OK. I went and check fs:

root@rescue:~# fsck -f /dev/xvda1 
fsck from util-linux-ng 2.17.2
e2fsck 1.41.12 (17-May-2010)
Pass 1: Checking inodes, blocks, and sizes
Pass 2: Checking directory structure
Pass 3: Checking directory connectivity
Pass 4: Checking reference counts
Pass 5: Checking group summary information
cloudimg-rootfs: 578609/2732032 files (0.3% non-contiguous), 4052539/8388608 
blocks
root@rescue:~#


then restarted the VPS and attempted apt-get update/upgrade:

-----------------------
root@VPS:~# apt-get upgrade
Reading package lists... Done
Building dependency tree       
Reading state information... Done
You might want to run 'apt-get -f install' to correct these.
The following packages have unmet dependencies:
 libpam-systemd : Depends: systemd (= 229-4ubuntu8) but 229-4ubuntu7 is 
installed
 systemd : Depends: libsystemd0 (= 229-4ubuntu7) but 229-4ubuntu8 is installed
E: Unmet dependencies. Try using -f.

root@VPS:~# apt-get -f install
Reading package lists... Done
Building dependency tree       
Reading state information... Done
Correcting dependencies... Done
The following additional packages will be installed:
  systemd
Suggested packages:
  systemd-ui systemd-container
The following packages will be upgraded:
  systemd
1 upgraded, 0 newly installed, 0 to remove and 2 not upgraded.
1 not fully installed or removed.
Need to get 3,639 kB of archives.
After this operation, 0 B of additional disk space will be used.
Do you want to continue? [Y/n] 
Get:1 http://archive.ubuntu.com/ubuntu xenial-updates/main amd64 systemd amd64 
229-4ubuntu8 [3,639 kB]
Fetched 3,639 kB in 1s (2,835 kB/s)  
Reading changelogs... Done
(Reading database ... 122160 files and directories currently installed.)
Preparing to unpack .../systemd_229-4ubuntu8_amd64.deb ...
+ set -e
+ [ upgrade = remove ]
+ dpkg-maintscript-helper rm_conffile 
/etc/X11/xinit/xinitrc.d/50-systemd-user.sh 228-3~ -- upgrade 229-4ubuntu8
+ dpkg-maintscript-helper rm_conffile 
/etc/dbus-1/system.d/org.freedesktop.machine1.conf 228-5~ -- upgrade 
229-4ubuntu8
+ dpkg-maintscript-helper mv_conffile /etc/systemd/systemd-journald.conf 
/etc/systemd/journald.conf 204-1~ -- upgrade 229-4ubuntu8
+ dpkg-maintscript-helper mv_conffile /etc/systemd/systemd-logind.conf 
/etc/systemd/logind.conf 204-1~ -- upgrade 229-4ubuntu8
+ dpkg-maintscript-helper rm_conffile 
/etc/bash_completion.d/systemd-bash-completion.sh 204-1~ -- upgrade 229-4ubuntu8
+ dpkg-maintscript-helper rm_conffile 
/etc/bash_completion.d/systemctl-bash-completion.sh 204-1~ -- upgrade 
229-4ubuntu8
Unpacking systemd (229-4ubuntu8) over (229-4ubuntu7) ...
dpkg: error processing archive 
/var/cache/apt/archives/systemd_229-4ubuntu8_amd64.deb (--unpack):
 unable to create '/lib/systemd/network/80-container-host0.network.dpkg-new' 
(while processing './lib/systemd/network/80-container-host0.network'): No such 
file or directory
No apport report written because the error message indicates an issue on the 
local system
                                                                                
         dpkg-deb: error: subprocess paste was killed by signal (Broken pipe)
addgroup: The group `systemd-journal' already exists as a system group. Exiting.
Processing triggers for ureadahead (0.100.0-19) ...
Processing triggers for dbus (1.10.6-1ubuntu3) ...
Errors were encountered while processing:
 /var/cache/apt/archives/systemd_229-4ubuntu8_amd64.deb
E: Sub-process /usr/bin/dpkg returned an error code (1)
root@VPS:~#
-----------------------

Changed the kernel to 4.4.21-rh35 x86_64, but no luck.

Cheers

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https://bugs.launchpad.net/bugs/1623774

Title:
  Ubuntu 16 unable to create 80-container-host0.network.dpkg-new

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