Begbies Traynor Group has achieved two landmark rulings for the implementation of Restructuring Plans for mid-market and SME companies

What is a Restructuring Plan?

The Restructuring Plan (Plan) was introduced by the Corporate Insolvency and Governance Act 2020 (CIGA) and comes under the Companies Act 2006, rather than the Insolvency Act of 1986. It is another tool for company directors considering restructuring a company, complementing CVAs and the existing scheme of arrangement process.

The Plan provides a more flexible approach when compared to a CVA or Scheme of Arrangement (Scheme), with the key addition of cross-class cram down – a concept drawn from the US Chapter 11 proceedings. This allows a company to ask the court to approve a Restructuring Plan, even if dissenting classes of creditors or members vote against it.

A Plan can be approved by the court with the approval of only one “in the money” class, with the hurdle rate in each class being 75% or more (in value) voting in favour. In contrast to a Scheme, there is no additional requirement to have a majority by number of those voting for it to be approved. The definition of an “in the money” class of creditor means a class who would receive a payment, or has a genuine economic interest in the company, in the event of the “relevant alternative” (i.e. what would happen if the Plan were not approved – typically some form of insolvency process).

The Plan offers the possibility of compromising shareholders and operational and financial creditors in a shift of approach for English restructuring law.

Eligibility

A company that has encountered, or is likely to encounter financial difficulties affecting its ability to carry on business as a going concern.
The proposed Plan must be used to eliminate, reduce, prevent or mitigate the effect of mentioned financial difficulties.
Non-English companies can also use the Plan if they have sufficient connection with the UK jurisdiction.

Key Benefits of the Restructuring Plan

To restructure a balance sheet where the underlying business is viable but for the existing debt burden.
Offers a company the opportunity to deliver a financial and operational restructuring using one process.
Provides the ability to cram down dissenting creditor classes.
Can be a sustainable platform from which new monies (whether debt or equity) can be injected into the company to fund future operations and growth.
Can be used to deal with an underperforming division of a wider group, a controlled wind down to minimise the impact on the remaining group companies.

Landmark Cases

Amicus Finance Plc

A Restructuring Plan, proposed in respect of mid-market company Amicus Finance, was sanctioned by the High Court for the first time in a case undertaken by the restructuring team at Begbies Traynor.

Mark Fry, Jamie Taylor, and Kirstie Provan, partners at Begbies Traynor, acted as joint administrators of Amicus Finance plc, a short-term property finance bridging company, which has continued to trade since being placed into administration in December 2018. The administrators proposed a Restructuring Plan to enable an exit from administration and to facilitate the rescue of Amicus; the Plan was approved by the High Court, with the reasoned sanction judgment being handed down on 15 November 2021.

Despite a dissenting secured creditor attempting to block the proposed Plan, the High Court sanctioned it and ruled in favour of the administrators. This was only the second fully opposed cross-class cramdown decision and was the first involving the cram down of a secured creditor, alongside being the first Restructuring Plan proposed in respect of a company in administration. These factors make this a landmark case and one which is hugely significant in the UK restructuring landscape.

Houst Limited

Begbies Traynor Group advised on the first SME court-sanctioned Restructuring Plan for Houst Limited, a firm with a pre-pandemic annual turnover of around £12m, which had run into difficulties when the pandemic reduced demand for short-term holiday lettings.

The sanction of the Houst Restructuring Plan was the first cross-class cram down of HMRC as a dissenting secondary preferential creditor. The plan saw shareholders injecting significant funding to provide working capital for the business and fund certain aspects of the Plan. Under the terms of the Plan, an initial payment was made to the secured creditor and future profits will be used to fund further payments into the Plan, which will enable payments to be made to preferential and unsecured creditors under the terms of the Plan.

The capital structure of the company was reset to allow the business to deliver on its turnaround strategy, preserving the employment of 300 staff globally, and avoiding administration.