Restructuring Plan – another tool in the box?
15 June 2020: We are BRI Business Recovery and Insolvency, as our name suggests we are focused to help business recover first before having to sometimes resort to an insolvency process. Within the government’s Company Insolvency and Governance Bill 2020 (“CIG Bill 2020”) (currently being discussed in the House of Lords), a new procedure for dealing with company debt is being put forward – the Restructuring Plan (“RP”). As our firm name indicates, this should be of great interest to us, as well as the wider profession of course.
As per the government’s own comments on the matter, the RP is a variation of the ‘Scheme of Arrangement (“Scheme”), an option already available to distressed companies. A Scheme requires each of the creditor classes, agreed by the Court, to support the arrangement by a majority of 75%, before the Court can approve the arrangement. Currently Schemes are not a particularly common option for distressed companies as they are deemed expensive, require court approval, offer no moratorium and can be very complex. Currently they are in fact more commonly used as a tool to facilitate mergers and acquisitions.
So why propose the RP if the Scheme is currently not a popular choice for distressed companies? Well, the CIG Bill 2020 introduces RPs with the crucial difference that they cannot be blocked by a single class of creditor – so long as it does not put them in a worse position than a formal insolvency procedure would.
This change makes the RP much more appealing to distressed companies, providing confidence the Court will approve the plan so long as it is essentially fair to all. This echo’s with our firm ethos of dealing with situations in a fair and reasonable approach.
Whether the RP will become a popular choice is yet to be seen and it still appears to represent a complex and expensive option. In addition, the RP will face detailed scrutiny by any disgruntled creditors, if they believe it puts them in a worse position. However, once CIG Bill 2020 has come into force (which is anticipated this month) the RP should represent an additional tool for directors to reach for when their business is in difficulty.
If you or your clients are currently experiencing any difficulties and require the assistance of a critical friend to consider all of the potential options open to you, please be assured here at BRI we will always provide the right advice, first time every time, regardless of the fee outcome to us.