Restructuring Plans

For a restructuring plan to be approved by the court, the following conditions must be satisfied:

• The company must be able to be wound up under the Insolvency Act 1986.

• The company is in financial difficulty that is 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.

The company’s (i) directors, (ii) shareholders, (iii) administrator, or (iv) liquidator, may apply to court in respect of a proposed restructuring plan. The applicant must prepare a suitable plan and, 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.

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.

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.   

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 the court sanctions the plan, it will be binding on all creditors and members once notice has been given to Companies House.

As set out above, various steps must be carried out before a restructuring plan can be implemented. The law on restructuring plans is continuing to develop with prospective plans increasingly coming before court.