The pros and cons of restructuring

The part 26A RP introduced in the UK by the Corporate Insolvency and Governance Act 2020 (CIGA2020) suffered a slow start and has been used to date primarily by large corporates (such as Virgin Active) due to perceived excessive costs.

To implement an RP, a company has to obtain consent from the requisite 75% in value of each class of creditor. However, one of the key features of an RP is the court’s ability to sanction plans where there has been a class (or classes) where that 75% approval threshold has not been met (known as cross-class cram-down).

To exercise the cross-class cram-down power, the court must be satisfied that a number of conditions have been met including, notably, that the members of the dissenting class would be no worse off under the RP than in the event of the relevant alternative.

In Houst’s case, at the creditors’ meetings, the plan was approved by the requisite majority of all classes except HMRC – a secondary preferential creditor, which voted against it.

The evidence presented to the court showed that all creditors, including HMRC, would be better off under the RP, and the judge was therefore prepared to exercise his discretion to sanction it. Notably, in Houst’s case, it was estimated HMRC would receive 15p in the pound in the alternative outcome (a pre-pack administration) versus 20p through the RP. General unsecured creditors would likely receive nothing in a pre-pack scenario versus 5p through the plan.

It is anticipated this judgment may open the gates to further uptake of RPs in the property sector. For example, R3 Association of Business Recovery Professionals is reported to be in the course of preparing an RP precedent for SMEs, which could streamline the procedure and make it more cost effective for smaller and medium-sized businesses to utilise the RP procedure.

Melania Constable is senior associate at law firm Charles Russell Speechlys