HMRC’s position on mid-market restructuring plans

Mark Holborow, Director, Recovery Solutions

In our Restructuring plans: effective but expensive insight, we discussed what a restructuring plan (RP) is, the challenges faced with implementation and the enhanced powers it gives to support the rescue and restructure of businesses. We take a deeper dive into HMRCs stance and what we can learn from recent failed RP proposals.

Whilst there are advantages to RPs, we can’t ignore the headlines from mid-market companies whose RPs have not been sanctioned by the courts.

As a reminder, RPs can still be sanctioned by the court, despite one or more creditor classes not achieving 75% support, so long as:

  • no members of the dissenting class are worse off under the RP, than under a relevant alternative
  • at least one class which is ‘in the money’ in the relevant alternative has approved the RP.

Taking all circumstances into consideration, it is then in the court’s broad discretion whether to sanction the RP.

HMRC opposition

Recently, HMRC have shown a willingness to defend its preferential status. In their vote opposing the Houst RP they stated “HMRC will not relinquish this status to provide a dividend to unsecured creditors… We understand that our dividend is likely to be less in liquidation. However, this is a position we are not willing to compromise on and will insist this be honoured in all circumstances, regardless of whether this disadvantages unsecured creditors.”

Despite acknowledging that they would be financially better off under the RP, they opposed on principle, and established a clear precedent for how they would approach voting in RP and company voluntary arrangement (CVA) proposals going forwards.

The Houst RP was subsequently sanctioned by the court as HMRC did not present any more detailed opposition or attend the hearing to defend their position. Following the Houst RP, HMRC have taken an active interest in more recent cases and presented detailed and broad ranging objections to several RPs at the court hearings.

Similarities in recent failed RP proposals

In spring 2023, there were two RP proposals the court declined to sanction following HMRCs detailed objections (Great Annual Savings Company Ltd and Nasymth Group Ltd). 

The judgements for both rejections cited various case specific facts, but there are also similarities in the proposals which were being considered.

Whilst the court has made clear it will not refuse a RP simply because it crams down HMRC, it has stated that it will “exercise caution” in respect to HMRC debts and not cram them down “unless there are good reasons to do so”. Given that parliament chose to re-establish HMRC’s preferential status from late 2020, it is natural that most judges will be cautious when sanctioning any outcome which goes against the will of government.

In both rejected cases, the proposed RPs sought to substantially write-down HMRC’s debt, while the majority of unsecured creditors and shareholders were largely unaffected by the proposal. Whilst there is an ability to deviate from the insolvency priority of payments (as demonstrated by Houst), the court as part of its broad discretion considered whether the RP was ‘fair’ to all parties.

Under the rejected RPs the second preferential creditor would have received 5 - 10p in the £, whilst all or a substantial portion of the unsecured creditors are paid in full.  Shareholders would also get to participate in the future success of the company, without any additional contribution or risk. This has not been considered a ‘fair’ sharing of the restructuring surplus by the courts.

What does this mean for RPs?

What the court has shown in recent rejections of RP proposals, is that they will act as the arbiter of fairness and act as a balance, to ensure the process is not taken advantage of in a similar way to CVAs.

The CVA process has a negative perception with many parties because the process has, at times, been used (particularly in the retail and hospitality sectors), to effectively force termination or rent discounts on landlords, whilst all other parties remain largely unaffected.

Both the rejected RP schemes were set up with structures which try and leverage one creditor’s position (HMRC), in order that all stakeholders can benefit. It seems just that the court rejected them and that the Houst and more recently Prezzo RPs (which still break away from the strict insolvency priority of payments), were sanctioned because they rescue the company, whilst also sharing the upside created by the restructuring in a more equitable fashion.

However, HMRC’s position of giving a standard response, discounts the unique circumstances of each RP, and what could be a better outcome for the UK taxpayer.

Arguments have been made that HMRC’s approach is contrary to the aims of the broader UK legislation. UK insolvency legislation has been developed over many years and RPs were designed to further an ethos of rescue and recovery, seeking to save jobs and trading businesses. This rescue culture is fundamentally enshrined in the UK insolvency legislation; RPs are focussed on pursuing rescue and avoiding insolvency.

HMRC’s stance in respect to RPs (and CVAs) seems contrary to this culture, and at times may prevent the successful implementation of either procedure.

A conflict of intention seems to exist between the Treasury and the Department for Business & Trade. Until that resolves, the courts are required to be the moderator of fairness, even if that involves cramming-down a dissenting HMRC.

Unlike in a CVA, the lack of HMRC’s support does not necessarily prevent RPs being sanctioned. The costs to implement RPs and the uncertainty surrounding HMRC’s objections remain barriers for many SMEs in distress. While the restructuring and insolvency profession hopes to streamline the cost and legal process for RPs, other options remain for financially distressed businesses to reduce creditor pressure and seek business rescue.

How can we help?

At Crowe, we have a team of experienced and licensed Insolvency Practitioners who are focused on rescue culture and can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Steven Edwards or Vince Green who are licensed Insolvency Practitioners, or your usual Crowe contact.


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An overview of the Restructuring Plan and its benefits.
Directors worried about insolvency should be aware of the repercussions of wrongful trading as your reputation could suffer without necessary steps.
The interaction between tax resolutions and insolvency matters can result in surprising outcomes.
An overview of the Restructuring Plan and its benefits.
Directors worried about insolvency should be aware of the repercussions of wrongful trading as your reputation could suffer without necessary steps.

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Steven Edwards
Steven Edwards
Partner, Recovery Solutions