The restructuring plan was introduced by the Corporate Insolvency and Governance Act 2020 and sits in Part 26A of the Companies Act 2006. It is arguably the most powerful restructuring tool in English law, and can be the most expensive to use.
What makes it different
A company voluntary arrangement is a good deal cheaper and works well for unsecured debt. What it cannot do is compromise secured creditors or shareholders, and it cannot force terms on a class that rejects it.
A restructuring plan can do both.
It binds classes a CVA cannot reach. Secured creditors and shareholders can be included and compromised.
It requires 75% by value in each class, and nothing else. There is no majority-in-number requirement, unlike a Part 26 scheme of arrangement. A small number of large creditors can carry a class.
It allows cross-class cram down. This is the real prize. The court may sanction a plan even where an entire class has voted against it, provided two conditions are satisfied:
- Condition A: no member of the dissenting class would be any worse off than they would be in the relevant alternative; and
- Condition B: the plan has been agreed by 75% in value of a class who would receive a payment, or have a genuine economic interest in the company, in that relevant alternative.
Everything turns on the relevant alternative
The “relevant alternative” is whatever the court considers most likely to happen to the company if the plan is not sanctioned, usually an administration or a liquidation.
It is the benchmark for the whole exercise. Whether a dissenting class is worse off, whether a class has a genuine economic interest, whether the plan is fair: all of it is measured against that counterfactual.
Which means the real work is evidential rather than procedural. Establishing credibly what would happen in the alternative, and what each class would actually recover in it, is where plans are won and lost. It is also precisely the analysis an insolvency practitioner does every day, which is why we are usually involved in it.
The process
Two court hearings.
- The convening hearing. The court considers class composition and whether to allow the meetings to be summoned. Getting classes wrong here is expensive to fix later.
- Creditor meetings, class by class, each voting on the plan.
- The sanction hearing. The court decides whether to sanction, considering fairness, the relevant alternative, and, where a class has dissented, whether the cram down conditions are met.
When it is worth it
Honestly? Less often than the coverage suggests. Two court hearings and the evidence to support them make this a tool for larger or more complex situations: secured debt to compromise, landlord liabilities across a portfolio, shareholder value to reallocate, or a dissenting creditor who is holding an otherwise viable deal to ransom.
For most SME situations a CVA does enough, faster and for a great deal less money. Part of our job is telling you which of the two you are actually in, and a moratorium can buy the time to work that out.
Where we fit
We advise on whether a plan is the right instrument, and we do the analysis underpinning the relevant alternative: what an administration or liquidation would really return, class by class. Where a plan proceeds we work alongside the company’s legal advisers rather than in place of them: the drafting and the advocacy are theirs, the insolvency analysis is ours.
If a plan has been proposed and you are on the receiving end of it, that same analysis is what tells you whether the comparator being presented to the court is realistic. See litigation support.