Restructuring Plan – Part 26A

Introduced within the Corporate Insolvency and Governance Act 2020 (the “Act”) on 25 June 2020, Part 26A is a new “cross-class cram down” restructuring process (the “Plan”) which can be used as an effective tool to rescue financially distressed companies.

A Plan enables a company to bind dissenting classes of creditors, provided at least one class approves the restructuring process by at least 75% by value of those present and voting.

Who is a plan available to?

A Plan is available to companies that are, or are likely to be, in financial distress which will negatively impact their ability to trade as a going concern.

What are the requirements?

There is no requirement that the company be technically insolvent before a Plan is proposed but the court must be satisfied that the following conditions are met within a Plan:

Condition A	The court is satisfied that none of the dissenting classes are any worse off under the Plan than they would be in the event of the “relevant alternative”.
Condition B	The plan has been agreed by at least one class of creditors who have a genuine economic interest in the company.

What is the process?

The Buchler Phillips team will assist the directors of the company and their legal advisors to produce a Plan which is then submitted to the courts.

There will then be two hearings for the Plan:

Convening hearing
– Court decides whether classes have been fairly and appropriately formed.

Meetings of the agreed classes are convened to vote on the Plan.

Sanction hearing
– Following the meeting of classes to vote, the Sanction hearing is convened where the Court reviews the result of the votes and has to decide whether to sanction the Plan.

Commentary

Restructuring Plans have become popular in the past 12 months as a result of the impact of the COVID-19 Pandemic on many businesses and have been successful in restructuring business in many sectors such as aviation, transport and property. But recently there has been more commentary on the fairness of plans, especially with regard to the treatment of landlords in relation to portfolios of leases and it remains to be seen what level of challenges arise in the future, as the Courts seem to be more willing to listen to objections and are clearly not just there to “rubber-stamp” all plans submitted to them.