In the matter of Prezzo Investco Limited

A Part 26A restructuring plan may compromise claims held by creditors who are out of the money in the relevant alternative without providing them with valuable consideration. The arrangement need not involve give and take for those creditors. Cross-class cram-down requires satisfaction of the statutory conditions and a separate discretionary assessment. The relevant alternative is the outcome most likely to occur without sanction, and the no-worse-off test compares anticipated returns and other relevant incidents of the liability. There is no presumption in favour of sanction, nor any rule requiring preferential HMRC liabilities incurred during the plan process to be paid before sanction. HMRC’s status and objections require caution, but a plan may be sanctioned where its allocation of value is fair and HMRC receives materially more than in the relevant alternative.

Prezzo Investco Limited sought sanction of a restructuring plan under Part 26A of the Companies Act 2006. The plan restructured liabilities of the company and its subsidiary, Prezzo Trading Limited, whose business had suffered substantial losses and had closed 47 loss-making restaurants. The relevant alternative was an administration and pre-packaged sale.

The plan was approved by the secured loan noteholders and sustainable-site local authorities, but not by HMRC as preferential creditor or by the other creditors. The company therefore sought cross-class cram-down. HMRC opposed sanction, arguing that its preferential tax liabilities had been unfairly compromised and that creditors treated as critical had been paid while HMRC remained unpaid. The central issues were whether out-of-the-money creditors required consideration and whether the plan should be sanctioned in the circumstances.

The application was granted. The restructuring plan was sanctioned, including the cross-class cram-down of HMRC’s compromised debt.

1. Arrangement. The concept of an arrangement under Part 26A does not require valuable consideration for creditors who would receive nothing in the relevant alternative. The statutory no-worse-off condition contemplates that such creditors may have their claims compromised for nil consideration.
2. Sanction framework. The court applied the conventional four-stage approach: statutory compliance; fair representation and bona fide voting for proper purposes; whether an intelligent and honest creditor acting in its own interests might reasonably approve the plan; and whether there was any blot or defect. The classes were properly constituted, the meetings complied with the convening order, the explanatory material was adequate and the required majorities were obtained in the approving classes.
3. Cross-class cram-down. The court had to determine the no-worse-off condition, the genuine-economic-interest condition and whether to exercise its discretion. The relevant alternative was the outcome most likely to occur without sanction. The court identified a pre-pack administration sale to an entity owned by the secured loan noteholders. The dissenting creditors would receive no less under the plan, while HMRC would receive at least £3,326,837 compared with an estimated £1,326,837 in administration. The secured loan noteholders had a genuine economic interest because they were in the money in the relevant alternative.
4. Discretion. Satisfaction of the statutory conditions created no presumption that sanction should follow. Relevant considerations included the views of out-of-the-money creditors, overall support, fair distribution of restructuring benefits, priority in the relevant alternative, the source of those benefits, non-opposition and the need for caution concerning HMRC debts. There was no general rule that preferential HMRC liabilities incurred during the plan process had to be discharged or provided for before sanction.
5. Application. Little weight was given to the views of creditors with no economic interest in the alternative. The plan broadly respected priority and gave HMRC most or all of the restructuring surplus generated by avoiding administration costs. The evidence established that the creditors paid outside the plan were critical to preserving the business, that the company lacked sufficient funds to pay all creditors, and that it had not acted cynically or abused Part 26A. The plan was fair and was sanctioned.

The judgment was at first instance. It records a prior convening hearing before Zacaroli J, at which jurisdictional and class issues were considered and the relevant alternative was identified. No appeal is stated.