Re Great Annual Savings Co Ltd

This is an application for sanction of a restructuring plan under Part 26A of the Companies Act 2006. The court reviewed the two statutory conditions for a cross-class "cram down" under s.901G CA 2006: (A) that dissenting creditors would be no worse off than in the relevant alternative, and (B) that at least one in-the-money class approved the plan by the statutory majority. Condition B was accepted to be satisfied, but the Company failed to discharge the evidential burden under Condition A in relation to HMRC because the valuation of the commission debtor book (the main asset) and the assumptions underpinning the projected recoveries (principally the CRM report) were not shown to be robust on the balance of probabilities. The court also exercised its discretion against sanction on fairness grounds: the plan reallocates the benefits of restructuring in a way that materially disadvantages HMRC while advantaging the secured creditor and existing shareholders without adequate justification.

Background and parties. The Great Annual Savings Company Ltd (the Company) proposed a Part 26A restructuring plan that also affected its parent Project Byron Newco Limited and the parent shareholders. Meetings of 15 creditor classes were convened; 12 classes voted unanimously for the Plan but three meetings produced either no attendance or a majority against (including HMRC and the Category 3 Energy Suppliers: TotalEnergies Gas & Power Limited, Orsted Sales (UK) Limited and Corona Energy Retail 2 and 4 Limited).

Nature of the application. The Company sought court sanction of the Plan. The statutory issue was whether the court could exercise the s.901F sanction power despite the failing votes by some classes by applying the s.901G cram-down conditions.

Issues framed by the court. (i) Whether Condition B of s.901G (an in-the-money class approving by 75% of value) was satisfied; (ii) whether Condition A (dissenting creditors would be no worse off in the relevant alternative) was satisfied, in particular as to HMRC; and (iii) if Condition A were satisfied, whether the court should nevertheless exercise its discretion to refuse sanction on fairness grounds.

Key facts and plan terms. The Company is a broker whose principal asset is a commission debtor book. The Secured Creditor (Tosca/Toscafund) held significant secured debt which would be partly converted to preference shares in the parent and receive repayment priority; no new money was proposed. HMRC is a secondary preferential creditor for PAYE, NIC and VAT and was to receive capped staged payments (estimated c.£600,000 under the Plan). Many unsecured creditor classes, including critical and non-critical energy suppliers, would receive modest cash returns under the Plan (variously 2p–20.9p in the pound depending on class).

Court’s reasoning on Condition A. Condition B was accepted as fulfilled by votes of in-the-money creditors. On Condition A the court held the burden lay on the Company to show, on the balance of probabilities, that dissenting creditors (notably HMRC) would not be any worse off than in the relevant alternative (a non-going concern administration sale and parent liquidation). HMRC’s apparent marginal improvement under the Plan (c.9.1p/£ under the Plan versus a projected 0–4.7p/£ in the high/low relevant alternative) turned on the valuation of the commission debtor book. The court found the CRM valuation methodology insufficiently robust: large, compendious provisions were accepted without independent verification; key assumptions were thinly explained; apparent duplications and reliance on company-provided lists without audit undermined confidence in the recoveries model. The court therefore concluded the Company had not discharged the requisite evidential burden in relation to HMRC.

Ancillary valuation arguments. HMRC relied also on possible antecedent claims (wrongful trading s.214 IA 1986, preferences s.239 IA 1986, misfeasance/breach of duty s.172 CA 2006, post-petition void transactions s.127 IA 1986 and potential directors' disqualification compensation). The court accepted such claims might be viable but held their prospective value was too uncertain to be reliably attributed at the sanction hearing. The Company's submission that future tax receipts under continued trading should be counted in HMRC’s favour was rejected as either not lost to HMRC in the relevant alternative or too remote and not part of the package of rights being compromised by the Plan.

Discretion and fairness. Even if Condition A had been satisfied, the judge would have exercised his discretion to refuse sanction. The court considered whether the Plan fairly allocated the benefits of restructuring among creditors. It concluded the Plan redistributed value in a manner that advantaged the secured creditor and rehabilitated existing shareholders/connected party creditors (who would retain or regain equity upside) while capping recovery to HMRC and conferring better treatment on several unsecured creditors without adequate justification. The lack of new-money contribution, the selection and prioritisation of beneficiaries, and the public importance of HMRC’s role weighed heavily in the exercise of discretion.

Disposition. The Company did not discharge its evidential burden that HMRC would not be worse off; further, the court would have declined to exercise its discretion in favour of sanctioning the Plan because it was unfairly structured. The application for sanction was therefore refused.

Application dismissed. The Company failed to discharge the evidential burden under s.901G(A) CA 2006 that HMRC would not be any worse off in the relevant alternative; and even if that burden had been discharged, the court would have declined in its discretion to sanction the Plan because the proposed allocation of restructuring benefits unfairly disadvantaged HMRC while advantaging the secured creditor and existing shareholders without adequate justification.