In just a few weeks, the Corporate Insolvency and Governance Act was rushed through Parliament (achieving royal assent on 25 June 2020), introducing a number of protections and procedures aimed very squarely at facilitating restructuring and saving businesses.
Among these is a new restructuring process, technically an amendment to the Companies Act. Nevertheless it is very clearly relevant to restructuring companies that are in financial difficulty.
The process is a variation on the Scheme of Arrangement. It involves two court applications and is therefore likely to be quite costly and relevant to larger companies.
It involves splitting the company’s shareholders and creditors into ‘classes’ – groups which share the same relationship to the company. This would include, for example, different classes of share capital. Classes could also apply to creditors – for example landlords, finance companies and any other group of creditors who can be distinguished in the context of any particular company.
Once the classes are established, a meeting of each class is convened and the restructuring proposal is put to the meeting. The required voting majority is 75% by value.
The new and interesting aspect of this process is that, for the first time in the UK, the concept of ‘cross class cram down’ has been introduced: this means that a dissenting class of shareholder/creditor can be overruled as long as:
- At least one other class approves the restructuring plan
- The court is persuaded that the dissenting class is not put into a worse position under the restructuring plan than would be the case in any likely alternative. In the case of an insolvent company, the alternative may well be formal insolvency which often involves a very poor outturn for shareholders and creditors generally
The process therefore recognises the concept of ‘economic interest’. The whole flavour of the process is that difficult creditors or classes of creditors will not be allowed to frustrate a restructuring plan which is in the interests of the company and the wider stakeholder group.
We think that this is a very interesting and useful addition to the range of options for restructuring professionals.
We are here to help
If you are concerned about your business, PKF Francis Clark can help with a Covid Business Review – helping you to understand your current situation and the best steps forward from there. We have a team of experts experienced in restructuring and negotiating with creditors and our focus is always on rescue and survival.