Restructuring plan
M&A / Merger ModelThe Part 26A procedure introduced by the Corporate Insolvency and Governance Act 2020, which keeps the scheme's class voting and adds the power to bind an entire dissenting class.
Also written: Part 26A plan, Part 26A restructuring plan, UK restructuring plan
The restructuring plan borrows the scheme's machinery: classes, a court convened vote, and a sanction hearing. It changes two things. The majority in number requirement is dropped, so 75% in value carries a class, and the court can sanction a plan over the objection of a class that voted it down.
Unlike a scheme it has entry conditions. The company must have encountered, or be likely to encounter, financial difficulties affecting its ability to carry on business as a going concern, and the purpose of the compromise must be to address those difficulties. A healthy company cannot use it.
The cram down power is the whole point, and it is why a plan is chosen over a scheme in almost every genuinely distressed case. A scheme is still preferred where every class is expected to approve, because it is the shorter and better trodden path.
Sanction is not automatic. Meeting the conditions gives the court a discretion, and how the value created by the restructuring has been divided between the consenting and the dissenting classes is argued at that stage rather than assumed away.
Worked example
Senior lenders approve a plan at 96% in value. A class of unsecured noteholders that would recover nothing in an administration votes it down at 55%. Illustrative figures.
Under a scheme that vote ends the process. Under a plan the court can still sanction it, provided the noteholders are no worse off than in the relevant alternative and an in the money class has approved.