Introduction To What Is A Part 26A Companies Act 2006 Restructuring Plan
This guide is to explain how a company or one of its stakeholders might look to consider a Part 26A Companies Act 2006 Restructuring Plan.
In this article you’ll learn about:
- What is a Part 26A Companies Act Restructuring Plan
- The requirements for such a Plan
- The ‘Cram Down’ provision if there are dissenting stakeholders
A Part 26A Companies Act 2006 restructuring plan is an arrangement with a company’s creditors and or its members when it is in financial difficulty (or likely to have such difficulty) that enables it to carry on as a going concern business.
In order for the Part 26A restructuring plan to be approved by the Court there will typically be a Meeting of creditors or members. The creditors and or members entitled to attend such a Meeting will have been provided with an explanatory Statement.
The Statement must confirm the material interests of the Directors and the effect on those interests of the proposed arrangement as far as it is different from the effect on the like interests of other parties.
Where debenture holders are affected the Statement must give the like explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company’s directors.
Court Sanction Of A Part 26A Companies Act 2006 Restructuring Plan
Under Section 901F of the Companies Act 2006 the Court may sanction the Part 26A Companies Act 2006 Restructuring Plan.
The application for Court sanction may be made by:
The effect of the Court approval of a Part 26A Companies Act 2006 Restructuring Plan makes it binding on all creditors (or class of creditors) or members (or class of members) as well as on the company.
Cram Down Provision Of Part 26A Companies Act 2006 Restructuring Plan
The Cram Down provision exists when a dissenting class of creditors (or members as the case may be) arises. It has become known as the cross-class cram-down.
It is not unknown (as happened in the Prezzo Case) for such Part 26A restructuring plans to be hotly contested. Creditors perhaps not unusually will often not welcome having their creditor rights affected and potentially watered down.
In that case, Cram Down was explained in the court judgment as follows:
As Mr Smith KC submitted, Part 26A provides for the sanction of a plan against the dissenting vote of a creditor class under the Court’s ‘cram-down’ jurisdiction in section 901G of the Act. Since the related statutory condition is that such a class should be “no worse off” than if the plan had not been sanctioned, if it would receive nothing in the alternative scenario, it follows that the Act envisages the compromise of their claims under a plan under which they would also receive nothing.
One of the possible attractions of a Part 26A restructuring plan is the potential that the Court will approve the cram-down of certain creditors, particularly if they would receive nothing in an Administration for example, enabling in effect the company to continue. It is also the ability to sanction the payment of certain creditors who may be regarded as essential suppliers for the company to continue to trade.
However, the effect of Cram Down could perhaps distort the pari passu principle which is often part and parcel of the Statutory Order of payment in insolvency proceedings and seen as fundamental.
The Part 26A restructuring rules take this into account through Section 901G of the Companies Act 2006 which relevantly provides that if the proposed arrangement is not accepted by at least 75% (by value) of a class of creditors (or where relevant members) the Court can still approve the Part 26A plans.
Conditions For The Court To Approve Cram Down
The Court can approve Cram Down if it is satisfied the arrangement:
- Would not result in members of the dissenting class being worse off compared with a relevant alternative plan that is most likely to arise.
- Has been agreed by 75% (by value) of a class of creditors (or where relevant members) who would receive a payment or who have a genuine economic interest in the company were the relevant alternative plan be implemented.
In effect, Section 901G of the Companies Act 2006 enables the Court to approve a Part 26A restructuring plan even if it has not been approved by the required majority at a meeting of creditors (or members) provided the class in agreement has a genuine economic interest in the company, where the relevant alternative is concerned and the class in disagreement would be no worse off than they would be in the relevant alternative plan.
The Court retains overall discretion.
