At a Glance
The English court approved Houst’s restructuring plan, binding the English tax authority (HMRC) as a dissenting class – even though stakeholders’ treatment under the plan did not follow the priority they would have received in the relevant alternative to the plan (namely, administration).
This is a small case in which the court bound a preferential creditor without its consent – consistent with the court’s ability to bind dissenting stakeholders of all classes of seniority (including even secured creditors). HMRC only recently became a preferential creditor, end 2020 – see our Alert.
The key threshold for binding a dissenting class requires the class to be “no worse off” under the plan than in the relevant alternative. The court requested further evidence before it was satisfied on this.
- Fair share of “restructuring surplus”: The court carefully scrutinised the distribution of post-restructuring value under the plan. Key factors in approving the plan notwithstanding its departure from the established order of priority included:
- the lack of active opposition to the plan – noting the only creditor “disadvantaged” was HMRC, who were a sophisticated creditor;
- creditors’ treatment in the relevant alternative is a “relevant reference point” in determining their appropriate share of post-restructuring value – but a departure from that priority is not fatal;
- the court placed little if any weight on the votes of consenting junior classes, given they would all be out of the money in the relevant alternative;
- it may be relevant to take account of the source of benefits to be received under the restructuring; here, the new value generated by the plan came principally from a capital injection from the plan members – so this was not a case where assets that would have been available in the company’s administration were being applied in a manner inconsistent with the order of priority in administration; and
- evidence indicated that all creditors, including HMRC, would be worse off if the court refused sanction.
- SME: Houst was an SME; the plan compromised c.£10 million in debt. It follows the restructuring plan of another SME, Amicus Finance, in November 2021 – see our Alert.
- Contrast to CVA: In binding a dissenting preferential creditor (HMRC), Houst’s restructuring plan effected what would not have been possible via a company voluntary arrangement (which cannot bind secured or preferential creditors without their consent).
For full details, see our detailed deck.