The statutory provisions for Restructuring Plans form a new Part 26A of the Companies Act 2006. CIGA was brought into force on June 26, 2020 and at a hearing in the High Court in London on September 2, 2020, the plan proposed by Virgin Atlantic, which was the first to be brought before the courts, was sanctioned.
Broadly speaking, the Restructuring Plans regime borrows heavily from existing schemes of arrangement under the Companies Act 2006 but also has similarities to CVAs under the Insolvency Act 1986. However, Restructuring Plans contain one striking innovation designed to allow companies to compromise debts to a greater extent than would be possible under a CVA or scheme of arrangement. This is what is known as "cross-class cram down" and it allows a company (with court sanction) to impose the proposed compromise upon a class of creditor, even though that class has not approved the compromise proposal by the requisite 75% majority. A court will only sanction a plan if:- (i) another class which would receive a benefit under the relevant alternative to the plan has voted in favour of the plan, and (ii) members of the dissenting class(es) will not be worse off under the plan than they would be if the plan were not sanctioned.
In this case, the most likely alternative would be an administration of the Company "which would attempt to achieve an orderly wind-down of the Company's affairs and the sale of any realisable assets for the benefit of creditors". The company had taken independent advice from Alvarez & Marsal who had concluded that such a scenario "would be likely to result in a very poor outcome for the Company's creditors of between 10.5p to 21.4p in the £, and that it might take a couple of years before a first dividend was paid in the administration."
There are many aspects of restructuring plans that may, in future, form fertile ground for litigators. Disputes about the analysis of the outcome of the counterfactual situation of the "likely alternative" is likely to be foremost among them.
As it happens, the Court in Virgin Atlantic did not need to determine whether or not to impose "cross-class cram down" upon any dissenting class because the requisite approvals were obtained for each separate class of creditors.
Another striking aspect of Restructuring Plans is that they allow borrowers to impose a compromise upon secured creditors (which cannot be done under a CVA) without the consent of those creditors (provided a court can be convinced that the proposal was better for the secured creditors than the likely alternative). Again, this was not a live issue in the Virgin Atlantic case, as the secured creditors themselves voted in favour of the proposal.
Perhaps the most important point that comes out of the Virgin Atlantic case is that the Court, in considering whether to sanction the Restructuring Plan, has adopted virtually wholesale the existing principles for sanctioning a scheme of arrangement, including what is popularly described as the "Buckley Test":-
"In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve."
This adoption of familiar principles will give comfort to practitioners dealing with the novel regime of Restructuring Plans.
Quite how widely Restructuring Plans will be used remains to be seen. Schemes of arrangement were relatively uncommon and certainly in Scotland were hardly used at all for anything other than comparatively large entities. It may be that the increasing use of CVAs over the past few years will mean that practitioners are already more open to the idea of using such restructuring tools than was previously the case. It must be borne in mind however that the costs associated with the complexities involved in Restructuring Plans are high and that is likely to mean that they are a relatively rare occurrence and not used, save in the biggest cases.
The full case transcript is available here.