During the course of 2024, the popularity of UK restructuring plans continued to flourish, providing distressed companies with an opportunity to restructure and be rescued while leaving out-of-the-money creditors out-of-luck and out-of-options.

Recap on the UK Restructuring Plans

Restructuring plans were introduced in the UK in 2020 pursuant to the Corporate Insolvency & Governance Act 2020. In brief:

  • A company can propose to its creditors and shareholders a plan to restructure some or all of its financial liabilities;
  • For the purposes of voting on the plan, creditors and shareholders are divided into classes;
  • The approval threshold is 75% in value of those creditors and/or members voting in person or by proxy;
  • If every voting class does not vote in favor of the proposed plan, the company can ask the court to impose a cross-class cram down (a “CCCD”);
  • To impose a CCCD, the court must be satisfied that:

(a) none of the members of the dissenting class(es) would be any worse off if the plan is sanctioned than they would be in the relevant alternative; and

(b) the plan must be approved by 75% in value of a class of creditors (or members) voting at the meeting who would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative.

  • The ‘relevant alternative’ is what is most likely to happen to the company if the proposed restructuring plan is not approved – for many companies, this typically means administration or liquidation (or any similar insolvency proceedings).

Key Trends in 2024

  • Real Estate: Restructuring plans continue to grow in popularity as a means of restructuring commercial real estate portfolios, particularly in the retail and leisure sectors, with examples including Superdry and Cineworld. In this context, restructuring plans are being used as an alternative to company voluntary arrangements to substantially restructure leasehold obligations, impose reductions in rent, release third-party guarantees and write off historic debts owed to landlords, rating authorities and other unsecured creditors;
  • PFI Projects: In Consort Healthcare, a restructuring plan was proposed for the first time to amend a PFI contract with the NHS;
  • Private Credit: Ares recently successfully proposed a restructuring plan in Scotland in respect of the Dobbies Garden Centres in order to right-size its leasehold estate and liabilities;
  • AIM Listed Companies: Project Verona Limited involved the first Restructuring Plan successfully proposed by an AIM-listed company; and
  • Cross-Border:
    • Foreign companies continue to view the UK as a desirable destination to restructure their liabilities. Adler, being a German real estate company with German law debt, sought to restructure its liabilities in the UK. To create a ‘sufficient connection’ to the UK (so that it could utilize a restructuring plan), the governing law of its finance documents was changed from German law to English law; and
    • In the case of Project Lietzenburger, a Luxembourg-incorporated entity with real estate investments in Germany, also proposed a restructuring plan to restructure its German and Luxembourg governed debt documents. A sufficient connection to the UK was established following a ‘COMI’ shift to the UK.

As new cases are proposed and approved by the English courts, precedent continues to evolve, providing greater certainty and predictability for participants. However, for out-of-the-money creditors, the harsh reality remains that for companies facing imminent insolvency where, absent the restructuring plan being approved, the company will be placed into a value destructive insolvency proceeding, the scope to challenge and recover value remains extremely limited. Creditors in distressed situations therefore need to be proactive and alive to the fact that restructuring plans are here to stay and are being used in a broad range of situations with increasing levels of creativity. Creditors who fail to recognize these growing trends very much risk being sidelined and left out in the cold for some time to come.