esais Johannes Jansen Van Rensburg NO v Cardio Fitness Properties (Pty) Ltd {Case No. 46194 / 13) 12. Lundy Granite principle (LR 6 Ch App 462 (1871) 13. Jansen van Rensburg NO v Cardio-Fitness Properties (Pty) Limited (GJ, Case 46194/13) 14. Sovereign Life Assurance Co v Dodd {1892] 2 QB 573 15. Re Hawk Insurance Co Limited (2001) EWCA Civ 241 16. Re Alabama, New Orleans, Texas and Pacific Junction Railway Co (1891)1 Ch 213 17. Re British Aviation Insurance Company Limited (2005) 1 BCLC 142 18. Ajayi v R.T. Briscoe (Nigeria) Limited (1964) 1 WLR 1326 Legislation referred to: l. The Companies Act 2017 2. The Corporate Insolvency Act No. 9 of 2017 Other works referred to: • Halsbury's Laws of England, Vol. 7(3), Fourth Edition (1996 Reissue) 1.0 INTRODUCTION 1.1 This is an appeal against the Ruling of Hon. Mr. Justice Charles Kafunda, delivered on 28th June, 2024, in the High Court, Lusaka. 2.0 BACKGROUND 2.1 A winding up Petition was filed into court by ZCCM Investment Holdings PLC on 21st May, 2019, seeking, inter alia, the winding J2 • • up of the Respondent. The Petition was accompanied by an application for appointment of a provisional Liquidator, and by an Ex Parte Order of 24th May, 2019, a Provisional Liquidator was appointed by the Court. 2.2 Amongst the powers vested upon the Provisional Liquidator was the power to: "Make any compromises or arrangements with creditors" 2.3 On 24th February, 2024, the Court granted an Ex-parte Order to the Respondent to convene meetings of creditors to consider a scheme of arrangement. It was also directed that the Chairperson's Report and proposed Scheme of Arrangement be filed into Court, (7) days from the date of holding of the meetings. 2.4 For purposes of voting, the Respondent placed creditors in two classes, according to the value of the debt the Respondent owes to each creditor. Creditors with debts of less than US$1,000,000.00 were placed in class 1 and those with debts of US$1,000,000.00 or more were placed in class 2. The Appellant was placed in class 2 together with all other creditors who were owed US$ 1,000,000.00 or more. J3 • 2.5 On 30th May 2024 a meeting for class 2 creditors took place and 99% of creditors classified as class 2 creditors voted and decided in favour of the scheme. For this reason, the scheme passed the statutory threshold of 75°/4. The Appellant was in attendance but was not allowed the right to vote. 2.6 On 6th June, 2024, the Scheme of Arrangement Chairperson's Report was filed into Court. At the hearing, on 10th June 2024, the Appellant, filed into Court a Notice of Intention to Object to the sanctioning of the Scheme of Arrangement. On 13th June 2024, the Respondent filed an application to approve and or sanction the Scheme of Arrangement. 2. 7 The Affidavit in support of that application was sworn by Celine Meena Nair in her capacity as the Official Receiver and Provisional Liquidator of the Respondent. She averred that following the Court's order that the meetings of Scheme Creditors, being Class 1 Scheme Creditors, Class 2 Scheme Creditors and or other interested parties be convened by Provisional Liquidator of the Respondent in a manner convenient for purposes of discussing and considering proposed J4 "' " scheme of arrangement, with a further order that the said meetings of each class of the Scheme Creditors be held separately; allowed for voting in person or via video conference link or by proxy, at Mulungushi International Conference Centre. 2.8 That approving and or sanctioning the Scheme had become imperative in the process of assisting with the attainment of the Restructuring Effective Date, as the first step set out in the Scheme Explanatory Statement in the process of attaining the Restructuring Effective Date, had already been fulfilled. 3.0 DECISION OF THE LOWER COURT 3.1 By a Ruling dated 28th June, 2024, the lower Court in its decision found that the Scheme of Arrangement proposed, was one a man would reasonably approve, and consequently approved and sanctioned it in accordance with Section 46, 4 7 and 48 of the Companies Act 2017. In the Scheme of Arrangement, it was confirmed that the Respondent was not a preferential debtor, among other issues. JS I o • 4.0 THIS APPEAL 4.1 Unhappy with the Ruling, the Appellant launched this appeal before this Court, by way of Notice of Appeal and Memorandum of Appeal filed on 12th July, 2024, while the record of appeal was filed on 20th September, 2024. Six grounds of appeal were fronted and couched as follows: - Ground One The learned High Court Judge erred in law and fact when he held at page R-19 of the Ruling that the debt owed to the Appellant by the Respondent was not a preferential debt. Ground Two The learned High Court Judge erred in law and misdirected himself when he held at page R-43 of the Ruling that the Explanatory Statement had adequately explained the interests underlining the manner of the Respondent's related entities' participation in the scheme. Ground Three The learned High Court Judge erred in law and fact when he found at page R-47 of the Ruling that the debt of the Respondent's related entities had no bearing on the Scheme of J6 • Arrangement and therefore there was no justification for the Appellant to claim for a right to prove the debt. Ground Four The learned High Court Judge erred in law and misdirected himself when he held at page R-50 of the Ruling, that it was not unreasonable on the part of the Scheme Administrator to refuse to admit the Appellant to vote. Ground five The learned High Court Judge erred in law and fact when he held at page R- 52 of the Ruling that the placement of creditors in two groups of those owed less than US$1Million and those owed more than US$ 1 million was a fair representation of the classes of creditors. Ground Six The learned High Court Judge erred in law when he sanctioned the Scheme of Arrangement without any variation to take into account the concerns raised by the Appellant and its interest as a preferential creditor. J7 5.0 ARGUMENTS IN SUPPORT 5.1 The Appellant filed heads of argument and a list of authorities on 24th September, 2024. It was proposed to argue grounds 1 and 5 first, while the rest would be argued in the order of appearance. 5.2 On ground one, the Appellant argued that it is a preferential creditor and that the debt owed by the Respondent is a preferential debt. That it is settled law that creditors under a Scheme of Arrangement must be classified in line \vith the similarities in their rights against the company. That the comparator of the creditors' rights is how the creditors would rank in an insolvent winding up; such that preferential creditors must form a class separate from other creditors because their rights are different; as acknowledged by the Court at page 45, Volume 1, of the record of appeal (ROA), line 15. That the Appellant was thus a preferential creditor and the debt owed by the Respondent to it, is a preferential debt. 5.3 It was submitted that this is because the Provisional Liquidator entered into an agreement with the Appellant for the continued supply of electricity in order to sustain the Respondent's J8 operations during liquidation. That electricity supplied in this period was therefore a liquidation cost and a preferential debt within the meaning of Section 127(1l(a) of the Corporate Insolvency Act. 5.4 The Appellant contended that the Judge below erred in holding that liquidation costs are limited to secretarial or process related expenses. That the proper test is whether the liquidator could fully perform his duties without incurring the expense in question. 5.5 To buttress, reliance was placed on Halsbury's Laws of England. Vol. 7(3). Fourth Edition (1996 Reissue}, para. 2569, and Rule 4.218 of the Insolvency Rules of England 1986, which recognize liquidation costs as including expenses incurred to preserve assets and to carry on the company's business. 5.6 The Appellant also cited the case of Re Oak Pits Colliery Company Limited1 where the court held that rental costs of , premises occupied during liquidation, constituted liquidation costs. J9 5. 7 On this basis, the Appellant maintained that electricity consumed during provisional liquidation process, qualifies as a liquidation cost under section 127(1)(a) of the Comorate Insolvency Act. That a valid contract existed recognising such costs as preferential. That the learned Judge erred by stating that liquidation costs are only limited to secretarial and liquidation process related activities, and that the same does not extend to electricity supplied during the process of winding up. It was the Appellant's contention that liquidation costs are simply costs incurred by the liquidator in organizing, preserving and realizing the assets of the business as well as carrying on the business of the company during the process of liquidation. 5.8 Further, that parties had expressly contracted and agreed that the debt to be accrued while KCM was in provisional liquidation was a preferential debt. That the Court below was obliged to respect and enforce the agreement freely entered into by the parties to treat the debt as preferential; as per Clause 3.0 of the Supplemental Agreement. That it was an error by the Court to J10 deem the Agreement as of no consequence because of the categorization under Section 127 of the Act. 5.9 To buttress on the duty of the court in dealing with contracts between parties, the cases of Printing and Numerical Registering Company v Sampson2 was referred to, as were the case of Colgate Palmolive (Z) Inc. v Shemu and Others3 and James Mataliro v Occupational Health and Safety lnstitute4 5.10 That it is clear from the above cases that where parties agree on contractual terms, public policy requires that the courts respect such agreements and courts are bound to enforce them. That in casu, Section 127 of the Act does not oust the freedom of the parties to agree that a particular debt will be treated differently. That infact the Respondent itself acknowledged that the Appellant was a preferential creditor as appear at page 746 of Volume 2 of the ROA. 5.11 Ultimately, the submission on this ground was that the Appellant is a preferential creditor because the electricity consumed during this period is a liquidation cost and secondly, there is a valid contract between the Appellant and the Jll Respondent, duly negotiated and entered into between the parties. 5. 12 Submitting on ground five, the Appellant argued that creditors must be classified according to their rights in an insolvent liquidation. That preferential creditors are entitled to full payment before ordinary creditors, and therefore their rights are materially different. 5.13 It was further argued that placing preferential creditors in the same class as ordinary creditors strips them of their preferential rights. That it was therefore an error to group creditors solely on the basis of whether 1hey were owed above or below US$ 1 rrrillion. 5.14 That this is because preferential creditors have the right to be paid in full before other ordinary creditors can be paid 5. 15 Moving on to ground two, it was argued that the Respondent was obliged to disclose the interests of its related parties, such as Vedanta, ZCCM, and GRZ, which differed materially from the interests of oilier creditors. That disclosure would have enabled creditors to make informed decisions. That the lower Court's reliance on those entities' election to defer payment J12 was misplaced, as the law requires disclosure of benefits accruing from the scheme, not waiver of rights. 5.16 We were referred to Section 47(1) of the Corporate Insolvency Act which imposes a mandatory disclosure obligation, and the case of Philip Mutantika & Mulyata Sheal v Kenneth Chipungu5 where the court affirmed that the word "shall" , excludes judicial discretion. 5.17 On ground three, the Appellant argued that the Respondent's related entities, as both shareholders and creditors, influenced the scheme outcome by their sub.stantial voting power, which aggregated to 91 % of Class 2. That KCM's shareholding structures shows that Vedanta, ZCCM and the Government of Zambia are the only shareholders. That their interests were not the same as those of the ordinary creditors but that their interests were to secure shareholder benefits rather than creditor rights. That it was therefore important for KCM to disclose how Vedanta, ZCCM and GRZ stood to benefit from the Scheme in a way different from the benefits of other creditors. Further that the failure to verify these debts undermined the fairness of the process. J13 5.18 The Appellant cited Re Horizon Knowledge Solutions PTC Ltd6 and Royal Bank of Scotland v TT International Ltd7 , both affirming creditors' entitlement to scrutinize related party debts. 5.19 On ground four, the Appellant submitted that it was improperly denied voting rights despite submitting its claim form seven days before the meeting, in line with clause 8.2 of the Explanatory Statement. That the Scheme Administrator accepted this form, and the Respondent was estopped from denying it under the doctrine of promissory estoppel, and cited the case of Central London Property Trust Ltd v High Trees House Ltd8 to support its position. , 5.20 That the Explanatory Statement is a statutory requirement Under Section 47 of the Act and prepared by KCM and was never amended. That the Appellant relied on it, and it was duly accepted by the Scheme administrator. That therefore it was misleading for KCM to issue a notice bearing different dates from what was in the Explanatory Statement. 5.21 On ground six, the Appellant argued that the court's role in sanctioning a scheme is to ensure compliance with the law, Jl4 not to rubber-stamp proposals. That in casu, the Scheme of arrangement was not organized and conducted in line with the law. That where compliance is lacking, the court lacks jurisdiction to approve. Halsbury's Laws of England, Vol. 7(2), Fourth Edition (1996 Reissue), para. 1458 was cited where it is stated that sanction is not automatic and may be conditional It was argued that the lower Court failed to protect creditors from majority oppression by related parties. The Appellant relied on UDL Argos Engineering & Heavy Industries Co. Ltd v Li Oi Lin9 where Lord Millet cautioned , that courts must ensure voting outcomes fairly reflect the voices of creditors without undue influence from parties with special interests. We were urged to uphold the appeal. 6.0 ARGUMENTS IN OPPOSITION 6.1 In opposition, the Respondent filed heads of argument and submitted that the appeal is academic. That once a scheme of arrangement is approved by the requisite majority of creditors, it becomes binding on all creditors, including dissenting ones. The Appellant, having attended the meeting, is bound by the resolution. JlS 6.2 Reliance was placed on Attorney General v Law Association of Zambia10 where the Supreme Court declined to make , academic pronouncements once events had overtaken the relief sought. 6.3 On ground one, it was argued that the Appellant's debt is not preferential. That a Provisional Liquidator has only the powers conferred by the appointing order, which are limited to preserving assets until a permanent liquidator is appointed. Citing Esais Johannes Jansen Van Rensburg No v Cardio Fitness Properties (Pty) Ltd1 1 it was submitted that only a , permanent liquidator performs the substantive tasks of liquidation. Thus, no liquidation costs arose in this case. 6.4 It was further argued that even if Section 127 of the Corporate Insolvency Act applied, it concerns winding-up proceedings, not schemes of arrangement. Further that ordinary supply of electricity in the course of business cannot constitute a liquidation cost. 6.5 On ground five, the Respondent argued that the Appellant's rights were sufficiently similar to other Class 2 creditors, warranting classification together. That the Appellant was not J16 a preferential creditor and was correctly grouped with other creditors owed debts exceeding USD 1 million. 6.6 On ground two, it was submitted that the Respondent's related entities did not derive any unique benefit from the scheme beyond that of other creditors; that their interest was the revival of the Respondent as a going concern. 6. 7 On ground three, the Respondent argued that the lower Court properly addressed the issue of proof of related-party debts. That the Appellant produced no evidence of impropriety. Citing Royal Bank of Scotland NV v TT International Ltd7 , it was argued that the Appellant could have applied to court for disclosure but failed to do so. 6.8 On ground four, it was submitted that the Appellant's exclusion from voting resulted from its failure to comply with the stated deadline of 20th May, 2024. The Appellant could not unilaterally rely on a different date of its choosing. 6.9 On ground six, the Respondent argued that the scheme was conducted in full compliance with the law. The votes reflected the independent and prudent decisions of creditors seeking J17 repayment of their debts, and the Appellant was correctly classified under Class 2. 7.0 HEARING 7.1 At the hearing of the matter, Mr. Lilanda stated that they had filed a motion to raise Preliminary Issues. However, the court declined to hear the motion as no leave had been obtained pursuant to Order 13 rule 5(11 of the Court of Appeal Rules, as this objection was filed outside the 14 days period from the date they received the ROA. 7.2 In submitting on the appeal, Mr. Mwenye, SC, relied on the heads of argument filed on 20th September 2024 and 6th November 2024. 7.3 He argued that the Appellant's case centered on the rights of creditors in a Scheme of Arrangement and the correct classification of those creditors. He contended that, by contract and by law, the Appellant was a preferential creditor and should be treated as such. He noted that 91% of the creditors, who were GRZ and Vedanta, declined to get payment of their debt. It was stressed that the main issue was how the Appellant was classified. Furthermore, that this case J18 has the potential to set a precedent on how Schemes of Arrangement should be conducted with regard to the classification of creditors. 7 .4 Mr. Lilanda, in submitting for the Respondents, relied on the heads of argument filed on 29th October 2024. He further argued that the classification of creditors is not an issue for the Respondent but a matter of law, and that the classification was as determined by the High Court. 7.5 Regarding the argument that the Appellant was not heard, it was submitted that the Appellant did not submit the claim form according to procedure. Further that, by the Ruling of the High Court dated 28th June 2024, the High Court sanctioned the classification. It was also argued that, according to Section 46(8)(a) of the Corporate Insolvencv Act, this issue was subject to an extraordinary resolution; since the resolution is not subject to this appeal, it is therefore binding. 7 .6 It was further submitted that the appeal is academic in nature, as the Scheme of Arrangement has already been executed. J19 ,. 7.7 In further submissions opposing the appeal, Mr. Chaleka argued that the whole essence of a Scheme of Arrangement is fairness. He maintained that under the Corporate Insolvency Act, there is a provision for the classification of creditors, and that is why the scheme is sanctioned by the Court. 7 .8 In reply, Mr. Mwenye, SC submitted that, according to Section 127(1), Corporate Insolvency Act the law provides that expenses of the winding up are preferential. He explained that the Provisional Liquidator had to enter into a provisional contract for the supply of electricity to keep the mine working. He argued that Section 46(8)(a) Act was cited out of context and that the provision does not preclude an appeal in a Scheme of Arrangement. 7 .9 It was further submitted that, on page 171 of the ROA from line 32, it is shown that one could submit their claim no later than 3 business days before the meeting. It was stated that the notice on page 702, volume 2 of the Record of Appeal, was received by the Scheme Administrator, but the Appellant was still denied the opportunity to vote. J20 7 .10 Additionally, it was submitted that on page 156 of the ROA, the Class 2 creditors are listed, and of all the Class 2 creditors listed, only two were not related to the Respondent. He argued that when such a situation arises, the law requires that the debt should be proven, but this was not done. 8.0 DECISION OF THIS COURT 8.1 We have considered the record of appeal, the judgment of the Court below, and the detailed submissions of counsel on both sides. This Court is being called upon to determine whether the Judge below misdirected himself on the statutory preconditions for sanctioning the scheme of arrangement. 8.2 From the six grounds of appeal and the arguments advanced, the following questions arise for determination: 1. Whether the learned Judge erred in holding that the Appellant's claim was not a preferential debt; 2. Whether there was adequate disclosure of related-party interests in the Explanatory Statement as required by Section 4 7(1) of the Act; 3. Whether the Judge erred in failing to ensure verification of related-party proofs of debt and the bearing of those debts on voting; 4. Whether the refusal to admit the Appellant's vote was lawful and, if not, whether the Respondent was estopped from relying on a newspaper deadline inconsistent with the date in the Explanatory Statement; 5. Whether the class constitution by quantum, rather than by legal rights, was proper in law; 6. Whether the Judge erred in granting sanction to the scheme notwithstanding the defects. 8.3 We now consider each ground in turn. 8.4 We begin by addressing the first issue raised by the Respondent, namely that this appeal is a mere Academic exercise. 8.5 The Respondent invited this Court to treat the matter as academic, arguing that the Scheme of Arrangement was already approved by the requisite statutory majorities and therefore binds all creditors. We disagree. Where the sanctioning court is said to have misdirected itself on mandatory statutory preconditions, such as class J22 constitution, adequacy of disclosure, or fairness of voting, an appellate court retains jurisdiction to set aside the sanction, remit the matter for fresh meetings, or impose protective conditions. Sanction is not an irreversible f ait accompli. The court is not a mere rubber stamp. The relief sought is therefore practical and not theoretical. The argument by the Respondent finds no favour with us. 8.6 We now address the grounds of appeal on their merits. 8. 7 Under ground one, the question is whether the Appellant's debt was preferential. The Appellant contends that the electricity it supplied during the period of the Provisional Liquidation was indispensable to preserve the Respondent as a going concern. That by operation of Section 127(l)(al of the Corporate Insolvency Act, such costs are liquidation expenses payable in priority to unsecured debts. Counsel relied on the case of Re Oak Pits Colliery Co1 where it was held that , expenses necessarily incurred for the benefit of the estate rank ahead of ordinary debts, and on the Lundy Granite principle12 recognising that obligations incurred to preserve , the estate are entitled to preferential treatment. J23 8.8 The Respondent countered that a Provisional Liquidator does not "undertake liquidation" and therefore no liquidation costs can arise. Reliance was placed on Jansen van Rensburg NO v Cardio-Fitness Properties (Pty) Limited 3 where the court 1 , held that a provisional liquidator is essentially a custodian whose role is limited to preservation pending further orders. 8. 9 Our view is that while the Provisional Liquidator's role is indeed custodial and circumscribed, that does not mean that costs incurred under the authority of the court to preserve the undertaking are not to be treated as preferential. The proper comparator for class formation and fairness is the creditors' rights in an insolvent liquidation: Sovereign Life Assurance Co v Dodd14 case refers, where the court stressed the point that creditors cannot be placed in the same class where their rights are different and in Re Hawk Insurance Company Limited15 case in which the principle of the liquidation comparator was emphasised. On that comparator, it is said that costs incurred by an officer of the court to preserve the estate, such as continuous electricity supply, would be met in priority. We therefore opine that the Judge erred in treating J24 the Appellant's debt as an ordinary trade debt and in confining "liquidation expenses" to narrow adnrinistrative items. 8.10 Further, and as rightly pointed out by the Appellant, the duty of the Court is to enforce agreements freely entered into by parties; as they have the utmost liberty to contract. Our view is that they are bound by the Contract entered into to designate the Appellant as a preferential creditor. Ground One therefore succeeds. 8.11 Under ground two, the question is whether there was adequate disclosure of related-party interests in the Explanatory Statement as required by Section 4 7(11 of the Act. 8.12 The Appellant argued that the Explanatory Statement failed to comply with Section 47(11, which imposes a mandatory duty to disclose material interests of related parties and how they are affected by the scheme. That merely stating that Vedanta, ZCCM and Government opted for a deferred payment option did not reveal the full spectrum of their interests as shareholders and creditors, nor how those interests diverged from ordinary creditors. J25 • 8.13 The Respondent submitted that no special benefits were obtained by the related parties and that their objective was the rehabilitation of the Respondent. 8.14 We take the view that the duty of candour in Schemes of Arrangement is strict. As the Singapore Court of Appeal held in Royal Bank of Scotland NV v TT International Limited7 , creditors must be provided with sufficient information to scrutinise related-party debts and interests, and the court has a supervisory role to ensure fairness. Similarly, in UDL Argos Engineering and Heavy Industries Co Ltd v Li Oi Lin9 the Hong Kong Court of Final Appeal emphasised that , votes may be discounted where creditors have collateral or conflicting interests. In this matter, the Explanatory Statement failed to disclose how related parties, as both creditors and shareholders, stood to gain through restoration of control, avoidance of litigation liabilities, or other strategic advantages. That deficiency, in our view, undermined the fairness of the process. Ground two succeeds. 8.15 We now turn to ground three, where the question is whether the Judge erred in holding that there was no justification to J26 • ensure verification of related-party proofs of debt and the bearing of those debts on voting. 8.16 The Appellant submitted that because voting power under Section 46(71 is proportionate to debt value, related-party debts needed scrutiny and verification, failing which the integrity of the vote was compromised. 8.17 The Respondent argued that the Judge adequately dealt with proofs and that the Appellant should have pursued specific disclosure orders if dissatisfied. 8.18 In our view, the law requires closer scrutiny. In TT lnternational7, the Court of Appeal held that where related party votes are decisive, the court must inquire whether those creditors are voting in the interests of the class as creditors. In Re Horizon Knowledge Solutions pte Limited6, it was held that creditors may in appropriate cases inspect proofs submitted by other creditors to ensure fairness. Further, and as the case of Re Alabama, New Orleans, Texas and Pacific Junction Railway Company16 illustrates, the sanctioning court must itself be satisfied that the class was fairly represented and that the vote was not oppressive. J27 ' r ' • 8.19 In this matter, related-party votes aggregated to a decisive super-majority in Class 2. We are of the opinion that the Judge erred in treating the matter as adversarial and faulting the Appellant for not proving impropriety. The burden lay with the scheme proponents to establish fairness, failing which related-party votes could have been discounted. Ground three succeeds. 8.20 Under ground four, the question for determination is whether the refusal to admit the Appellant's vote was lawful and, if not, whether the Respondent was estopped from relying on a newspaper deadline inconsistent with the Explanatory Statement. 8.21 The Appellant lodged its voting claim form within the timetable set by the Explanatory Statement, a statutory document under Section 47, and the Scheme Administrator accepted it. The subsequent reliance on a newspaper notice to exclude the vote was inconsistent with the Explanatory Statement. 8.22 The Respondent argued that the form was late by reference to the newspaper deadline and that non-compliance \Vas fatal. J28 • • 8.23 We find that the Explanatory Statement was the controlling document/authority on procedure. As the Court of Appeal held in Re British Aviation Insurance Company Limited 7 1 , irregularities that prejudice creditors' rights to vote are sufficient to withhold sanction. In addition, the doctrine of estoppel applies. Having represented through the Explanatory Statement that creditors could lodge forms within a certain timeframe, and having accepted the Appellant's form, the Respondent cannot later resile the same to the Appellant's detriment. In Central London Property Trust Ltd v High Trees House Limited8 Denning J affirmed that a party who , induces reliance by representation cannot afterwards act inconsistently. Likewise, in Ajayi v R.T . Briscoe (Nigeria) Limited18 the Privy Council underscored that estoppel , operates where one-party acts on the representation of another to its prejudice. That principle is directly applicable here. The Judge therefore erred in upholding the exclusion. Ground four succeeds. J29 • • 8.24 We now turn to ground five, where the question is whether the class constitution by quantum, rather than by legal rights, was proper at law. 8.25 The Appellant argued that preferential creditors hold rights different from ordinary unsecured creditors, and therefore could not properly be grouped together merely by reference to a US$1,000,000.00 threshold. 8.26 The Respondent contended that all Class 2 creditors had sufficiently similar rights as creditors owed large sums and could consult together. 8.27 The law is settled that classes must be constituted according to legal rights, not size of claim or commercial interest. In Sovereign Life Assurance Company v Dodd14, it was held that creditors with rights too dissimilar cannot consult together. In Re Hawk Insurance Company Limited15 it was emphasised that the relevant co1nparison is what creditors would receive in a winding-up. Applying that test, the Appellant, whose claim arose as a preferential liquidation expense, had different rights from ordinary unsecured BO creditors. Lumping them together diluted those rights and created an unfair class constitution. 8.28 We opine that at the minimum, the Appellant should have been placed in a separate class, or their votes treated with safeguards to prevent oppression, as discussed in UDL Argos9. Ground five therefore succeeds. 8.29 We now address ground six. The question is whether the Judge erred in granting sanction to the scheme notwithstanding the defects. 8 .30 The Appellant submitted that given the material irregularities, the court should have refused sanction or at least imposed variations. 8.31 The Respondent maintained that the scheme was compliant and the majorities were independent and prudent. 8.32 It is settled law that sanction is not automatic. In Re Alabama1 6 the court held that sanction requires satisfaction , that statutory requirements were met, that classes were properly constituted, that the scheme is such as an intelligent and honest creditor might approve, and that no oppression J31 ""'" results. UDL Argos9 reiterates the protective jurisdiction of the court. 8.33 In this matter, the mischaracterization of the Appellant's claim, defective class constitution, lack of proper related party disclosure, wrongful exclusion of the Appellant's vote, and absence of scrutiny of decisive related-party debts all meant the statutory safeguards were not met. The Judge below treated sanction as a formality rather than an exercise of protective discretion. To that extent, the Court erred. Ground six succeeds. 8.34 Overall, and taking the grounds together, a consistent theme emerges, vis, the Explanatory Statement and the conduct of the meetings did not produce a vote that fairly reflected the views of a properly constituted class of creditors acting solely in their capacity as creditors. The defects were material and went to jurisdiction and fairness. 9.0 CONCLUSION 9.1 For these reasons, we find merit in all the grounds of appeal. The learned Judge misdirected himself on fundamental statutory preconditions. The Appeal, as against that part of J32 " the Ruling which affects the Appellant succeeds, and the Scheme is varied only to that extent. 9.2 It is ordered that the Appellant be considered and treated as a preferential creditor, and be paid as such. J. CHASH1 COURT OF APPEAL JUDGE ~ .... ............... . •••••••• ••••••••••••••••••••••••••••••• P.C.M.NGULUBE A. M. BANDA-BOBO COURT OF APPEAL JUDGE COURT OF APPEAL JUDGE J33