Re Prezzo Investco Limited

The court sanctioned a restructuring plan proposed by Prezzo Investco Limited under Part 26A of the Companies Act 2006, exercising the cross-class cram-down power in section 901G. Key legal principles applied were the section 901A jurisdictional conditions (Conditions A and B), the section 901F sanction procedure and the section 901G statutory tests: the "no worse off" test and the "genuine economic interest" test. The judge accepted that the Relevant Alternative was an insolvent administration (a likely pre-pack sale to secured loan noteholders) and, on the basis of FRP's valuation and an Estimated Outcome Statement, concluded that no dissenting creditor would be worse off under the Plan than in that alternative.

The court also considered HM Revenue & Customs' objections, including the preferential status and size of HMRC's claim and the company’s conduct during plan preparation. Having found that secured loan noteholders would retain priority and be paid in full (on amended terms) and that HMRC would receive a materially better return under the Plan (including an additional £2m negotiated after convening), the court concluded it was fair to sanction the Plan and that discretion under section 901G should be exercised in favour of sanction.

Background and parties: Prezzo Investco Limited (the Company) proposed a restructuring plan to compromise liabilities of the Company and its wholly-owned subsidiary Prezzo Trading Limited under Part 26A of the Companies Act 2006. HM Revenue & Customs (HMRC), a substantial secondary preferential and unsecured creditor, opposed sanction. The Company relied on secured loan note funding from its shareholders; Prezzo Trading operated the Prezzo restaurant business and had closed 47 loss-making sites.

Nature of the application: An application for the court to sanction the Plan under sections 901F and 901G of the Companies Act 2006. The Company sought cross-class cram-down because HMRC and a class of other creditors voted against the Plan.

Issues framed by the court:

• Jurisdiction under section 901A (Conditions A and B) and whether the proposal is a "compromise or arrangement".
• Whether the Plan met the statutory scheme requirements and was properly convened and explained to creditors.
• Under section 901G, whether the dissenting classes would be no worse off in the Relevant Alternative, whether an approving class had a genuine economic interest, and whether the court should exercise its discretion to sanction the Plan (including consideration of HMRC's objections).

Court's reasoning and conclusions:

• Jurisdiction: The convening judge (Zacaroli J) had determined the company satisfied Condition A (financial difficulties) and Condition B. The court accepted that the Plan is a "compromise or arrangement" and that Part 26A does not require an element of consideration for creditors who would be "out of the money" in the Relevant Alternative.
• Relevant Alternative: The most likely alternative was an insolvent administration culminating in a pre-pack sale to secured loan noteholders. FRP's valuation (uncontested) supported that conclusion and provided estimated returns to creditors under the Relevant Alternative.
• No worse off test (Condition A under s.901G): The court accepted the comparative analysis showing that no Plan creditor would be worse off under the Plan than in the Relevant Alternative; in particular HMRC would receive substantially more under the Plan.
• Genuine economic interest test (Condition B under s.901G): The secured loan noteholders, who would be paid in the Relevant Alternative, unanimously approved the Plan, satisfying Condition B.
• Discretion: The court acknowledged the special status of HMRC and the need for caution when cramming down tax debts. However, having considered the size and timing of HMRC's claim, the negotiations that secured an additional £2m payment to HMRC, the maintenance of priority for secured creditors, the preservation of going-concern value, the interim funding provided by secured creditors, and the company’s engagement with HMRC, the court exercised its discretion to sanction the Plan. The court rejected a categorical rule that HMRC preferential debts must be paid during the plan preparation period.

Subsidiary findings and broader context: The court accepted the exclusion of "critical" suppliers from the Plan, the treatment of rates liabilities in the Part 26A context, and that creditors who are "out of the money" in the Relevant Alternative may be compromised without a separate element of consideration. The judge noted the remedy is to be applied cautiously but found no abuse in this case.

The court sanctioned the restructuring Plan. The judge found jurisdiction under section 901A, that Conditions A and B under section 901G were satisfied (the Relevant Alternative being an insolvent administration/pre-pack), that no dissenting creditor would be worse off under the Plan, and that the court should in its discretion exercise the cross-class cram-down power. HMRC's objections were considered but rejected on the facts: HMRC would receive a materially better return under the Plan and the allocation of benefits was fair, so sanction was appropriate.