Part 26A restructuring plans were introduced in 2020 as a flexible tool to help financially struggling companies, particularly in response to the uncertainty created by Covid-19. Since then, in light of ongoing domestic and global economic pressures, we’ve seen a noticeable rise in their use.

In this article Tim Symes, Aarti Chadda and Eugene Pekos give a snapshot on how these restructuring plans work, summarise some of the most significant cases to date and share key takeaways for creditors, shareholders and companies.

What is a Part 26A restructuring plan, and how does it work?

A restructuring plan under Part 26A of the Companies Act 2006 is essentially a formal agreement between a company and its creditors (and/or shareholders) to restructure its debts, allowing the company to continue operating while addressing financial difficulties. Importantly, a company doesn’t need to be insolvent to propose a plan; it’s enough if it’s likely to encounter financial trouble.

Restructuring plans, which must be approved by the court, can be powerful, but they’re also contentious. They often pit different groups of creditors against each other and spark disputes between companies and stakeholders. And because the legislation is still relatively new, plenty of case law precedents will be set as new situations arise in which these plans are used or attempted.

Plans can take different forms:

• Compromising or reducing the value of debt
• Converting debt into equity
• Resetting financial covenants
• Rescheduling repayments

To be approved, the plan needs support from at least 75% in value of each class of creditors or members who are voting.

What makes these plans stand out is the “cross-class cram down” mechanism. This allows the court to approve the plan even if one or more creditor classes vote against it, provided:

1. Those dissenting classes wouldn’t be worse off under the plan than they would in the relevant alternative (usually administration or liquidation), and
2. At least one class who would receive something under the plan (or has an economic interest in the company) has approved it by the 75% threshold.

Significant cases so far

1. Consort Healthcare (Tameside) plc

This case marked the first time the English courts ordered security for costs in the context of a restructuring plan. Security for costs is simply the requirement for one party to give another security in the event the first party were unable to meet a costs order against it.

Consort Healthcare, a special purpose vehicle running a private finance initiative (“PFI”) contract with an NHS trust, was in financial difficulty and proposed a restructuring plan to avoid administration. The trust opposed the plan and asked the court to order Consort to put up security for its legal costs, citing concerns about the company’s ability to pay if it lost. The court agreed and ordered 50% of the requested sum (around £400,000). With no funds to meet the order, the plan was stayed.

Takeaway: Cost consequences can be significant both for plan companies and creditors. For dissenting parties, this case provides precedent that cost protection can be obtained.

2. Aggregate Group

A German real estate company within the Aggregate Group moved its centre of main interest to the UK so it could take advantage of the English insolvency regime and in particular enable it to propose a Part 26A plan. The original plan offered subordinated creditors nothing, aiming to release €245m in debt for zero consideration.

However, after the Court of Appeal decision in Adler (see below), the company amended the plan to offer junior creditors a “modest” €200,000 despite them being “out of the money”. The court sanctioned the revised plan.

Takeaway: Even if a creditor is out of the money in a liquidation scenario, a plan must include some value to be a valid “compromise.” Courts will look for meaningful “give and take”.

3. Adler Group

Adler, a German real estate business, proposed a restructuring plan to deal with over €6bn in debt, with a view to winding down its assets over time. A group of creditors, who held bonds due in 2029, opposed the plan, arguing it violated the pari passu principle (ie, equal treatment between unsecured creditors) because earlier-dated bonds were being paid more favourably.

While the High Court approved the plan and crammed down the dissenting creditors, the Court of Appeal overturned that decision. It found that the judge had misapplied the test for fairness and failed to assess the relative treatment of all creditor classes adequately.

The court clarified that:

• There must be a real compromise or arrangement, even for creditors who are out of the money.
• The court must consider fairness across classes of creditors, not just within each class.
• Deviations from pari passu can be justified, but only if the company shows clear reasons.

Takeaway: This was the first significant appellate guidance on Part 26A plans and established that the courts would scrutinise fairness and creditor treatment closely, especially when cram-down is used.

4. Thames Water

Thames Water has arguably put 26A Plans into the mainstream consciousness. Financially hobbled due to years of overly generous extraction of dividends to shareholders and shored up by biblically-sized debt, Thames Water proposed an interim restructuring plan to extend the maturity of certain debts for two years. The goal was to buy time to raise more capital and propose a more comprehensive plan.

A group of junior creditors (Class B) opposed the plan and proposed an alternative. However, the court sanctioned the plan and used cram-down powers to override the dissenting class. It ruled that:

• The appropriate “relevant alternative” was a special administration regime (SAR), not the creditors’ own proposal.
• The creditors were out of the money in a SAR and so weren’t worse off under the plan.
• The plan was fair, especially as it was only a short-term fix.

What does this mean for stakeholders?

Key judicial trends:

• Increased scrutiny on fairness: plans must be fair across classes. Courts will not simply defer to commercial logic if there are big disparities in treatment.
• The meaning of “compromise” matters: even out-of-the-money creditors may be entitled to some form of value. Zero isn’t good enough.
• Cram-down is powerful but not automatic: the court’s discretion must be carefully applied and justified.
• Procedural protections are strengthening: with the Consort case, creditors now have a path to protect themselves from being out-of-pocket if they challenge a plan.

Practical takeaways:

• If you’re a creditor, don’t sit back. Engage early. If you suspect a plan is coming and you’re being short-changed, get legal advice straight away.
• Companies must be prepared to justify treatment across all creditor classes and show meaningful compromise, especially post-Adler.
• Litigation risk is rising. These plans are becoming a fertile ground for disputes, particularly as the economic outlook remains rocky.

You can find further information regarding our expertise, experience and team on our Insolvency and Asset Recovery.

If you require assistance from our team, please contact us.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.