Prezzo P26A Passes Convening Stage; Plan to Compromise £32M of Leases, £9.9M HMRC Debt

Relevant Document:
Prezzo Skeleton Argument

U.K.-based Italian restaurant chain Prezzo’s proposal to compromise £32.2 million of claims owed to landlords and £9.9 million of HMRC debt under a Part 26A restructuring plan passed the convening stage before Justice Zacaroli following a short hearing this morning.

The plan meetings are due on June 22, the sanction hearing is scheduled for June 30.

Prezzo is the most recent company to attempt to compromise debts owed to HMRC using a Part 26A plan after two successful challenges by the tax authority in Nasmyth Group and Great Annual Savings Company. HMRC’s treatment under Prezzo’s plan appears to respect its status as second preferential creditor in an insolvency while imposing recovery of around £1.33 million plus a top-up payment on £9.9 million of preferential claims. This recovery reflects what HMRC could expect in an administration - the relevant alternative scenario, according to Prezzo - in which it would only have recourse to assets subject to a floating charge.

The company says that value breaks in the £24.4 million secured loan debt. The court heard this debt is substantially, but not entirely, held by the group’s shareholder, which is ultimately owned by investment firm Cain International. The senior notes will be subject to a one-year maturity extension to February 2027, but will otherwise remain untouched.

HMRC did not oppose the convening order but objected to what it said was a lack of sufficient notice given. Counsel to HMRC, Charlotte Cook, said the regulator also has concerns about the viability of the group, which has already undergone a pre-pack administration in 2021 and a Company Voluntary Arrangement in 2018.

The plan company said it is content for HMRC to raise any issues at the sanction hearing. Justice Zacaroli was satisfied that the “main thrust” of HMRC’s submissions relate to the sanction hearing rather than jurisdictional issues.

Prezzo has proposed four classes comprising the secured creditors, HMRC for preferential debt, all unsecured creditors, and local authorities owed rates and tax arrears from sites deemed sustainable by the company. The company has the following debt:
 

• Secured Loan Noteholders owed £24.4 million;
• Deferred and Exit Consideration Holders owed £3.3 million;
• The Secondary Preferential Claims owed to HMRC totalling £9.9 million;
• Landlords to loss-making sites owed £32.2 million in accrued unpaid rent and future rent;
• Local authorities owed £1.2 million by loss-making sites for business rates and council tax;
• Local authority debt of £597,252 owed by sustainable sites for business rates and council tax;
• £232,178 owed to CNG Energy as unsecured creditor under a settlement agreement;
• Other HMRC debt of £1.9 million;
• £51,210 claimed by Selecta Coffee which is disputed by the company; and
• Unpaid leases of £15,321 owed to Arval for vehicle rentals.

Treatment of each creditor under the restructuring is as follows:
   
The court heard that the relevant alternative to the plan is an administration, most likely in the form of a pre-pack sale involving a credit bid by the secured loan noteholders. According to the estimated outcome statement prepared by FRP (as financial advisor to the plan company) each creditor would receive the following recoveries under the plan and in the relevant alternative:
 
Background

The court heard that Prezzo is balance sheet insolvent and its equity value is nil. The effect of Covid-19 and changing consumer habits resulted in an EBITDA loss of approximately £4.5 million for the 2022 financial year. Prezzo is solely reliant on funding under secured loan notes, which are in default and redeemable on demand on 10 business days’ notice. As the sole class that is fully in-the-money, the court heard that the loan noteholders are the present economic owners of the group. As such, the current shareholders will retain the equity in the group.

An analysis of the group’s 186 sites in September 2022 identified 47 as loss-making that had no real prospect of returning to viability. These sites will bear the greatest compromise under the plan with £32.2 million of past and future rents being written off for no consideration.

Prezzo is represented by Tom Smith KC and Georgina Peters, instructed by Greenberg Traurig. HMRC is represented by Charlotte Cooke.