Restructuring Plans

The Corporate Insolvency and Governance Act 2020 introduced (with effect from 26 June 2020) a new statutory cram down process into the restructuring toolkit, restructuring plans (“RPs”).

As mentioned in our previous client alert, RPs were intended to address certain key issues inherent in schemes of arrangement (i.e. the need to obtain the approval of each class of creditors whose rights are being altered, the numerosity requirement and the inability to alter shareholder rights without their consent).

Unlike a scheme, a company will only be able to use an RP if it has “encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern” and the Court is satisfied that “the purpose of the compromise or arrangement is to eliminate, reduce or prevent, or mitigate the effect of” such financial difficulties.

In practice, this eligibility requirement may only exclude a limited subset of companies looking to utilise a statutory cram down process. Indeed, in the 10 months since they have been introduced, it is clear that – as expected – RPs are proving a more powerful and flexible tool than schemes of arrangement. The decision in gategroup (in which Linklaters acted for the senior lenders), which involved categorising RPs as (broadly speaking) an insolvency proceeding for the purposes of the Lugano Convention, has attracted some market commentary in recent weeks.

In this briefing, we consider that decision and its practical implications.