Court refuses to sanction restructuring plan

On the company’s application, the court convened meetings of the five different creditor classes. The plan was approved by four of the five classes. HMRC, the only creditor in the preferential creditors class, rejected the plan. Under the plan, HMRC would receive £10,000 in satisfaction of the £209,703 due to it as preferential creditor. The plan relied on HMRC agreeing to time-to-pay arrangements with the company’s trading subsidiaries. Between the plan’s proposal and the sanction hearing, HMRC confirmed that they would not be entering time-to-pay arrangements with said subsidiaries.

The company asked that the court sanction the plan and cram-down HMRC’s claim, as the dissenting creditor class. Begbies Traynor, as proposed supervisor, filed expert reports showing the relative alternative to the plan was administration and that HMRC would receive no distribution in an administration.

The court declined to sanction the plan, finding it unfair to HMRC. The court accepted that normally it was not unfair to cram-down creditors who would not receive a distribution in the relevant alternative. However, sometimes such ‘out-of-the-money’ creditors could still have an interest.

HMRC had genuine economic interest in the relevant alternative (administration). This was because even though they were unlikely to receive a distribution in an administration, HMRC may prefer for the company to enter administration and HMRC negotiate a settlement with the company’s administrators as part of a sale of the company’s group as a going concern.

The court found that the company and its secured creditors had devised the plan as a means of cramming-down HMRC’s debts and to pressure HMRC into entering new time-to-pay arrangements. The court held “this is not a purpose for which Part 26A should be used”. 

Re Nasmyth Group Ltd [2023] EWHC 988 (Ch)