Prezzo Restructuring Plan Sanctioned

On 5 July 2023, the High Court sanctioned Prezzo Investco Limited’s (“Prezzo”) restructuring plan (the “Plan”) and dismissed a challenge by HMRC.


Mr Justice Richard Smith engaged the jurisdiction in section 901G of the Companies Act 2006 to cram down two creditor classes who had voted against the Restructuring Plan. These classes comprised HMRC and a group of unsecured creditors, including landlords of loss-making sites and local authorities to which business rates and council tax were owed.


The decision is highly significant for two reasons.


First, and notably, the Plan provided for the unsecured creditor class to receive no consideration in return for the release of their claims against Prezzo. In sanctioning the Plan, Richard Smith J held that when determining whether Condition B under section 901A(3) was satisfied, the term “arrangement” in the context of Part 26A does not require any form of consideration to be provided to “out of the money” creditors.  This is the first time the point has been decided under Part 26A, and marks a departure from the conventional approach to jurisdiction in the Part 26 scheme context.


Secondly, in the first case to dismiss a challenge by HMRC since Re Nasmyth and Re GAS (when HMRC’s challenges were upheld), the Judge rejected HMRC’s suggestion that the Court should not, as a matter of principle, entertain the sanction of a Plan without the discharge of preferential liabilities incurred by a company to HMRC during the period in which a plan was developed and proposed.  He further held that:


1)  The distribution of benefits under the Plan was fair and reflected the priority in which creditors would be paid in the relevant alternative of administration. Furthermore, HMRC would receive most, if not all, of the restructuring surplus generated by the Plan – broadly represented by the costs saved under the Plan which would otherwise be incurred in administration.


2) The decisions in Re Nasmyth and Re GAS were also distinguishable on the facts, on a number of grounds.  The Judge rejected HMRC’s contention that Prezzo (and its trading subsidiary) had deliberately traded at HMRC’s expense during the period in which the Plan was being promulgated, and accepted that payment in full of other creditors during this period was necessary given Prezzo’s view that the services provided by them were critical to the preservation of the business.


Tom Smith KC and Georgina Peters appeared for Prezzo Investco Limited, instructed by Greenberg Traurig, LLP (John Houghton, Rupert Cheetham, Mollie O’Connor, Kevin Mulligan and Adam D. Potter).


Charlotte Cooke appeared for HMRC (George Hobson).

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