The Enzen Group's restructuring plans mark a significant shift in HM Revenue Custom's (HMRC) approach to secondary preferential debt.
With increased payments and proactive engagement, HMRC's support for the Enzen restructuring plans sets a precedent for future plans. The mid-market may find renewed interest in restructuring plans, but cost concerns and HMRC's participation in hearings will need to be addressed.
The Enzen Group, a UK-based advisory, transformation, and information delivery services provider in the energy and water industries, has encountered significant financial difficulties due to the impact of the coronavirus pandemic and delays in executing growth-oriented projects. Despite additional funding from an indirect shareholder last May, the financial support proved insufficient to cover all liabilities.
On 4 February, Enzen Global Limited (EGL) and Enzen Limited (EL) issued a practice statement letter outlining two inter-conditional restructuring plans under Part 26A of the Companies Act 2006. The restructuring plans, proposed by EGL and EL, aim to extend debt maturities, facilitate the equitisation of secured claims, and write off unsecured liabilities.
Mr. Justice Hildyard granted the convening order despite concerns from HMRC that it was not inclined to vote in favour of the plans, given the limited amount of time to review. However, the court was then informed that HMRC was no longer opposed, rather it had voted in favour of each plan. It was also reported that three other creditors, who had filed notice of opposition, did not file any further evidence to formally challenge the plans.
The Enzen restructuring plans sanctioned last week proposed payments to HMRC on its secondary preferential claims. In recent years, HMRC has opposed several restructuring plans seeking to compromise secondary preferential debt, citing its status as an involuntary creditor and its preferential treatment in insolvency. The risk of HMRC challenges has deterred many from using restructuring plans as a restructuring tool, as seen in the cases of Great Annual Savings (GAS), Nasmyth, and Prezzo. However, the Enzen plans indicate a shift in HMRC's approach, as they positively supported the plans for the first time.
The EGL and EL plans proposed significant cash payments to HMRC, offering better returns than administration. Initially, HMRC expressed potential opposition due to limited review time. However, after negotiating an additional £100,000 payment from both plans, HMRC voted in favour.
HMRC clarified its position at the sanction hearing, indicating a new, more proactive approach to restructuring plans. It acknowledged past opposition but expressed a desire to engage more actively in the future. The primary reason for HMRC's support in this case was the increased payment from EGL and EL, which resulted in a material increase in returns for HMRC. This marks a significant shift in HMRC's approach, demonstrating a willingness to participate more fully in the restructuring process.
The future implications of HMRC’s new approach have already been shown in the sanction of a restructuring plan relating to Outside Clinic Limited where HMRC again appeared in court to support the restructuring plans rather than simply voting in favour. Waldorf UK PLC is also soon to come before the court for sanction. HMRC's positive engagement with Enzen and Outside Clinic may influence their support for the Waldorf plans.
The Enzen plans may also spark mid-market interest, although the costs of tabling restructuring plans remain a concern. HMRC's participation in restructuring plan hearings raises questions about cost responsibility.
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