November 29, 2022

Volume XII, Number 333


November 28, 2022

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UK’s Tax Authority Pledges Support for (only the best) Restructuring Deals

HMRC as the UK tax authority is often the largest creditor in any insolvency, but has not always been willing to engage in the process.  This has caused viable restructuring proposals to fail for lack of support and this sometimes results in HMRC not achieving the best return.    HMRC recognise that this stance has frustrated Insolvency Practitioners trying to achieve a restructuring.  So, is this is about to change? 

In the latest Dear IP, HMRC have promised to be more proactive in using its increased voting rights as secondary preferential creditor.  This will ensure that HMRC receive a better return and secures future revenues.   However, HMRC do not promise to vote positively in all cases – and this should not be assumed!

Although the news that HMRC will take a commercial approach and support restructurings is good, it comes with a slight warning .  That is, to submit the best possible proposal from the outset.  HMRC explain in Dear IP that it often sees ‘exploratory’ proposals that are rejected, which sometimes result in an improved offer then being made. Accordingly if there is a better offer, then that is the one that should be tabled in the first instance.  HMRC’s message is that it will vote against any proposals that it considers could or should be better.

However, is it right that HMRC should use its preferential status to unilaterally decide whether it thinks the proposal “could” be better, which is what Dear IP suggests?    There are often competing stakeholders to manage, and the subjective view of HMRC as to “best” may not be consistent with the insolvency practitioner’s own view or that of other stakeholders.

The answer must be to ensure that HMRC is engaged from the outset.  If the company, HMRC and the insolvency practitioner do that, then there is a better chance that HMRC will vote in favour, rather than sit on the sidelines as it has done previously, or reject the proposal out of hand.

HMRC’s approach is welcome, but contrast this with the stance taken in the recent Houst restructuring – see our previous blog.  

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 214

About this Author

Professional Support Lawyer

Rachael Markham is the professional support lawyer providing national and global support to the Restructuring & Insolvency team.

Rachael is responsible for precedents and know-how, organising and presenting internal and external training, responding to bespoke research enquiries, drafting and editing the restructuring and insolvency blog, producing articles for journals, providing support for BD projects, marketing and pitches, and producing a weekly bulletin on technical and practical issues that affect the Restructuring & Insolvency team.

Rachael is a member of the...

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John Alderton Financial Services Attorney Squire Patton Boggs Leeds, UK

John Alderton is the managing partner of our Leeds office. His particular expertise covers restructuring, reorganisation and business support, lender security reviews and enhancement, as well as contentious and non-contentious insolvency and cross-border issues.

John advises banks and other financiers, insolvency practitioners and other insolvency professionals, directors and management teams, as well as creditors, on all issues arising in stressed and distressed scenarios both within the UK and cross-border.

Chambers UK describes John as “practical and pragmatic”. ...

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