Enzen - Case Update

The High Court has released its reasons for sanctioning the Part 26A restructuring plans of Enzen Global and its subsidiary Enzen Ltd, while also taking the opportunity to recognise HMRC for its change in policy with respect to Part 26A plans.

The companies are part of the larger Enzen Group, which provides advisory and operational services to energy and water utilities. The companies fell into significant financial difficulty due to a combination of factors, including the adverse effects of the COVID-19 pandemic, overambitious international expansion without sufficient capital backing, and high levels of unmanageable debt.

They presented Part 26A restructuring plans to their creditors. The plans included amendments and extensions to existing financing arrangements, a debt-for-equity swap, and a compromise of unsecured debts (except those owed to critical suppliers and employees, who were excluded from the compromise). HMRC, as a secondary preferential creditor, was to receive a lump sum payment in exchange for a compromise of all claims.

The Court approved the plans, concluding that the relevant alternative was administration, which would result in nil recoveries for all but super senior secured creditors. The plans would provide materially better returns across the board, preserving significant enterprise value. The Court invoked the "cross-class cram down" mechanism to bind dissenting creditors, including unsecured creditors of the parent and a landlord, finding that dissenting creditors would be no worse off under the plan, that the conditions for cram down were satisfied, and that there was no manifest unfairness in the proposed allocation of restructuring benefits.

Notably, the Court observed that HMRC, historically cautious and often passive in such proceedings, demonstrated increased engagement and a proactive role in this restructuring. HMRC had initially opposed the plans, which originally provided for a payment of £250,000 per company in exchange for its secondary preferential claims (totalling £9.6 million across both companies). However, after negotiations, HMRC agreed to support the plans following an increased offer of £350,000 per company, to be paid in instalments.

The Court noted this was "the first occasion upon which HMRC proactively participated in the formulation of a plan which it could approve at a meeting and support at the sanction hearing, and that it marked a change in approach." It welcomed this shift, stating: "I regard this increased engagement as a welcome development on the part of a prominent creditor.”

Read the decision HERE.

Professionals involved:

• Adam Al-Attar KC and Stefanie Wilkins of South Square (instructed by Simmons & Simmons) for Enzen

• Charlotte Cooke of South Square (instructed by Paul Hastings) for the secured creditors

• William Willson and George Hobson for HMRC

• AlixPartners acted as the lead financial advisor, with project leads Ben Browne, Richard Harrison and Marcus Fletcher