Restructuring & Insolvency
Restructuring Plans
Restructuring plans are a relatively recent addition to corporate insolvency and involve a compromise between a company and its creditors. As with schemes of arrangement, restructuring plans are court-approved and are binding on all parties and, unlike company voluntary arrangements, they are binding on secured creditors.
Restructuring plans were introduced by way of the Corporate Insolvency and Governance Act 2020 as a response to the coronavirus pandemic, and are implemented under Part 26A of the Companies Act 2006. Parliament’s intention was to minimise the adverse effect of a corporate restructuring on the company’s ability to carry on business by introducing new mechanisms for approval such as the cross-class cram-down.
Edwin Coe’s experienced team of partners and associated are well-positioned to advise all stakeholders regarding a restructuring plan.
Services we offer in this area include:
- Acting for parties in preparing a restructuring plan
- Attending to the formalities of the approval process, including the necessary court applications and convening creditor and shareholder meetings
- Advising creditors and members in challenging the proposed plan or in the approval process
- Acting for all parties in the implementation of the restructuring plan
- Advising on all other insolvency options as may be appropriate
Personal Insolvency
Claims against Directors
- Fraudulent Trading
- Wrongful Trading
- Preferences
- Transactions at an Undervalue
- Directors’ Disqualification
- Overdrawn Directors’ Loan Accounts
- Misfeasance
Other Contentious Insolvency Work
Key Information
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What are the requirements for using a restructuring plan?
In order to utilise a plan, the following conditions must be satisfied:
- Be one that is liable to be wound up under the Insolvency Act 1986.
- The company has encountered or is likely to encounter financial difficulties that are affecting or will affect its ability to carry on business as a going concern.
- There must be compromise or arrangement proposed between the company and its creditors (or a class of them). The purpose of that compromise or arrangement must be to eliminate, reduce, prevent or mitigate the effect of the company’s financial difficulties.
- The company itself must consent to and agree to enter into the relevant compromise or arrangement.
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What is the process of using a restructuring plan?
Any of the company’s (i) directors, (ii) shareholders, (iii) administrator, or (iv) liquidator, may apply to court in respect of a proposed plan. However, before any official steps can be taken, the applicant must come up with a suitable plan. In doing so they will need the input of various advisors, such as lawyers and accountants to ensure that any plan is feasible and in the best interests of the creditors as a whole. It is important to balance the interests of all stakeholders when making the plan.
1. Court Application
Once a plan has been decided, an application must be made to court for directions to summon a meeting of creditors (or a class of creditors) for the purpose of considering the plan. There are various considerations that must be taken into account at this stage, including notice periods and whether any other proceedings need to be stayed.
2. Convene meetings of creditors and members
Once the initial directions order has been granted, the applicant will need to give notice to the company’s stakeholders and convene meetings of creditors and members as necessary. For the purpose of determining who will need to attend a meeting, consideration should be given to all parties who have a “genuine economic interest” in the company.
It is vital at this stage to ensure that meetings are properly constituted to ensure that any resolutions passed are binding. At least 75% in value of creditors or members must vote in favour of the plan. There is no requirement for there to also be a majority in number.
3. Sanction Hearing
Once the plan has been approved with the requisite majorities, a further court hearing must be convened so that the court may sanction the plan. The court’s decision is entirely at its discretion and the court may refuse to grant sanction, notwithstanding the consents secured by the applicant, if it considers that the plan is not just and equitable. In making its decision, the court may apply a “rationality” or “fairness” test to satisfy itself that it is reasonable for the plan to be implemented.
4. Implementation of the plan
If the court sanctions the plan, it will be binding on all creditors and members once notice has been given to Companies House.
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How long does it take to implement a restructuring plan?
As set out above, various steps must be carried out before a restructuring plan can be implemented. However, the courts have shown themselves to be prepared to convene meetings at very short notice and at times, without the usual notice periods being given, in circumstances where there is real commercial urgency. The court has also shown willingness to grant stays of other proceedings to allow stakeholders sufficient time to consider the proposed plan.
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What is cross-class cram-down?
A restructuring plan may not always be favourable to all creditors of the company, and some may therefore vote against the plan. In those circumstances, the court may choose to “cram-down” the dissenting creditors and approve the plan anyway provided that:
- the court is satisfied that, if the plan were sanctioned, none of the dissenting class would be any worse off than they would being the event of the “relevant alternative”. The “relevant alternative” is usually the circumstances were the plan not implemented.
- the plan has been approved by at least one class of creditors or members who would receive payment or have a genuine economic interest in the company int eh event of the “relevant alternative”.
Contact our Restructuring & Insolvency Team
telephone: 020 7691 4000
or email: enquiries@edwincoe.com
