Legal Advice on Company Restructuring Plans

The Corporate Insolvency and Governance Act 2020 has introduced several measures to help companies cope with the financial difficulties they may be facing consequent to the COVID-19 pandemic. One of which is the introduction of a new option available to struggling companies: the new restructuring plan.

What is a restructuring plan?

This a plan for the restructuring of the company which is proposed by a company and its creditors for the purpose of reducing or preventing the financial difficulties the company is facing.

Who proposes the use of a restructuring plan?

Normally, it will be the company that will propose the use of a restructuring plan. It is also possible for creditors and shareholders to apply to the court to commence the use of this procedure.

What companies are able to use a restructuring plan?

This new restructuring plan applies to all companies liable to be wound up under the Insolvency Act 1986 that has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect its ability to carry on business as a going concern.

What does a restructuring plan contain?

There must be some form of a compromise or arrangement contained with the plan. Also, the purpose of it must be to deal with the company’s financial difficulties. Other than this, the content of a restructuring plan is at the discretion of the company. This is what allows it to be a very flexible process.

How does a restructuring plan get approval?

Creditors will be assigned to different classes. Then the classes of creditors will be asked to vote on the restricting plan. The threshold for approval in each class is 75% in value (gross value of debt) in each class who vote. But note the use of a cross-class cram-down…

What is a cross-class cram-down?

This is a powerful feature with which this process is equipped. It enables a non-approving class (less than 75%) to be bound by the restructuring plan, but only where the following conditions are met:

1. At least one class of creditors ‘who would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative’ voted in favour of the plan;

2. The dissenting creditors would not be ‘any worse off’ under the plan then they would be in the event of ‘whatever the court considers would be most likely to occur in relation to the company’ should the plan be rejected; and

The court is prepared to sanction the plan.