An introduction to

restructuring plans

The Restructuring Plan procedure is a powerful and flexible tool, introduced as part of the Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) and governed by the Companies Act 2006. It helps companies facing financial difficulty to reach a compromise with creditors and shareholders so they can continue to trade.

What is a restructuring plan?

A Restructuring Plan (RP) is a formal compromise between a company and its creditors and members. The procedure shares some of the key features of the existing Scheme of Arrangement procedure. The principal benefit of a RP is the ability, in certain circumstances, to agree a plan which binds all creditors, even where there are dissenting classes of creditors. This is otherwise known as the ability to cross-class cram down.

The cross-class cram down

Where successful, a RP will limit the ability of “ransom” creditors. These are creditors who aim to block a viable proposal which has the support of those who still have an economic interest in the business. Dissenting classes are able to be ‘crammed down’ only if they would be no worse off than in the relevant alternative. The relevant alternative is whatever the Court considers would be most likely to occur in relation to the company if the RP is not sanctioned. This could include a CVA, administration, or liquidation. The Court can sanction a plan even where there are dissenting classes of creditors or members. To do so, it must be satisfied that creditors or members are treated fair, and the dissenting class of creditors or members is no worse off in the relevant alternative. Another attraction of a RP is that it can be combined with the statutory moratorium process. This provides breathing space from creditors seeking to begin legal proceedings against a company in financial difficulty, until the RP has been approved.

How does a RP work?

A RP requires voting by creditors and shareholders in classes. Each class will be deemed to have approved the plan if 75% of that class vote in favour. The RP must be sanctioned by the Court over the course of two hearings.

The RP has some key features that set it apart from the Company Voluntary Arrangement (CVA) procedure used in the UK, such as:

  • The ability to bind secured creditors in addition to unsecured creditors
  • The ability to cram down dissenting creditor classes
  • The ability to compromise members’ rights.

Who’s using RPs?

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