The restructuring plan is the Part 26A procedure introduced in 2020, and its defining feature is the cross-class cram down — the court can bind a class of creditors that voted against the plan. Approval needs 75% by value of each class, with no majority-in-number requirement, and it takes two court hearings to get there.
When a plan is available
Part 26A applies where two conditions are met. Condition A is that the company has encountered, or is likely to encounter, financial difficulties affecting its ability to carry on business as a going concern. Condition B is that a compromise or arrangement is proposed between the company and its creditors or members, and its purpose is to eliminate, reduce, prevent or mitigate the effect of those difficulties.
Note what Condition A does not require: actual insolvency. "Likely to encounter" is forward-looking, which is why a plan can be launched while there is still value to preserve — and why the timing decision matters so much. Outside the reconstruction provisions, "company" means any company liable to be wound up under the Insolvency Act 1986.
Classes and the voting threshold
The court orders meetings of creditors or classes of creditors, or of members. Every creditor or member whose rights are affected by the plan must be permitted to participate in a meeting.
There is one exception, and it is powerful. The court may exclude a class entirely where it is satisfied that none of the members of that class has a genuine economic interest in the company. A class that would recover nothing in the relevant alternative can be left out of the vote altogether.
Where a class does vote, the plan is approved by that class if 75% in value of those present and voting, in person or by proxy, agree it. The court may then sanction the plan, which binds all creditors or members, the company, and its liquidator and contributories. The order has no effect until a copy is delivered to the registrar.
Cross-class cram down
This is what a scheme of arrangement cannot do. Where a class has not agreed the plan by 75% in value, that dissenting class's refusal does not prevent the court sanctioning it — provided two conditions are met.
Condition A, the "no worse off" test: the court must be satisfied that if the plan were sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative. The relevant alternative is whatever the court considers most likely to occur if the plan were not sanctioned — usually, though not necessarily, an administration or liquidation.
Condition B: the plan must have been agreed by 75% in value of a class who would receive a payment, or have a genuine economic interest in the company, in the relevant alternative. At least one class with real skin in the game has to be in favour.
Even where both conditions are met, the court retains absolute discretion and may refuse to sanction on the basis that it would not be just and equitable. Cram down is a power the court may exercise, not an entitlement the company earns by satisfying a checklist.
Everything therefore turns on the evidence for the relevant alternative. A plan stands or falls on whether the company can show, credibly, what would happen without it — which is a valuation and forecasting exercise long before it is a legal one.
The two hearings
The procedure runs through two court hearings, a structure set out in the Practice Statement for schemes and plans rather than in the Act itself:
- The convening hearing under section 901C, where the court orders the meetings. The applicant must draw to the court's attention any issues as to the constitution of the classes, any issues as to the existence of the court's jurisdiction to sanction, and any issues relevant to the Part 26A conditions;
- The sanction hearing under section 901F, where the court approves or refuses the plan after the classes have voted.
Applications under both sections are listed before a High Court judge, and where a judge hears the convening application the same judge should if possible hear the sanction application. Class composition is dealt with at the first hearing precisely so that it is not litigated at the second — a company that under-discloses at the convening stage is storing up a problem.
How it differs from the alternatives
Against a scheme of arrangement (Part 26). A scheme requires a majority in number representing 75% in value — both limbs. A Part 26A plan requires only 75% in value, so a small number of large creditors can carry a class. A scheme has no financial-difficulty entry condition and no cram down; a plan has both, plus the power to exclude a class with no genuine economic interest.
Against a CVA. A CVA is approved by a creditor decision procedure rather than by the court: three-quarters or more in value of those responding must vote in favour, and the decision fails if more than half of the total value of unconnected creditors votes against. There are no classes, no court sanction and no ability to bind dissenting secured or preferential creditors. A CVA is cheaper and faster; a plan can do considerably more.
What it costs, and when to reach for it
A restructuring plan is a court process with two hearings, valuation evidence, class analysis and usually contested creditor engagement. It is expensive, and the cost is not proportionate for a small compromise — that is what a CVA is for.
Where it earns its keep is a capital structure with several layers of creditor, at least one of which will not consent, and a genuine going-concern business underneath. In that situation the alternative is an insolvency process that destroys value for everyone, and the ability to cram down is the difference between a deal and a failure.
The work that decides the outcome happens early: reliable short-term cash flow forecasting, a defensible view of the relevant alternative, and creditor conversations started before positions harden. Our guides to restructuring advisory and wrongful trading cover the wider duties running alongside.
Acumon supports companies and their stakeholders through financial modelling, financial due diligence and business transformation work, alongside the licensed insolvency practitioners and counsel who take the court process. If a covenant test is likely to fail in the next two quarters, the forecast that supports a plan is the document to start now.