In the matter of Nasmyth Group Limited

Part 26A does not require the court to sanction a restructuring plan merely because the statutory cross-class cram-down conditions are satisfied. Condition A requires identification of the most likely relevant alternative, assessment of its consequences for dissenting creditors, and comparison with the plan. The court must consider all incidents of liability, not only anticipated dividends.

Creditors lacking a genuine economic interest may still have a legitimate interest in opposing a plan. The court should scrutinise a plan that compromises HMRC debts, particularly where it depends on unagreed time-to-pay arrangements. Part 26A should not be used to pressure HMRC into accepting such arrangements. The plan was not sanctioned.

Nasmyth Group Ltd applied to sanction a restructuring plan under Part 26A of the Companies Act 2006 and to impose a cross-class cram down on HMRC. The court had previously authorised creditor meetings in the convening judgment, [2023] EWHC 696 (Ch).

The plan was approved by the secured and intercompany creditor classes and by the unsecured class, but HMRC, the sole preferential creditor, voted against it. Mr Peter Smith and Mr Christopher Henson challenged aspects of the voting process and opposed sanction on fairness grounds. HMRC also relied on the absence of agreed time-to-pay arrangements with the company’s subsidiaries. The central issues were whether Conditions A and B were satisfied and whether the court should exercise its discretion to sanction the plan.

Application refused. The restructuring plan was not sanctioned and the proposed cross-class cram down was not given effect.

1. The court held that the threshold conditions in sections 901A and 901G of the Companies Act 2006 were satisfied. Under the No Worse Off Test, the court identified the relevant alternative as insolvent administration, assessed the returns shown in the BTG reports, and accepted that the dissenting creditors would be no worse off under the plan. The company bore the burden of proving Condition A on the balance of probabilities. The voting valuation of Mr Smith’s claim and Mr Henson’s inability to vote therefore did not require determination.
2. Condition B was also satisfied because the secured creditor classes, which had a genuine economic interest in the relevant alternative, approved the plan by the required majority. The court therefore had power to cram down HMRC and, potentially, the unsecured creditors.
3. That power did not create a presumption in favour of sanction and section 901G did not impose a separate just-and-equitable test. The court had to exercise its discretion by considering matters drawn, with suitable modifications, from scheme and CVA authorities. Creditors who were out of the money generally carried little weight, but there was no rigid rule excluding their legitimate interests. HMRC retained a genuine economic interest in the group-wide outcome, while Mr Smith and Mr Henson did not, although both had legitimate interests in opposing the plan.
4. The court accepted that HMRC debts were not trust monies and that sanction should not be refused merely because HMRC was being crammed down. However, PAYE, NIC and VAT liabilities required careful scrutiny. The plan would compromise a substantial HMRC debt for a nominal sum and was being used to create pressure for new time-to-pay arrangements. The company could reasonably have treated HMRC as a critical creditor, but had not secured acceptable arrangements before seeking sanction.
5. The absence of agreed time-to-pay arrangements was also a practical roadblock. The survival of the group depended on them, and the plan could not operate as intended without a clear commitment from HMRC. The uncertain funding position and likely immediate breach of the EBITDA covenant reinforced the court’s conclusion.
6. The court generally accepted the company’s reasons for treating ADS Group Ltd, ADS Toulouse SARL and SF Recruitment as critical supply creditors. Mr Beech’s severance debt was not critical because it related to past employment and his future services could have been provided on commercial terms. These findings did not overcome the reasons for refusing sanction.

This was a first-instance sanction application. The judgment records that a prior convening hearing authorised the creditor meetings and gave reasons in [2023] EWHC 696 (Ch). The present court then refused sanction.