(UK) The Gloves are on for HMRC: What did we learn from the Great Annual Savings Sanction Hearing?


Yesterday saw the end of a three-day sanction hearing for the restructuring plan (the “Plan”) of the Great Annual Savings (GAS) company, with Justice Adam Johnson reserving his judgment and importantly, his decision on whether to exercise cross-class-cram-down to sanction the Plan for a later date.

As we discussed in our recent blog, the Plan has generated widespread interest, with HMRC actively opposing the sanction of the Plan on a number of grounds. After facing the fate of cram-down in Houst, HMRC made the decision to argue their case in court this time round and in the words of their Counsel: are no longer shouting from the side lines and are on the pitch, actively resisting the Plan.

So what were HMRC’s reasons for opposing the Plan?

In Houst, HMRC’s opposition to that plan was mainly concerned with points of policy. However, as was clear by the lengthy written submissions provided by Counsel for HMRC, their opposition to this Plan was substantial and went significantly beyond objection on the basis of their preferential status

HMRC will be better off in the relevant alternative

One of the questions which needs to be considered by the court in deciding whether to exercise its cross-class-cram-down power is whether any members of the dissenting class of creditors will be worse off under the proposed plan, as compared to the relevant alternative (the “no worse off” test). In the case of GAS, the relevant alternative would be a formal insolvency process (likely an administration) and on this basis, HMRC argued the following:

The Plan is unfair

HMRC voiced to the court that if the Plan were to be sanctioned, then this would result in a clear departure from the absolute priority rule. Specifically, HMRC argued that:

Points of policy

What underpinned and sat alongside all of these arguments was the implication by HMRC (as well as the other opposing creditors) that GAS is a “miscreant” company and in particular, HMRC alleged, that the Plan was a deliberate use of the cross-class cram down mechanism to eradicate HMRC’s debt.

HMRC argued that if the court were to sanction the Plan, this would have wider implications and result in a message to other directors that trading to the detriment of the Crown is something that you can get away with.

HMRC also pointed to significant interest in this hearing from the SME community and potentially the number of Plans that would also seek to “eradicate” HMRC’s debt if the Plan were to be sanctioned.

What did GAS say?

Although HMRC made a number of criticisms about GAS, the viability of the Plan, its directors and their conduct, GAS’s Counsel was able to answer these, with the key headlines being:

Wait and See

One thing is for sure, HMRC came out with their gloves on for this Plan and depending on the outcome, it would not be surprising to see HMRC actively oppose future restructuring plans which seek to cram them down and “eradicate” Crown debt.

However, it is important to note that HMRC made it clear throughout their argument that their strong stance against this Plan was in part due to the specifics of this case, with reference to their concern over the years of mismanagement by the senior leadership of GAS.

Nevertheless, the points raised regarding the distribution of the restructuring surplus in the context of no new equity being injected and a Plan which seeks to cram down HMRC are likely to be of wider application for companies who seek to implement restructuring plans going forward.

What remains to be seen is whether Justice Adam Johnson finds merit in what HMRC argue and agrees that HMRC will be better off in the relevant alternative and whether he views the Plan to be prejudicial and unfair. With the winding up petition (which HMRC has presented against GAS) adjourned for three weeks time, we can expect his decision shortly.

Isabella Tee authored this article.


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National Law Review, Volume XIII, Number 116