A thorny question facing a company when considering a Restructuring Plan is how to deal with HMRC particularly following HMRC’s opposition to recent plans.

Creditors now have some assistance in these deliberations thanks to guidance published by HMRC setting out how they will approach discussions with companies considering a Restructuring Plan.

The guidance reflects the stance HMRC has taken when opposing plans and doesn’t say anything particularly unexpected or controversial.  However, it does at least set a benchmark for the future by making clear that HMRC will expect proper engagement and explanations, justification for past failures to meet tax liabilities, confidence that future tax liabilities will be met, and recognition of HMRC’s status as “tax collector”.

The clear process set out in the guidance will be widely welcomed,but HMRC’s focus on past conduct, openness and transparency is also not to be underestimated.

In our article for RECOVERY Magazine (written before the guidance from HMRC was published) we discussed the approach companies and HMRC might take to managing HMRC debt and cram down in future cases. A lot of the points we reflected on can be seen in this guidance and the takeaways and practical considerations we explored in that article remain relevant.

The guidance from HMRC may assist companies that are seeking to cram down HMRC debt (which has been the subject of much debate and speculation). With a few successful Restructuring Plans now on the books, we know that it is possible to cram down HMRC debt, including in circumstances where HMRC has contested the plan (as was the case in Prezzo) however, given the uncertainty around achieving cram down debtors may well prefer to focus on getting HMRC ‘on side’ from the outset rather than risk the potential costs and uncertainty of dealing with a contested plan.

HMRC have demonstrated that they are willing to support a plan. For example, earlier this year it voted in favour of the Fitness First restructuring plan (although this was perhaps not surprising given that the plan provided for repayment in full of HMRC’s debt).  The guidance builds on this willingness to engage, in the right situations, and sets out the circumstances in which they may support.

Overall, the guidance follows much of what we have seen in the caselaw. However, it is notable that the guidance stops short of requiring an equitable allocation of any restructuring surplus to HMRC – a point that had been raised by HMRC in opposition to plans.   The guidance also does not go as far as stating that HMRC should be considered a ‘critical creditor’.  However, in light of the cases we have seen to date, and the language in the guidance which makes reference to “fairness”, it would be prudent for debtor companies to consider those points when preparing a plan and make sure they are addressed..