Introduced by the Corporate Insolvency and Governance Act 2020, Part 26A of the Companies Act 2006 provides companies experiencing financial difficulty with a powerful restructuring tool. The Part 26A restructuring plan is designed to help companies avoid insolvency while ensuring fair treatment of creditors and stakeholders. However, while these plans offer considerable advantages, they also come with challenges and risks. This article explores how restructuring plans are approved, their impact on creditors’ rights, and the advantages they offer, before addressing some of the possible drawbacks.
Obtaining Approval for a Part 26A Restructuring Plan
For a company to implement a restructuring plan under Part 26A, it must satisfy two eligibility criteria:
- Financial Difficulty – The company must be encountering, or be likely to encounter, financial troubles that affect its ability to operate as a going concern.
- Compromise or Arrangement – The plan must involve a compromise or arrangement between the company and its creditors and/or shareholders to restructure its obligations.
Once a restructuring plan is presented, it must go through a structured approval process:
Creditor and Shareholder Meetings
Affected creditors and shareholders are divided into classes and asked to vote on the plan. For approval, at least 75% in value of creditors in each class must vote in favour.
Court Convening Hearing
The court initially decides whether the plan is suitable for consideration, including the appropriate classes of creditors and shareholders.
Creditor and Shareholder Meetings
If the plan secures the necessary votes, the court evaluates its fairness before granting final approval.
A distinctive feature of Part 26A is the ability of the court to impose the plan even if one or more classes votes against it. The court can only exercise this power if the dissenting creditors would be no worse off than they would be in the likely alternative, usually administration or liquidation, and if at least one class with a genuine economic interest in the company supports the plan. These tests create a delicate balance between enabling rescue and protecting creditor rights, which the courts have been asked to apply repeatedly in recent years.
How a Restructuring Plan Affects Creditors’ Rights
Restructuring plans can alter creditors’ rights in fundamental ways. Debts may be reduced, repayment dates extended, or security released. Creditors who oppose the plan may nonetheless find themselves bound into it if the statutory conditions are met and the court is persuaded to exercise its discretion.
This capacity to override dissent is both the attraction and the controversy of Part 26A. For businesses, it can break deadlock and unlock new investment. For creditors, it raises the prospect of being forced into arrangements that deliver less than they had hoped. Unsurprisingly, questions of fairness and proportionality have been at the heart of every major case.
While certain creditors may view this process as unfair, the key principle is that they should not be worse off than they would be in an alternative insolvency process.
The Benefits of a Part 26A Restructuring Plan
When used effectively, the benefits of a restructuring plan are significant. It can preserve the business as a going concern, safeguard employment, and stabilise relationships with suppliers and customers. Perhaps most importantly, it can provide confidence to investors and lenders that a business has a viable path forward. For many companies, this has meant the difference between collapse and survival.
Yet these benefits come with limits. Courts have been clear that the restructuring plan is not a licence to ride roughshod over creditor rights. A successful plan requires a compelling commercial rationale supported by evidence, and a structure that is fair as between different classes of stakeholders.
The Challenges and Risks
While Part 26A restructuring plans are a valuable tool, they also have limitations. It can be a costly process, making it less feasible for smaller companies and the required court approval can lead to delays and additional complexities, as well as risks that the plan does not get approval.
Case Studies
Recent cases illustrate both the promise and the pitfalls of the regime.
In Enzen (2025), an energy services business secured approval for its plan with the unusual support of HMRC, who not only voted in favour but also appeared in court to back the proposals. Given HMRC’s historically sceptical stance, this marked a significant moment and showed that even key institutional creditors can be persuaded to engage constructively with the process. For Enzen, the plan provided a vital lifeline.
By contrast, the Court of Appeal’s decision in Petrofac (2025) highlighted the risks of pushing boundaries too far. The company’s proposals were overturned on the basis that they unfairly disadvantaged certain groups of creditors. The ruling made it clear that cross-class cram down is not a rubber stamp; the courts will carefully scrutinise whether dissenting creditors are being treated equitably. What was intended as a rescue tool became a legal stumbling block.
The ongoing saga of Thames Water (2025) brought the issues into sharp public focus. Faced with billions of pounds of debt and mounting regulatory pressure, the utility company sought approval for a £3 billion restructuring plan. Both the High Court and the Court of Appeal sanctioned the deal, recognising the broader public interest in keeping the company afloat. Yet the plan was far from universally popular, with criticism that it favoured certain senior creditors at the expense of others. Thames Water claimed the plan was a lifeline but came with intense controversy.
Finally, the Adler Group (2024) case remains a touchstone in the development of the law. Here, the Court of Appeal overturned the High Court’s approval, finding that the proposals did not respect the principle of fair treatment among creditors. The judgment reinforced the message that restructuring plans must not depart too far from established insolvency principles. It remains a cautionary tale for companies attempting to push the boundaries of the regime.
Conclusion
The Part 26A restructuring plan is a powerful tool that allows financially distressed companies to restructure their debts whilst sustaining business operations. While it provides flexibility and the ability to bind dissenting creditors, it also comes with challenges, especially in relation to cost and creditor opposition. Like any restructuring solution, it must be carefully considered to ensure it aligns with the best interests of all stakeholders involved.
If you need any help or guidance, please contact our Restructuring & Insolvency Team or contact us below:
Contact Our Experts
