Revolution Bars Limited, Re
[2024] EWHC 2949 (Ch)
In the matter of Prezzo Investco Limited
5 July 2023
[2023] EWHC 1679 (Ch)
High Court
A restaurant company was struggling financially and proposed a plan to pay its debts. The tax authorities (HMRC) disagreed. The judge decided the plan was fair because the tax authorities would get more money than if the company just went bankrupt, so the judge approved the plan even though the tax authorities didn't want it.
Key Facts
- •Prezzo Investco Limited (the "Company") sought sanction for a restructuring plan under sections 901F and 901G of the Companies Act 2006.
- •The Company's wholly-owned subsidiary, Prezzo Trading Limited, operates an Italian restaurant chain.
- •HMRC is a substantial creditor and opposes the plan, arguing it is unfair.
- •The Company is in serious financial difficulty due to the Covid-19 pandemic and price increases.
- •Prezzo Trading is insolvent on a cash flow basis and unable to discharge its liabilities.
- •The plan involves restructuring liabilities of both the Company and Prezzo Trading, with the relevant alternative being administration.
- •The plan proposes compromises on various liabilities, including secured loan notes, HMRC preferential claims, and lease liabilities.
- •Secured loan noteholders will remain whole, but with amended terms.
- •HMRC will receive a payment calculated based on the value of floating charge assets in administration, plus an additional £2 million secured from further funding by secured loan noteholders.
- •Other creditors will receive no payment under the Plan, and their returns in the Relevant Alternative are also nil.
- •The plan was approved by the requisite majority of secured loan noteholders and sustainable site local authorities but not by HMRC and other creditors.
- •The Company seeks the court's cross-class cram-down power under section 901G to sanction the plan despite HMRC and other creditors’ dissent.
Legal Principles
Four-stage test for sanctioning a plan under Part 26A (or scheme under Part 26): compliance with statutory requirements; fair representation of the class; reasonableness of the scheme; absence of defects.
Re KCA Deutag UK Finance plc [2020] EWHC 2977 (Ch)
Sufficient information must be provided in the Explanatory Statement to enable creditors to make an informed decision.
Re Amicus Finance plc (in administration) [2022] Bus LR 86
In a Part 26A restructuring plan, the concept of an "arrangement" does not require consideration for creditors who are "out of the money" in the Relevant Alternative.
This judgment
Three-step process for the 'no worse off' test under section 901G: identify the relevant alternative; determine consequences for dissenting classes; compare consequences under the plan and the relevant alternative.
Re Virgin Active Holdings at [106]
Cross-class cram-down power under section 901G: Conditions A (no worse off) and B (genuine economic interest) must be met; court exercises discretion considering fairness and overall circumstances.
Re Virgin Active Holdings Ltd, Re Houst Ltd
Outcomes
The court sanctioned the restructuring plan, including the cram-down of HMRC's debt.
The court found that the plan was fair to all creditors, particularly HMRC, who would receive a significantly higher return than in the relevant alternative (administration). The court also considered the Company's efforts to engage with HMRC and address its concerns, the additional funding secured for HMRC's payment, and the overall benefit to creditors compared to the likely outcome in administration.