Prezzo Investco Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Richard Smith |
| Judgment Date | 05 July 2023 |
| Neutral Citation | [2023] EWHC 1679 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2023-002632 |
[2023] EWHC 1679 (Ch)
THE HONOURABLE Mr Justice Richard Smith
Case No: CR-2023-002632
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
7 Rolls Building
Fetter Lane,
London, EC4A 1NL
Tom Smith KC and Georgina Peters of Counsel (instructed by Greenberg Traurig, LLP) appeared for the Company
Charlotte Cooke of Counsel (instructed by His Majesty's Revenue and Customs) appeared as a Creditor of the Company
Hearing date: 29 June 2023
APPROVED JUDGMENT
This judgment was handed down remotely at 10.30 am on 5 July 2023 by circulation to the parties or their representative by email and by release to the National Archives
Introduction
Last Friday, I heard a claim by Prezzo Investco Limited (the “ Company”) for sanction of a restructuring plan (the “ Plan”) between the Company and certain of its creditors under sections 901F and 901G of Part 26A of the Companies Act 2006 (the “ Act”). The Company has a sole, wholly-owned subsidiary, Prezzo Trading Limited (“ Prezzo Trading”), operator of an Italian casual dining chain under the ‘Prezzo’ brand name.
The claim was supported by three witness statements from Mr Joseph Stelzer, director of the Company, two dated 19 May 2023 and one dated 27 June 2023. HMRC is a substantial creditor of Prezzo, both on a second preferential and an unsecured basis. HMRC opposes the claim. The Revenue's position is supported by the witness statement of Ms Georgia Pope, officer of HMRC, dated 28 June 2023. I received written skeletons and heard oral argument from both the Company and HMRC. At very headline level, HMRC's position is that the Plan would be unfair and should not be sanctioned. The Company, on the other hand, says HMRC's position in opposing sanction is perverse.
The Company
The Company has six shareholders, namely CI Milan Ltd, Jampurchaseco Ltd, Silver Cloud Ventures Ltd (of which Mr Stelzer is Managing Director), Antonio Capo, Karen Jones and Dean Challenger. Since incorporation in 2021, the Company has not declared a dividend. The Company's board comprises Jonathan Goldstein, Mr Challenger (CEO), Adam Taylor and Mr Stelzer. Prezzo Trading's board comprises Mr Challenger and the Company. As explained in the Explanatory Statement, Mr Challenger is a shareholder holding Secured Loan Notes of approximately 0.39% in value. Mr Stelzer is director and shareholder of Silver Cloud Ventures Ltd, a shareholder holding Secured Loan Notes of approximately 2.12% in value. Mr Taylor is a director of, and Mr Goldstein is a director of and indirect beneficial shareholder in, Jampurchaseco, the majority shareholder holding secured loan notes of approximately 92.45% in value.
The Company's financial position
The Company's unchallenged evidence is that it is in serious financial difficulty, including as a result of the Covid-19 pandemic and, more recently, the impact of price increases. The Company does not enjoy third party financial support and has relied on funding provided under secured loan notes issued by the Company since 10 February 2021 to the majority of its shareholders. That finance has been on-lent to Prezzo Trading under a secured loan agreement dated 10 February 2021. That facility represents Prezzo Trading's sole source of financial support for day to day operations.
These financial difficulties originated in 2018, with a C VA being proposed on 23 March 2018 and subsequently implemented by Prezzo Ltd, the original operator of the Prezzo business. That C VA resulted in the sites operated by the Prezzo business being reduced from 300 to 209 and the closure of three other restaurant brands then operated by Prezzo Ltd. Following the CVA, a further 23 sites were closed, reducing the operating restaurants to 186. On 10 February 2021, Prezzo Trading acquired the business and assets of Prezzo Ltd under a pre-pack administration sale, with the Prezzo Trading loan agreement being concluded to fund the cash consideration.
The current financial difficulties resulted in an EBITDA loss of approximately £4.5 million for the 2022 financial year, leading the board of Prezzo Trading to conduct a comprehensive site analysis in September 2022. This analysis concluded that there were 47 loss-making restaurants in the estate, the primary reason for the group's difficult financial position. Despite efforts to market some of these sites or to conclude consensual arrangements with landlords (for the most part, unsuccessfully), the board of the Company concluded on 31 March 2023 that a significant proportion of the restaurants did not operate on a breakeven basis and that the 47 loss-making sites had no real prospect of returning to profitability. The board also identified a capital expenditure requirement of approximately £2 million to maintain the business (before generating any cash). This was in addition to the funding required to meet central overhead costs of the business.
On 24 April 2023, Prezzo Trading confirmed publicly that it had closed, and ceased trading from, the 47 loss-making sites, commencing a redundancy process that day, likely resulting in 761 staff redundancies. So far as the group's liquidity position is concerned, Prezzo Trading is insolvent on a cash flow basis and unable to discharge its liabilities. On 19 April 2023, an aggregate amount in respect of PAYE, NIC (employee) liabilities and NIC (employer) liabilities of £1,005,388 became payable to HMRC. On 30 April 2023, a VAT liability of £2,934,514 became payable to HMRC. On 1 May 2023, rent payments became due under the leases of the loss-making sites in an aggregate sum of £1,350,724. Prezzo Trading was unable to discharge any of those sums as well as the further liabilities identified in Mr Stelzer's first witness statement. Prezzo Trading is also coming under increased pressure from a number of local authorities in respect of non-payment of liabilities (including business rates) with various summonses for payment pending in the courts. Finally, the Company itself is also cash flow and balance sheet insolvent. As at 30 June 2023, £24.4m is outstanding under the secured loan notes that it cannot discharge.
The Plan seeks to restructure the liabilities of the Company and Prezzo Trading. The ‘relevant alternative’ to the Plan (within the meaning of section 901G(4) of the Act (“ Relevant Alternative”)) is said to be the administration of both companies. The Plan seeks to avoid that outcome which, it is said by the Company, would be materially worse for most of the creditors and other stakeholders in Prezzo Trading than the Plan. The Plan would allow the business to continue to trade as a going concern, albeit now from a much smaller number of outlets and on a financially sustainable footing. If sanctioned, the Plan would compromise the following categories of liabilities:-
| Plan Creditor | Plan Claim | Approximate value as at effective date |
| Secured loan noteholders | Amounts outstanding in relation to the secured loan notes | £24,392,844 |
| Deferred and exit consideration holders | The deferred and exit consideration | £3,311,014 |
| Preferential creditor (HMRC) | The secondary preferential claims | £9,927,492 |
| Loss-making site landlords | Liabilities under the loss-making site leases in respect of:- (a) Currently accrued rent and other liabilities (including termination and/or dilapidation costs, service charges, insurance and utility charges); and (b) Future rent and any other liabilities (including termination and/or dilapidation costs, service charges, insurance and utility charges). | £32,193,907 |
| Loss-making site local authorities | The loss-making site business rates and council tax | £1,181,524 |
| Sustainable site local authorities | Sustainable site compromised business rates and council tax | £597,252 |
| CNG Energy | Amounts owing pursuant to the CNG settlement agreement | £232,178 |
| HMRC | Other HMRC claims | £1,887,704 |
| Selecta Coffee | A disputed claim for the provision of services | £51,210 |
| Arval | Unpaid lease amounts and early termination fees under terminated vehicle hire leases | £15,321 |
On 2 May 2023, the Company entered into a deed poll with Prezzo Trading to facilitate the Plan by which the Company assumed all obligations of Prezzo Trading to the Plan creditors on a joint basis. This was undertaken to avoid Prezzo Trading being the Plan proposer, precipitating events of default under various leases (including over the sustainable sites) which could have led to landlords enforcing their rights, so prejudicing the ability of the Prezzo business to continue operating as a going concern.
Secured loan notes
The sums due under the secured loan notes are secured by a debenture constituting a fixed and floating charge over the Company's assets. Those assets comprise the Company's shareholding in (the insolvent) Prezzo Trading and the debt due under the Prezzo Trading loan (approximately £16.5m). That loan, in turn, is secured over all Prezzo Trading's assets.
Deferred and exit consideration liabilities
Under the ‘pre-pack’ sale of the business and assets to Prezzo Trading in February 2021, the Company became obliged to discharge certain deferred consideration and exit payment liabilities of CI Milan to the vendors of the business. These comprised a liability of £3m (plus interest) in relation to the deferred consideration (due on 31 December 2023) and an exit fee up to a maximum £5m subject to the achievement of certain financial hurdles on a sale of the Prezzo business. The deferred and exit consideration is also secured by the debenture granted by the Company but is subordinated to the principal amount due under the secured loan notes pursuant to an intercreditor agreement dated 10...
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