Date Published: 27th July 2022
Begbies Traynor has advised on the first SME restructuring to use a “cram down” of dissenting creditors in a turnaround which has saved more than 300 jobs.
The High Court sanctioned a restructuring plan (“the Plan”) of Houst which will see its debts reduced and shareholders inject an initial £500,000 of working capital into the holiday and private home lettings business to support ongoing trading.
Begbies Traynor’s team led by Andrew Dalton and Kirstie Provan used legislation introduced two years ago to restructure Houst, a firm with a pre-pandemic annual turnover of around £12m, which had run into difficulties as the pandemic reduced demand for short-term holiday lettings.
Under the terms of the Plan, an initial payment will be made to the secured creditor and future profits will be used to fund further payments into the Plan which will enable payments to be made to preferential and unsecured creditors under the terms of the Plan.
Using the restructuring plan legislation, which was introduced via the Corporate Insolvency and Governance Act 2020, the team petitioned the court to consider the use of the cross-class cram down legislation in respect of HM Revenue and Customs (“HMRC"), a secondary preferential creditor to Houst, who had voted against the Plan. This marked the first time that the Court had been asked to consider such a move specifically in relation to HMRC. The Plan also provided for significant amendments to the shareholder structure of the business in consideration for the rescue funding being introduced.
Had the court not ruled to sanction the Plan and Houst entered into administration, Mr Justice Zacaroli noted in his judgement that, based on the evidence submitted, only the secured lender and HMRC would receive any distribution from the insolvency.
By successfully achieving the sanction of the Plan under the new legislation, Houst’s debts will be reduced, creditors will be in a better position, and the business is able to continue to operate meaning that the c300 employees retain their jobs.
Mr Dalton, a partner at Begbies Traynor, said: “The Restructuring Plan legislation was designed to help the whole spectrum of businesses, big and small, and it is very satisfying to make the first use of this process for an SME.
“The approval of this Plan means that creditors, who would have normally lost out, will still recover funds but, just as importantly, hundreds of jobs have been saved.
“We are pleased to have delivered an innovative solution, which has reset the capital structure of the business, allowing the management team to focus on completing their turnaround strategy and driving the business forward.”
A review of the legislation published in June 2022 by the Insolvency Service reported that the Government could take further steps to streamline the process to make the Restructuring Plan more accessible to smaller businesses. We look forward to continuing to lead the market in this area as the legislation and case law evolves.”
Restructuring Plan legislation has previously been utilised by Begbies Traynor on the mid-market firm Amicus Finance restructuring in 2021, where the cross-class cram down was effected in respect of one of the senior secured creditors.
The team working on Houst from Begbies Traynor also included Jack Caten and Chloe Henshaw. The firm worked with lawyers from Irwin Mitchell and Counsel from South Square to secure the arrangement.
Andrew is a Partner based in the London office. He has worked with the firm since 2004, having joined the firm following completion of a mathematics degree from Warwick University.
Having become a qualified Insolvency Practitioner in 2007, Andrew’s career path evolved and he joined the growing London Financial Consulting team in 2008. He has since completed two successful secondments to high street banks, working with bank customers which were showing signs of distress. As part of his second secondment, Andrew, as lead relationship manager, dealt with a number of high profile customers which are recognised high street names.
Andrew’s practical experience involves a wide range of turnaround and corporate finance assignments, including financial and commercial due diligence, valuation work, Accelerated Mergers and Acquisitions (AMAs), corporate simplifications, Independent Business Reviews (IBRs) and pre-insolvency appointment planning on behalf of lenders and key stakeholders.