A restructuring plan is a recently introduced court-supervised process that allows financially distressed companies to restructure their liabilities and reach a binding compromise with their creditors and/or shareholders. It must have approval from creditors or members representing at least 75% of the value of claims or shares. Restructuring plans are very similar to schemes of arrangement but do have some key differences.

The main features of a restructuring plan are:

Cross-Class Cram-Down: The plan can bind even dissenting classes of creditors or shareholders, as long as certain conditions are met, including that at least one impaired class votes in favour of the plan and the court finds it fair and equitable.

Court Approval: The restructuring plan must be sanctioned by the court, which will consider factors such as the fairness of the plan, the proposed treatment of creditors and shareholders, and whether the relevant statutory tests have been met.

Class Meetings: Creditors and shareholders are divided into classes based on their legal rights, and each class votes separately on the restructuring plan proposal.

Voting: For a class to approve the plan, at least 75% in value of the creditors or shareholders present and voting in that class must vote in favour. It does not need to be a majority.

Jurisdictional Test: The company must have a sufficient connection to the UK, such as carrying on business or having assets located in the UK.

Moratorium: The company may apply for a moratorium to protect it from creditor actions while the restructuring plan is being proposed and implemented.

The restructuring plan is intended to provide a more flexible and effective tool for companies to restructure their liabilities compared to other insolvency procedures like schemes of arrangement or company voluntary arrangements (CVAs). It introduces the cross-class cram-down feature, which was not previously available under UK insolvency law.

Restructuring plans were introduced by the Corporate Insolvency and Governance Act 2020 and came into effect on June 26, 2020, as part of the UK government’s efforts to enhance the corporate restructuring framework and provide companies with additional tools to address financial distress.

For further information, or to speak to a member of the team about Restructuring Plans, please get in touch