Restructuring Plans Under the UK Insolvency Act Explained

If your business is facing financial difficulties, you might be wondering what options are available to turn things around. One powerful but often misunderstood option is a restructuring plan under the UK Insolvency Act. This article will guide you through what restructuring plans are, why they matter, and how Sterling & Wells can support you through the process to help your business survive and thrive.

What Exactly is a Restructuring Plan?

A restructuring plan is a formal agreement between a company and its creditors or shareholders to reorganize the company’s debts and obligations. It is designed to provide a way for companies in financial distress to continue trading while they address their financial challenges, rather than going straight into administration or liquidation.

Restructuring plans were introduced under Part 26A of the Companies Act 2006, as amended by the Corporate Insolvency and Governance Act 2020. This legislation gives companies a statutory framework to negotiate and implement agreements even when some creditors disagree, using what is called the “cross-class cram down” mechanism. Essentially, this means the court can approve a plan despite objections from certain creditor classes, as long as the plan is fair overall and those unconventional creditors are not much worse than they would be under an alternative such as liquidation.

Why are Restructuring Plans So Important?

You might ask why businesses should consider restructuring plans at all. The answer lies in the flexibility, speed, and control they offer compared to traditional insolvency procedures.

How Can Sterling & Wells Accountants Help?

We provide company group structuring services to companies, startups, family-run firms, and expanding corporate groups to build tax-efficient, tailored structures from holding companies to subsidiaries.

Restructuring plans allow you to tailor solutions to your company’s unique situation. For example, you can negotiate the reduction of outstanding debts, extend repayment terms, or even restructure lease agreements that might otherwise cripple your cash flow. This flexibility means your business has a better chance of survival and recovery.

Moreover, the involvement of the courts ensures a level of legal certainty and protection. Once a plan is sanctioned by the court, it binds all affected parties. This can provide peace of mind allowing you to focus on the business itself.

How Do Restructuring Plans Work in Practice?

The process begins with preparing a detailed proposal outlining how the business will address its financial difficulties. This usually involves an independent valuation of the company, consultation with creditors and shareholders, and sometimes negotiations with parties like HM Revenue & Customs (HMRC), which is often one of the key creditors.

The plan then goes through a voting process. Creditors and shareholders are grouped into classes, each voting on the proposal. Even if some classes reject the plan, the court can still approve it through the cross-class cram down if the plan is fair to dissenting parties.

How Sterling & Wells Can Help You With Restructuring Plans

Navigating the complexities of restructuring plans can be daunting, especially when time and resources are limited. That’s where Sterling & Wells comes in. Our experienced team specializes in insolvency and corporate restructuring and will work closely with you at every stage.

We assist you in reviewing your financial position objectively, preparing robust restructuring proposals, and engaging with all relevant stakeholders. We understand the importance of clear communication throughout the process to keep you and your creditors informed and confident.

Our expertise also includes working with government bodies like HMRC to secure favourable negotiation outcomes. With our support, you gain access to practical solutions that can help your company avoid insolvency and preserve value for your business and stakeholders.

When Should You Consider a Restructuring Plan?

If your business is struggling to meet debt payments, facing operational cash flow issues, or under pressure from creditors, a restructuring plan may be a viable option. Early engagement is critical; the earlier you start exploring restructuring, the more options you’re likely to have.

Waiting until insolvency is unavoidable can limit your choices dramatically and reduce the chance of a successful turnaround.

Looking Ahead: The Future of Restructuring

Restructuring plans are still a relatively new but rapidly evolving part of UK insolvency law. Courts continue to define how plans can be best used, providing increasing clarity and guidance. This evolving jurisprudence means flexibility and innovation in how businesses can manage financial difficulties are improving all the time.

With ongoing legislative developments and high-profile cases further shaping the landscape, the restructuring plan remains a key tool for companies and their advisers.

Conclusion

Facing financial difficulties can be stressful and overwhelming, but you don’t have to face it alone. Restructuring plans under the UK Insolvency Act offer a legal, flexible, and effective route to take control of your company’s future, even when some creditors are resistant.

Sterling & Wells stands ready to guide you through the process with expertise, care, and practical solutions tailored to your business’s needs. If you want to explore how restructuring plans could work for you, get in touch with us today to start the conversation.

By understanding your options and acting promptly, you can protect your business, safeguard jobs, and lay the foundations for future success.