Module 7.7 Part 26A Restructuring Plans

Question 1

Who can apply for a PaRT 26A restructuring plan?

Answer 1

 The company
 Any creditor or member
 liquidator
 administrator

Question 2

Can a Part 26A plan include the reorganisation of shares?

Answer 2

Yes:
by consolidation of shares of different classes or
 by division of shares into different classes or
 by both methods

Question 3

What is condition A for a Part 26A plan? (Both A and B must be met)

Answer 3

the company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern.

Question 4

What is condition B for a Part 26A plan?
(Both A and B must be met)

Answer 4

a compromise or arrangement is proposed between the company and i) its creditors, or any class of them, or (ii) its members, or any class of them; and
the purpose of the compromise or arrangement is to eliminate, reduce or prevent, or mitigate the effect of, any of the financial difficulties

Question 5

What 2 types of restructuring plans can be proposed?

Answer 5

Compromise
Arrangement
(neither is defined)

Question 6

What is the (case law) definition of a class?

Answer 6

“those creditors or members whose rights are not so dissimilar as to make it impossible to consult together with a view to their common interest”

Question 7

Is a court order required to summon a meeting to consider the proposal?

Answer 7

Yes

Question 8

What documents are required for an application to the court to summon a meeting to consider a proposal?

Answer 8

Application and plan document.

Question 9

Who must be permitted to participate in a meeting to consider a proposal?

Answer 9

Every creditor or member whose rights are affected by the compromise or arrangement

However that requirement does not apply in relation to a class of creditors or members, if on application, the court is satisfied that none of the members of that class have a genuine economic interest in company
 Any such application to demonstrate that economic interest is not shared, should be made by original applicant

Question 10

S901D

A What must accompany every notice of the meeting sent to a creditor or member?

B What must accompany every notice of the meeting given by advertisment?

Answer 10

A statement:

explaining the effect of the compromise or arrangement and

 any material interests of the directors of the company (whether as directors or members or otherwise) and the effect of those interests of the compromise or arrangement in so far as different from the effect on the like interests of other persons

 a similar statement in respect of the interests of any debenture trustees

B - a statement as above or state where and how creditors or members who are entitled to attend the meeting may obtain copies.

Question 11

What happens if a director fails to give notice to the company of any such matters relating to that director as may be necessary for the purposes of s901D and the explanatory statement?

Answer 11

Commits an offence and if guilty liable to pay a fine

Question 12

What is the requisite majority to vote for a Part 26A scheme?

Answer 12

 If A NUMBER representing 75% in value of creditors or class of creditors, or member or class of member, present and voting in person or by proxy at s901C meeting, agree a compromise or arrangement, the court MAY on application sanction the compromise or arrangement

 Approval pers 901F is subject to the rights of the dissenting creditors and any pre-scheme moratorium debts

Question 13

What happens when a company in liquidation or administration enters a scheme?

Answer 13

the court may order the insolvency proceedings cease and/or make provisions as to their conduct

Question 14

Who is the scheme binding on?

Answer 14

Compromise or arrangement sanctioned by court is binding on all creditors or class of creditor/member or class of member and on company

Question 15

When does a court sanctioned scheme take effect?

Answer 15

No effect until a copy of the order has been delivered to Registrar of Companies

Question 16

What happens when one or more classes dissents?

Answer 16

Where compromise or arrangement is not agreed by 75% in value of class present and voting: “the dissenting class”
If Conditions A and B are met, the fact that the dissenting class has not agreed does not prevent the court from sanctioning the compromise or arrangement per s901F

Question 17

What are conditions A & B where a court is considering whether to sanction a proposal where there are dissenting classes?

Answer 17

Cross class cram down (CCCD):

Condition A:

if the court is satisfied, if the compromise or arrangement were sanctioned, none of the members of the dissenting class(es) would be any worse off than in event of a relevant alternative

Condition B

Compromise or Arrangement has been agreed by a number representing 75% in value of A class of creditors or (as the case may be) of members … who would receive a payment or have a genuine economic interest in the company in the event of a relevant alternative

Question 18

What is the relevant alternative?

Answer 18

Whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned in terms of s901F

Question 19

What is the position re relevant Moratorium debts if an APPLICATION for a Part 26A compromise or arrangement is made BEFORE the end of the 12 weeks beginning with the day after the end of the moratorium?

Answer 19

 Relevant creditors may not participate in a s901C meeting
 Relevant creditors still receive the explanatory statement and are entitled to attend the meeting
 However, the court may not sanction a compromise or arrangement if it includes provision re any relevant creditor who has not agreed to it

Question 20

What is the impact on an occupational pension schemes?

Answer 20

Any notice or document required to be sent to the creditors must also be sent to the Pensions Regulator and the PPF
 Regulations allow the PPF Board to exercise any rights exercisable by the trustees/manager of the pension scheme
 To the effect that the Pensions Regulator or Pension Protection Fund may attend or be represented at the court hearings

Question 21

On basis can a liquidator propose a scheme to creditors?

Answer 21

IA86 silent on powers of liquidator to propose a scheme to creditors or members, but:
 Schedule 4 powers include powers to make a compromise or arrangement and bring or defend legal proceedings
 Companies Act 2006 recognises the liquidator as an applicant

Question 22

On basis can a liquidator propose a scheme to creditors?

Answer 22

Para 49(1) Sched B1 IA86
 Administrator of a company shall make a statement setting out proposals for achieving the purpose of the administration

Proposals may include
 CVA per Part1 of IA86
 A proposal for arrangement or compromise to be sanctioned under Part26 or Part 26A of Companies Act 2006

Question 23

What is the impact of a Part 26A proposal on a moratorium?

Answer 23

Making an application under s901C is one of the circumstances in which the court may extend a Part A1 moratorium

 Moratorium automatically terminates upon the company entering scheme of arrangement or restructuring plan

 Monitor not precluded from assisting in preparation of a restructuring plan

 Advise on the “relevant alternative”?
 Plan supervisor?
 Subsequent insolvency office holder appointment?
 Subject to ethical considerations/ constraints

Question 24

What are the Ethics code considerations?

Answer 24

Examples of threats presented by successive or sequential appointments include
 has, or others in their firm have, previously carried out one or more assignments for an entity and / or its wider group and they are appointed as an insolvency office holder to the entity or its connected entities
 requirement not to accept appointment where a threat cannot be eliminated and safeguards cannot be applied to reduce the threat to an acceptable level

An IP is expected to consider both pre-appointment engagements, and/ or prior insolvency appointments when assessing whether they have a significant professional relationship
 IPs are also expected to document their considerations and conclusions when assessing specific situations

Question 25

What are the differences between a Part 26 scheme of arrangement and a Part 26A restructuring?

Answer 25

All of the benefits of a Scheme of arrangement PLUS

 Ability to omit parties WITHOUT a genuine economic interest from the approval process

 Ability to bind dissenting classes of creditor WITH a genuine economic interest

Question 26

What are the main differences between a CVA and a Party 26A scheme?

Answer 26

Secured creditors in a CVA can still enforce, can be bound in a Part 26A

Creditors rank per IA86 and can’t be varied in a CVA

Question 27

What are the main differences between a Part 26 scheme of arrangement, and Part 26A restructuring plan?

Answer 27

Part 26 vs Part 26A

No requirement for financial difficulties
All classes affected by the scheme must agree vs out of the money creditors can be bound (CCCD)
Majority in number representing 75% in value (vs 75% in value - no majority in number)