Irwin Mitchell Advises On Landmark Decision

The High Court has today (22 July) delivered judgment sanctioning the Restructuring Plan proposed on behalf of holiday lettings and private house rental company, Houst Limited and its subsidiaries (the “Group”).

Operating in eight countries and employing 300 people via independent contractors, Houst and its Group specialises in providing property management services for short-term and holiday lettings. The business lists properties on various websites, including Airbnb and booking.com, but due to the coronavirus pandemic it experienced a significant reduction in demand.

According to Irwin Mitchell’s Restructuring & Insolvency team, which has been advising Houst, today’s decision represents the first use of the Restructuring Plan legislation (which was introduced two years ago) to secure the future of an SME business in distress.

It is also highly significant as it is the first occasion that the Restructuring Plan procedure has included the cross-class cram down of HM Revenue & Customs, the dissenting secondary preferential creditor in this case.

Introduced into Part 26A of the Companies Act 2006 by the Corporate Insolvency and Governance Act 2020, Restructuring Plans constitute a compromise between a company and its stakeholders and results in a reduction or reshaping of the liabilities owed to those stakeholders. Restructuring Plans allow for dissenting classes of stakeholders to be bound in certain circumstances - known as ‘cross-class cram-down’.

Today’s important ruling of Mr Justice Zacaroli, follows the two stage decision (the convening hearing in June and sanction hearing on 15 July), and the further written evidence requested by the Court at the sanction stage to address particular points, including further details to support the findings in the Financial Report in support of the Restructuring Plan.

Expert Opinion

“I am extremely pleased and privileged to have advised Houst on what is considered to be the very first SME Restructuring Plan, which has been sanctioned by the Court today. This important decision confirms that the Restructuring Plan process is available as a tool for SMEs, as well as large corporates.

“This decision is particularly significant as it includes the cross-class cram down of the dissenting secondary preferential creditor, HMRC, and provides important guidance on the Court’s approach to Restructuring Plans and the extent to which it will use its discretion to impose the cross-class cram down mechanism on an entire class of dissenting creditors.

“The Company has demonstrated that all stakeholders will be better off under the Plan than under the relevant alternative, which in this case would likely be a sale of the Company’s business and assets through an Administration process. This would generate a significantly lower return to each class of creditor when compared to the expected return from the sanctioned Restructuring Plan.”

Kunal Gadhvi - Partner

Counsel, Marcus Haywood of South Square was instructed by Irwin Mitchell’s Restructuring & Insolvency team, and the Company was assisted by Begbies Traynor Group in their capacity as Plan Administrators.