In the matter of the Great Annual Savings Company Ltd

For a cross-class cram down under Part 26A of the Companies Act 2006, the plan company must prove on the balance of probabilities that each dissenting creditor would be no worse off under the plan than in the relevant alternative. An objector need not always produce competing expert evidence. Manifest errors, inconsistencies or unexplained assumptions may prevent the company’s valuation evidence from satisfying that burden.

The comparison concerns the value of the creditor’s existing rights and the new or modified rights offered in exchange. Remote benefits arising independently of the compromise are excluded.

Even where the statutory conditions are met, sanction remains discretionary. The restructuring benefits must be distributed fairly, having regard to creditors’ existing rights, new contributions and any justification for disadvantage or altered insolvency priorities.

The Company applied for sanction of a restructuring plan under Part 26A of the Companies Act 2006. Twelve of 15 creditor classes supported the Plan, but HMRC and a class of Category 3 Energy Suppliers voted against it. No votes were cast by another class.

The Company therefore relied on the cross-class cram-down power. Condition B was admitted because several approving classes had a genuine economic interest in the relevant alternative. The disputed questions were whether HMRC and the opposing energy suppliers would be no worse off under the Plan and whether the Plan distributed the restructuring benefits fairly.

HMRC challenged the valuation of the Company’s commission debtor book and identified possible office-holder claims. It also objected that the Plan compromised most of its preferential debt while directing greater benefits to some junior creditors, the secured creditor, connected creditors and existing shareholders. The central issues were whether the statutory sanction power arose and, if so, whether it should be exercised.

1. Application refused. The Company failed to prove on the balance of probabilities that HMRC would be no worse off under the Plan. Condition A in section 901G of the Companies Act 2006 was therefore unsatisfied, so the cross-class cram-down power was unavailable.

2. The absence of competing expert evidence did not oblige the court to accept the Company’s valuation. The court had to scrutinise the materials and decide whether the Company had discharged its burden. The debtor-book analysis relied heavily on untested Company figures, unexplained high-level assumptions and provisions which reduced an £18.2 million book to nil or almost nil. Its weaknesses were material because HMRC’s projected advantage under the Plan was small.

3. The court could not reliably attribute present value to the possible wrongful-trading, preference, misfeasance, void-transaction or disqualification-related claims. A sanction hearing was unsuitable for a mini-trial of those claims. That conclusion did not cure the independently inadequate debtor-book evidence.

4. The no-worse-off comparison concerned the financial value of a creditor’s existing rights in the relevant alternative and the value of the new or modified rights offered under the compromise. Future tax receipts arising independently under tax legislation were too remote. Prospective business which an energy supplier might obtain from third parties was likewise outside the comparison. The opposing energy suppliers were nevertheless no worse off because their existing claims had nil value in the relevant alternative and produced a positive return under the Plan.

5. Even assuming the statutory power existed, the court would have refused sanction as a matter of discretion. Fairness required consideration of creditors’ existing rights, their additional contributions or new-money risk, and the justification for any disadvantage under the Plan. A plan may depart from insolvency priorities where there is good reason, but no sufficient justification existed here.

6. HMRC was a major in-the-money preferential creditor whose debt enabled the restructuring but was almost entirely written off. The Plan provided disproportionate prospective benefits to the secured creditor, connected creditors and existing shareholders, none of whom introduced new money. Some out-of-the-money creditors also received unexplained preferential treatment. HMRC therefore acted rationally in opposing an unfair distribution of the restructuring benefits.

Prior to the sanction hearing, Trower J made convening orders in February 2023. Those orders directed meetings of 15 creditor classes. The judgment does not describe any appeal from an earlier merits decision.