A restructuring plan is a “compromise or arrangement” entered into between a company and its creditors and/or shareholders. Restructuring plans are a relatively recent addition to the corporate insolvency sphere, however, they are quickly becoming an extremely useful tool for companies looking to turn around their financial and operational fortunes. Restructuring plans are court-approved and they become legally-binding on all parties (including both secured and unsecured creditors) once approved.
Introduced during the Covid-19 pandemic as part of the Corporate Insolvency and Governance Act (CIGA), restructuring plans are being increasingly seen as an alternative to the established Company Voluntary Arrangement (CVA) and Scheme of Arrangement processes. Like CVAs, restructuring plans are only suitable for companies capable of being rescued and who can demonstrate that they have a viable future.
A company does not have to be insolvent for a restructuring plan to be proposed, however, it must be in the position where it is likely they will soon begin to experience financial difficulties which will threaten the ongoing trade and viability of the business if this is not already the case.
While restructuring plans are more expensive than CVAs, they are an extremely powerful alternative particularly for larger companies operating across multiple sites and even across multiple countries.
Restructuring plans can be used for a variety of debt restructuring purposes including debt rescheduling, refinancing, restructuring of both/either secured and unsecured debts (including liabilities to landlords), as well as injecting new funds into the business without having to use this money to immediately repay existing creditors.
As part of a restructuring plan, all affected members (which are typically creditors) are divided into ‘classes’ depending on their rights against the company and they will then be asked to vote on the proposed plan. If 75% (by value) of a class vote in favour, then that class will be said to have approved the plan.
What is different about a restructuring plan, however, is that not all classes need to approve the plan for it to become binding. In fact, restructuring plans can in theory be approved even if only one class of creditors (who must have an economic interest in the company) votes in its favour, so long as those classes who are opposed would not be any worse off under the plan than they would under a viable alternative process. This is known as a ‘cross-class cram down’ and is widely seen as the most powerful element of a restructuring plan.
The cross-class cram down mechanism means dissenting creditors can be overruled by the court if the required number of votes for the plan are not met. Restructuring plans, utilizing cross-class cram down, have proved to be useful when certain creditors are blocking an alternative restructuring arrangement being put in place which may lead to the company being able to be rescued as a going concern.
Restructuring plans are among the most complex formal insolvency processes available, so with this in mind, it is vital you allow enough time for a robust proposal to be drawn up, negotiations to be entered into, and for the plan to be implemented should approval be granted. As with all matters relating to company distress, taking action at an early stage can significantly increase the chances of effecting a successful outcome.
If you would like more details on corporate restructuring plans, or to understand whether this could be a solution for your company, contact the experts at Begbies Traynor. With a nationwide network of offices spanning the length and breadth of the country, you’re never far from expert help and advice.
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