Three Restructuring Plans, Three Recent Results

Posted on Jul 12, 2023. by NTI

The most recent Restructuring Plan to receive approval from the High Court is that of Prezzo Investco Ltd on 5 July. This follows the same ultimate outcome for that proposed for Fitness First Clubs Ltd; approved on 29 June. Following Naysmith Group's Plan which was refused at the begiining of June, these three high profile cases have added flesh to the skeleton of the Companies Act Part 26A intervention, which is beginning to take form.

In Naysmith the court refused to authorise the Restructuring Plan, despite the conditions for cross-class cram down being met, because it was regarded as being 'unfair'. The High Court considered the size of the HMRC debt in the matter, its part preferential status, the long overdue and large sum owed by the group as a whole and HMRC’s "tiny" share of the restructuring surplus. Also, the success of the Plan depended on HMRC agreement to entering into “time to pay” agreements with Nasmyth's subsidiaries and this had not been obtained. This was the first case where a Restructuring Plan has been refused purely as a matter of the court's discretion.

Moving to the end of June, the Fitness First Restructuring Plan was sanctioned as the Judge dismissed two separate challenges by different classes of dissenting landlord creditors, whose claims under their leases were to have been compromised under the Plan. The Judge relied on the cross-class cram down power contained in section 901(3)G of the Companies Act to impose the Plan on five creditor classes who had voted against it, all comprising landlords of premises at which Fitness First operates its gyms.

In particular, the judge recognised that Fitness First had correctly identified the "relevant alternative", as set out in section 901G, this being defined as whatever the court considers to be most likely to occur in relation to a company if the Restructuring Plan was not sanctioned. In this case it would have been a pre-pack, and the judge concluded those creditors crammed down would be no worse off under the Plan than they would have been if Fitness First had been put into Administration.

In the Prezzo Plan, decided just a few days ago, the High Court 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.

This 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, the High Court held that when determining whether section 901A(3) 'Condition B' 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.

For clarity, Condition B states that a compromise or arrangement is proposed between the company and its creditors, or any class of them, or its members, or any class of them, and the purpose of the compromise or arrangement is to eliminate, reduce or prevent, or mitigate the effect of, any of the financial difficulties mentioned in Condition A, which in turn states that that the company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern.

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