In recent years, Restructuring Plans have become an increasingly popular tool for financially distressed companies seeking to navigate turbulent times. Yet while the benefits for debt-laden companies are clear, more needs to be done to safeguard the interest of creditors, write Opus partners Frank Ofonagoro and Gary Lee.
Since their introduction under the Corporate Insolvency and Governance Act 2020, Restructuring Plans have become an increasingly popular tool for companies facing financial distress. Designed to offer a flexible, court-sanctioned restructuring process, Restructuring Plans, often referred to simply as “RPs”, have brought a significant shift in insolvency landscape.
Yet while much attention has been given to the benefits for debt-laden companies, far less has been said about the impact on creditors, particularly smaller or dissenting ones, and the support they need to navigate the process with confidence and clarity.
The mechanics of the plan
The key feature that distinguishes an Restructuring Plans from other restructuring processes is its “cross-class cram down” mechanism. This allows a company to impose a deal on dissenting classes of creditors, provided the court is satisfied that:
- None of the dissenting creditors would be worse off than in the “relevant alternative” (typically administration or liquidation);
- At least one class of creditors with a genuine economic interest in the company has voted in favour of the plan with a 75% majority by value.
The court’s oversight is fundamental; involving two hearings: a convening hearing to agree on the creditor classes and a sanction hearing following creditor votes. But as with many legal and financial mechanisms, the devil is in the detail; and that’s precisely where many creditors find themselves out of their depth.
A rise in usage, a rise in contention
In the past year alone, RPs have been used across a wide range of sectors, from aviation to property. Their flexibility and court approval status make them a powerful tool for companies in distress, especially those seeking to avoid formal insolvency or reputational damage.
However, the rising use of RPs has sparked debate around fairness, particularly in how different classes of creditors are treated. Landlords, for example, have voiced concerns over unilateral lease adjustments being forced upon them without sufficient negotiation. HMRC has also become increasingly vocal in challenging proposals that appear to offer preferential treatment to some stakeholders over others.
This growing scrutiny from courts and creditors alike reinforces a simple truth: just because a Restructuring Plan has been drafted by one of the large preeminent restructuring accounting firms and wrapped in legal rigour doesn’t mean that it’s always in every creditor’s best interest. That’s where an independent, objective perspective from restructuring experts representing the interests of creditors asked to consider an RP, becomes invaluable.
A need for objective analysis and creditor advocacy
As the use of Restructuring Plans becomes more widespread, so too does the need for proper scrutiny, especially from creditors being asked to vote on complex proposals that could materially affect their recoveries. The process is inherently technical, with court hearings, class formation, and legal thresholds that most stakeholders outside of the restructuring or legal world aren’t familiar with.
For many creditors, particularly landlords, HMRC, trade suppliers, mezzanine lenders, and other non-senior stakeholders, there’s often a lack of clear, independent guidance on what the Plan entails and how it compares to the so-called “relevant alternative”, typically liquidation or administration.
This is where the market needs to evolve. There should be a greater emphasis on providing creditors with:
- A clear explanation of the Plan’s fundamentals, including the financial forecasts and business strategy underpinning the proposed outcomes;
- An objective comparison of returns, assessing whether the proposed Plan actually delivers a better outcome than insolvency alternatives;
- Critical testing of the assumptions made about asset realisations, trading outcomes, and distribution timelines in both the Plan and the alternative scenario;
- Insight into counter-party leverage to help stakeholders understand whether they have any scope to negotiate improved terms or protections before agreeing to the Plan.
Too often, dissenting creditors are presented with a “take it or leave it” proposal, yet in reality, they may hold more negotiating power than they realise. Informed analysis and experienced commentary can not only clarify a creditor’s position but also help drive better outcomes across the board.
As courts become more willing to scrutinise Plans (particularly where HMRC or landlords raise objections), the need for creditor-side analysis, grounded in practical insolvency knowledge and not just legal theory, is becoming ever more apparent. If Restructuring Plans are to maintain credibility and fairness, this type of scrutiny shouldn’t be an exception. It should become the norm.
Why this matters
For too long, the Restructuring Plans process has been something of a closed shop, drafted by large firms, submitted to the court, and waved through with minimal scrutiny from smaller stakeholders. But times are changing. Courts are asking harder questions. Creditors are becoming more vocal. And the days of the “rubber-stamped” plan are numbered.
This evolution is healthy. A robust restructuring process should balance the interests of the company with those of its creditors. That balance can only be achieved when all parties are properly informed, represented, and empowered to speak up.
The scales must tip back toward fairness. Subject expertise, rigorous financial analysis, and – perhaps most importantly – a voice for creditors who might otherwise be drowned out in a process dominated by the distressed company’s narrative are essential.
Where next?
Restructuring Plans are here to stay. Used correctly, they are a powerful tool for business rescue and continuity. But they are also complex, technical, and capable of being used to push through outcomes that some creditors might never have agreed to, had they fully understood the implications.
Creditors can no longer be viewed as just bystanders in a process that directly affects their recoveries and rights. With independent analysis, clear advice, and strategic representation, there can be objectivity, balance, and integrity in Restructuring Plans. After all, every restructuring process should begin with one question: what’s fair?