Prezzo: Who Was the Most Crammed Down?

Posted on Jul 06, 2023. by NTI

It was always going to be a fight between the Prezzo's landlords, or HMRC as to who was to come out worse on the Restructuring Plan agreed yesterday (Wednesday 5 July). Turns out it was the landlords. The decision defines the power of the Part 26A Companies Act intervention as the Plan wiped out all creditors of the Italian restaurant chain, except for the taxman.

The headlines are that HMRC will recoup £3.3 million of the £11.8 million it is owed, the landlords of 47 lossmaking Prezzo restaurants,will be wiped out to the tune of a total £32 million. The liabilities that are being restructured total more than £70 million. The rationale for HMRC receiving a cash payment equivalent to the value of the company's floating charge assets is that HMRC is a preferential creditor, but only has recourse to those assets of Prezzo Trading not subject to the fixed charge, namely floating charge assets. The Plan also provides that HMRC will receive an additional preferential creditor payment of £2 million.

At the Plan meetings, the solution was approved by 100 per cent of the secured loan noteholders and 80 per cent by value of the sustainable site local authorities present and voting. It was not approved by HMRC and 82 per cent by value of the other creditors present (virtually) and voting.

This is the second time this year that HMRC have been 'crammed down' in a Restructuring Plan, and the reasoning given for this by the High Court was that in the relevant alternative of an Administration, the taxman would be paid £1,326,837, while under the Plan, it will be paid a compromised sum of at least £3,326,837. This then passes the 'no worse off test' boosted by the fact that there was no departure under the Plan from the order of priority in which HMRC would (relative to other creditors) be paid a distribution in the relevant alternative. In addition, the payment to be provided to HMRC under the Plan means it will receive most, if not all, of the 'restructuring surplus' generated by the Plan.

Mr Justice Smith of the High Court was satisfied that the Plan was fair, and that the company had not been trading "at the expense of" HMRC.

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