Restructuring plans and cross-class cram downs


Our team: Nigel Gordon


On 26 June 2020 the Corporate Insolvency and Governance Act 2020 (CIGA) came into force after a rapid passage through all Parliamentary stages, in a little over a month. CIGA introduced several well-publicised changes to the law relating to insolvency and general meetings, but there is one proposed change which deserves greater attention.

CIGA provides for a new restructuring plan (RP) modelled on the existing scheme of arrangement procedure contained in the Companies Act 2006 (CA 2006). Although schemes can be effective in supporting the restructuring of a company (particularly in respect of large companies), a scheme lacks the power to impose a restructuring plan on an entire class of dissenting creditors or members. An RP also has some similarities with a Company Voluntary Arrangement (CVA) but, importantly, an RP will (unlike a CVA) be approved by the court. An RP may useful to a company which has a substantial overseas creditor base who perceive a benefit in having a court approved plan (rather than the lightly supervised CVA) because foreign courts may be more likely to respect a court approved plan.

To support viable companies struggling with debt (except certain companies providing financial services), CIGA (by inserting new provisions in the CA 2006) introduced a new restructuring plan, modelled on the existing scheme of arrangement procedure but with the addition of the ability to “cram down” across classes of creditors, which is a feature of US Chapter 11 bankruptcies. Without a cross-class cram down (CCCD) a single class of creditors can block a scheme from being agreed even when it is in the company’s and creditors’ interests.

It is recognised by the government that the new RP is likely to be of most help to large companies dealing with complex debt structures. Unlike some other provisions in CIGA which would have retrospective effect, the RPs contemplated by CIGA came into force on 27 June 2020 (i.e. the day after the CIGA became law). Companies throughout the UK are now able to use an RP.

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