Prezzo Investco Limited - case update

The parent company of Italian casual restaurant chain Prezzo Trading Limited has received Court approval of its restructuring plan in a decision that the Court warned should not be used as a precedent for “companies to use Part 26A to 'cram down' their unpaid tax bills”.

The company was in serious financial difficulty, including as a result of the Covid-19 pandemic and, more recently, the impact of price increases. It presented a restructuring plan to its creditors (the “Plan”), which seeks to restructure the liabilities of the company and Prezzo Trading. The relevant alternative to the Plan is said to be the administration of both companies.

The Plan provides that HMRC, as second preferential creditor, will receive a cash payment equal to the value of the company’s floating charge assets in the relevant alternative, less the estimated costs of the administration process. The rationale for this 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 £2m.

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

The company then sought Court sanction of the Plan. HMRC objected and claimed it was being used by Prezzo to avoid paying more than £11m worth of tax, while around £32m owed to landlords would also be compromised.

Mr Justice Richard Smith of the High Court sanctioned the Plan on 5 July, finding that the Plan, including the cram-down of HMRC, was fair in this case. He distinguished other authorities considering HMRC cram-down such as Re Nasmyth [2023] EWHC 988 (Ch) on the basis that, in this case, HMRC's debt relates to a much shorter and more recent period.

Mr Justice Smith noted that, in the relevant alternative of an administration, HMRC would be paid £1,326,837, while under the Plan, it will be paid a compromised sum of at least £3,326,837. As such, 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.

Having approached this matter with “appropriate circumspection”, Mr Justice Smith was satisfied that the Plan was fair, and that the company had not been trading "at the expense of" HMRC. More broadly, Mr Justice Smith was also satisfied that the Plan was not being used by the company as an 'instrument of abuse' and that its sanction would not give a 'green light' to companies to use Part 26A to 'cram down' their unpaid tax bills.

The decision can be found HERE. Tom Smith KC and Georgina Peters of South Square (instructed by Greenberg Traurig) appeared for the company, and Charlotte Cooke of South Square (instructed by HMRC) appeared for HMRC.