A Part 26A restructuring plan is a UK court process that lets a company in real financial difficulty change its balance sheet by binding creditors and shareholders to a common deal. Crucially, cross-class cram down allows the court to approve a plan even if some classes vote against it, as long as strict statutory tests and fairness principles are met. The most likely outcome if no plan happens – the relevant alternative, often administration or liquidation – anchors valuation, recoveries, and the court’s analysis.
What a Part 26A plan does and why it matters
Part 26A plans sit in the Companies Act 2006 and have been available since 2020. They are designed for complex, multi-class capital structures where a consensual deal will not land. The company must show genuine financial difficulty that threatens its ability to operate as a going concern, and the plan must relieve that pressure. In practice, plans trade court oversight and valuation discipline for speed, execution certainty, and a binding fix that can reshape the capital stack in about 10 to 14 weeks once organized.
Core mechanics and cross-class cram down
Voting occurs by class and requires approval by 75 percent in value of those voting in each class, with no headcount test. Where a class dissents, the court can still sanction the plan if two statutory conditions hold and overall fairness is met.
- No-worse-off test: Dissenting classes must be no worse off than in the relevant alternative, usually administration or liquidation.
- In-the-money support: At least one class with a genuine economic interest in the relevant alternative must vote in favor.
- Court discretion: Even if the statutory tests are met, the court may refuse sanction if overall allocation and process lack fairness or credibility.
Think of the court’s lens as a vertical check against the relevant alternative and a horizontal check across classes that have value, with both grounded in evidence rather than optimism.
Scope, boundaries, and incentives
Any company, creditor, member, or officeholder can propose a plan, although the company usually leads. All liabilities can be addressed, including secured and unsecured claims, guarantees, trade creditors, and equity. Security and intercreditor terms can be amended or released if addressed in the plan and related documents.
Choosing the right tool matters. A Part 26 scheme offers similar mechanics without cram down and needs 75 percent by value plus a headcount majority in each class, creating holdout risk. A CVA can compromise unsecured claims like landlord liabilities but cannot bind secured creditors or third-party guarantees without consent. Pre-pack administration is fast and litigation-resistant on valuation, but it hardwires insolvency outcomes and eliminates junior value and equity. Board and sponsor incentives skew toward speed and value preservation, seniors prioritize collateral and priority, juniors focus on fair sharing of any restructuring surplus, and equity retains upside only if credibly in the money.
Jurisdiction, cross-border reach, and the Gibbs rule
Plans are available to English companies and to foreign companies with a sufficient UK connection. Common anchors include English law debt, English intercreditor agreements, UK assets, or express submission to jurisdiction. English law liabilities benefit from the rule in Gibbs, which supports English court compromises of English law obligations. For non-English law claims, use parallel recognition, local processes, or if feasible, shift governing law before the plan. Recent cases confirmed that foreign groups can anchor English jurisdiction by targeting English law instruments if the court is satisfied cross-border execution will work in practice.
Process milestones and capital flows
Two hearings structure the timeline: a convening hearing to settle classes and call meetings, followed by a sanction hearing. Between them, the company runs solicitation, lock-ups, and restructuring support agreements to build momentum and execution certainty.
- New money: Fresh liquidity is typically super-senior, with new security and backstops for fees and, where relevant, equity.
- Amend-and-extend: Maturities, coupons, and covenants reset while junior tranches can be equitized as needed.
- Cash paydowns: Asset disposals or new money cure imbalances across the intercreditor structure.
- Security releases: Guarantee and security changes align with a revised distribution waterfall and ranking.
Conditions precedent usually include a sealed sanction order, clarity on appeals, security perfection steps, regulatory approvals, and executed ancillary documents. Embed information rights and covenants in amended finance documents rather than in the plan to keep compliance manageable.
Classes, valuation, and surplus sharing
Class composition depends on differences in legal rights, not just economics. The relevant alternative anchors valuation and recovery estimates. The court performs two core checks: a vertical test to confirm no class is worse off than in the most likely alternative, and a horizontal fairness test comparing treatment across classes with value and how any restructuring surplus is shared by reference to priority and contribution.
An original, practical angle is to evidence the relevant alternative with market data, not just models. In volatile credit markets, contemporaneous quotes for the company’s bonds or loans, recent auction results for comparable assets, and even indicative bids from buyers can anchor realizations and discount rates. Where a plan claims to preserve going-concern value, bolster the case with a realistic sale timetable, vendor due diligence summaries, and reference points from going-concern vs breakup sale outcomes in similar sectors. Doing so reinforces fairness and reduces scope for challenge.
Documentation and evidence
The plan and explanatory statement set out classes, terms, valuation, the relevant alternative, and outcomes by class. An evidence pack supports trading and liquidity forecasts, valuation analysis, and director and adviser testimony. The stronger the cram down, the stronger the evidence needs to be.
- RSAs and lock-ups: Voting commitments, milestones, backstop terms, most favored nation protections, and termination rights drive turnout and certainty.
- Finance documents: New money facilities, intercreditor amendments, equitization terms, and security steps align the new capital structure.
- Court papers: Class meeting notices, chair reports, skeleton arguments, and draft orders should be coordinated with any recognition filings or synthetic wording for foreign jurisdictions.
Economics, fees, and market benchmarks
New money tends to price with fees and original issue discount consistent with risk and leverage at execution. Backstop providers receive commitment fees and, if equity is issued, allocations that reflect underwriting risk. Lock-up and early-bird fees reward early support and reduce execution risk. The court looks at necessity and market benchmarks, particularly if juniors argue that fees extract value that would otherwise improve their recoveries. Clear disclosure, benchmarking, and a rationale that tracks risk taken go a long way.
Accounting and tax essentials
Under IFRS 9, debt changes are extinguishments if the present value of revised cash flows shifts by at least 10 percent; otherwise they are modifications with a new effective interest rate. Gains and losses run through the income statement. Equity issued for debt equitization is recorded at fair value. Creditors typically mark instruments at fair value through profit or loss or apply expected credit loss at amortized cost. Consolidation does not change unless control changes. Disclosures should be specific on the restructuring’s nature, quantitative effects, covenant changes, and going-concern conclusion.
On tax, UK loan relationships rules govern debt releases and modifications. Debtor credits on connected-party releases can be exempt, while third-party releases are generally taxable unless an exemption applies. Debt-for-equity swaps may qualify for relief. Corporate Interest Restriction limits deductibility of new interest. Hybrid mismatch rules and anti-arbitrage require careful review where PIK notes or preference shares feature. Withholding tax depends on instrument design and treaty access. Transfer pricing applies to intra-group resets and backstop compensation.
Regulatory and compliance guardrails
Listed issuers must manage UK Market Abuse Regulation. Inside information on plans, backstops, or covenant waivers requires prompt disclosure unless a well-documented delay is justified. Assess whether new securities trigger prospectus or shareholder approvals and review financial promotion rules. Run KYC, AML, and sanctions checks for investors and equity transfers. Update PSC filings after equitization. Where an operational reset sits beside the balance sheet fix, prepare consultations with employees, pension trustees, and sector regulators and tie them into conditions precedent.
Risks, governance, and how to mitigate
Valuation risk is the most material. Build a realistic relevant alternative with independent support and expect challenges to assumptions, discount rates, and realizations. Avoid artificial class splitting, since the court tests whether legal rights truly differ. Align surplus allocation with priority and contribution, and explain why backstop economics and equity allocations reflect necessity and risk. Engage HMRC and other preferential creditors early and evidence why treatment beats the alternative. For critical trade creditors and landlords, show operational stability, proportionality, and realistic funding.
Recent case signals from the courts
Adler sharpened the court’s focus on the most likely alternative for the no-worse-off test and on fairness in sharing surplus relative to priority and contribution. The court will not fine-tune commercial terms within a rational range, but it will intervene if allocations diverge from economic merit or process credibility slips. The case also confirms foreign groups can use English plans for English law debt if cross-border efficacy is credible.
In Great Annual Savings, the High Court declined sanction, calling for stronger independent valuation, secured funding, and clearer treatment of dissenting classes. Equity and management outcomes came under scrutiny where juniors were out of the money. In Prezzo, the court refused sanction where landlord losses dominated while equity faced limited dilution. In Nasmyth, the court sanctioned a plan cramming down HMRC after recognizing its secondary preferential status in the alternative and a better outcome under the plan. Across these matters, the court responded well where companies demonstrated explored alternatives, fee benchmarking, and transparent backstop terms.
Investor playbooks and negotiation levers
- Senior secured: Build the relevant alternative early with independent valuation to strengthen cram down posture, backstop selectively, price priming risk, justify fees, and monitor class construction and RSA terms with MFN protections.
- Junior creditors: Track restructuring surplus and push for equity or warrants once seniors are protected versus the alternative, commission independent valuation, table viable counterproposals, and test backstop fees and management equity against necessity and benchmarks.
- Sponsors and boards: Treat equity retention as earned by new money and value creation, not assumed. Invest in evidence, engage HMRC and critical creditors early, and document why plan outcomes beat the alternative with data-driven analysis.
Choosing among plan, scheme, CVA, or administration
Pick a plan when you need cross-class cram down or must bind secured liabilities, landlords, and shareholders in one pass. Use a scheme for simpler structures with broad support. CVAs help reset leases and trade terms across store or site portfolios but do not bind secured liabilities without consent. Administration is quick and protects going-concern sales, but junior value usually disappears. For context, US-style Section 363 sales show why a credible sale or insolvency process often frames the alternative and concentrates minds.
Timeline, gating items, and execution rhythm
- Weeks 0-2: Map options and stakeholders, appoint counsel and advisers, start senior outreach, and begin valuation and relevant alternative analysis.
- Weeks 3-6: Negotiate RSAs and lock-ups, draft the plan and explanatory statement, build the evidence pack, and prepare any recognition strategy.
- Week 7: Hold the convening hearing, settle classes, and issue meeting directions.
- Weeks 8-10: Run solicitation and meetings, finalize new money and intercreditor updates, and advance security steps.
- Weeks 11-12: Attend the sanction hearing and present fairness, surplus allocation, and no-worse-off evidence.
- Post-sanction: Satisfy conditions precedent, fund, perfect security, complete implementation, and handle market disclosure and auditor sign-off.
Gating items include credible valuation, at least one consenting in-the-money class, early agreement on new money, and cross-border recognition where needed. If a company instead pivots to a disposal, consider the execution risks and value impacts described in distressed M&A vs NPL sales.
Hard-stop tests, pitfalls, and what to watch next
- Hard-stops: No consenting in-the-money class, weak relevant alternative evidence, or disproportionate allocations to equity or insiders without necessity and contribution.
- Common pitfalls: Class gerrymandering, thin disclosure on fees, underweighting HMRC and employee claims, and overreliance on timetable pressure instead of evidence.
- Trends to watch: More scenario-weighted valuations post-Adler, granular liquidation timing and costs, better auction evidence, earlier HMRC engagement, and transparent benchmarking for backstop economics. Expect continued use of English plans for English law instruments, supported by recognition routes and, where necessary, shifts in governing law.
Quick checklist before you support a plan
- Test the alternative: Use independent advisers and market-consistent discount rates to quantify recoveries in the most likely alternative.
- Trace surplus: Confirm your class receives a fair share of any restructuring surplus consistent with priority and contribution and informed by absolute priority principles.
- Scrutinize new money: Assess fees, security, and dilution and benchmark terms to relevant transactions.
- Check classes: Pressure test class composition for alignment of legal rights and flag strategic splits.
- Model impacts: Capture tax and accounting outcomes, including debt extinguishment tests under IFRS 9.
- Plan recognition: Confirm routes for foreign assets and non-English law liabilities and line them up early.
Records and closeout
Archive the full record, including index, versions, Q&A, user lists, and audit logs. Hash the archive, apply retention, and instruct vendor deletion with a destruction certificate when retention ends. Legal holds override deletion steps.
Conclusion
Part 26A plans provide a practical path to binding, multi-class restructurings in the UK. Cross-class cram down is available, but it demands disciplined valuation, a fair allocation of any surplus, and transparent economics. Treat each plan as a valuation-and-allocation exercise framed by the relevant alternative, secure an in-the-money consenting class, and disclose fees with precision. Do that well, and execution risk falls; miss it, and the court will say so.