A new tool to rescue viable companies
The Corporate Insolvency and Governance Act (CIGA) brought in at pace during the Covid-19 pandemic contained a range of significant reforms with the new Restructuring Plan being one of the most significant changes in a generation to UK insolvency.
A Plan is a debtor-led process allowing directors to stay in control. The Plan set out in Part 26A of the Companies Act 2006 is largely modelled on schemes of arrangement but with the added benefit of a cross-class cram down.
A Plan can be proposed by a company which has encountered or is likely to encounter financial difficulties.
The significant advantage is, provided the purpose is to deal with the company’s financial difficulties and there is a compromise, the Plan is a blank canvas.
Dissenting creditors, including secured lenders and members can be bound by the plan (cross-class cram down) if at least one class of creditor with a genuine economic interest in the Plan votes in favour and the dissenting creditor or member is no worse off than they would have been in the relevant alternative. Valuations will therefore be key in this process.
The process involves the court with two court hearings needed to sanction a Plan. Although more costly, it should provide greater security as there can be no challenge following the court sanctioning the Plan.
This is a useful new tool to the insolvency practitioner. I hope to see more use of the Plan in the future to help viable businesses restructure in order to survive as our lives get back to normal.
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