What is it?
The UK Corporate Insolvency and Governance Act 2020 came into force on 26 June 2020. It introduced a new restructuring plan procedure amongst its package of permanent measures. The restructuring plan gives directors another tool when considering restructuring options. Directors faced with financial distress can now weigh up the new restructuring plan, or the existing “tried and tested” scheme of arrangement.
At first blush the two processes are very similar. Like the scheme, the restructuring plan sits in the Companies Act 2006 rather than the Insolvency Act 1986. Both processes require members and creditors to be grouped into “classes” based on their rights. The classes then vote on whether to accept the proposed plan or scheme, and in each case final approval rests with the court. We expect that the developed jurisprudence around schemes of arrangement will be drawn upon by the courts in relation to the restructuring plan.
A key feature of the restructuring plan, which is a first in English law, is the ability to implement a cross-class cram-down. This is a concept borrowed from the U.S. Chapter 11 process and its absence from the existing scheme was perceived as a weakness of that process. Subject to certain conditions, the ability to invoke the cross-class cram-down test allows a company to apply to the court to approve a restructuring plan, even where there are dissenting classes of creditors or members that voted against the plan.
The restructuring plan has already been used by Virgin Atlantic as part of its broader recapitalisation plan of approximately £1.2 billion (although there was no need for the cross-class cram-down to be used as the plan was approved by all four classes of creditors).
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