The Part 26A restructuring plan gives a distressed company a court-supervised route to restructure its debts and obligations across all creditor classes simultaneously. Once sanctioned, it binds every affected party, regardless of how they voted. Since its introduction in 2020, Part 26A has been used to rescue retail chains, hotel groups, real estate borrowers, utilities, and, more recently, smaller businesses for which the traditional Company Voluntary Arrangement (CVA) offered no workable solution.
For directors, creditors, and shareholders confronting serious financial difficulty, the choice between a Part 26A plan, a CVA, and formal insolvency is not academic. Each carries different costs, risks, and recovery prospects.
Summary
- Definitions: Part 26A Restructuring Plan
- When a Part 26A Plan is Available
- How It Differs from a CVA and a Scheme of Arrangement
- Classes, Voting and Court Hearings
- Binding Dissenting Classes
- The Relevant Alternative and Valuation Evidence
- Fairness and Distribution
- Implementation and Effect
- When a Part 26A Plan Works Well
What is a Part 26A Restructuring Plan?
The Part 26A restructuring plan was inserted into Part 26A of the Companies Act 2006 by the Corporate Insolvency and Governance Act 2020. It is a court-sanctioned compromise or arrangement designed to eliminate, reduce, prevent or mitigate the effect of financial difficulties on a company's ability to continue as a going concern. The plan operates under sections 901A to 901L of the Companies Act 2006 and binds all affected creditors and members once the court's sanction order is filed at Companies House, including those who voted against it or did not participate.
Unlike a CVA, it can restructure secured debt, lease liabilities, and equity within a single process. Unlike a scheme of arrangement under Part 26 of the Companies Act 2006, it has the power to impose the plan on a dissenting creditor class without their consent, subject to the court being satisfied of two statutory conditions.
When a Part 26A Plan Is Available
Financial Difficulties and the Going-Concern Test
Two conditions must both be satisfied. Under section 901A of the Companies Act 2006, the company must have encountered, or be likely to encounter, financial difficulties that affect its ability to carry on as a going concern. The plan must be designed to address those difficulties.
The company does not need to be insolvent; a business facing a foreseeable liquidity problem can qualify, which allows directors to act at an earlier stage than formal insolvency proceedings would require. Part 26A is a rescue procedure, however. A business that is not viable, regardless of what the plan achieves, will not be sanctioned.
Part 26A is different from a CVA and a Scheme of Arrangement
A CVA can only compromise unsecured debts. It requires a 75%-by-value vote across all unsecured creditors, without class analysis, and cannot bind secured creditors or HMRC preferential creditors without consent. There is no cram down power.
A scheme of arrangement under Part 26 has no financial difficulty threshold and no cram-down mechanism. Part 26A combines court supervision with a class-based voting structure and the ability to bind dissenting classes.
|
Feature |
Part 26 Scheme |
Part 26A Plan |
|
Eligibility |
No financial difficulty requirement |
Financial difficulty required (s.901A) |
|
Voting |
75% by value plus majority in number per class |
75% by value only per class |
|
Cram down |
Not available |
Available under s.901G if two conditions met |
|
Secured creditors |
Bound only with class approval |
Can be bound, including via cram down |
The Core Workflow
Classes, Voting and Court Hearings
The process has four stages. First, the company prepares the plan and engages key creditors before any court application. Early support reduces the risk of a contested sanction hearing.
Second, the company applies to the Chancery Division under section 901C of the Companies Act 2006 for an order convening creditor and member meetings; class composition disputes should be resolved at this stage, not left for the sanction hearing.
Third, each class votes: 75% by value of those present and voting must approve. If all classes approve, the plan proceeds to sanction without cram-down. If one or more classes vote against, cram down becomes the central question.
Fourth, the court holds a sanction hearing. Even where all classes have approved, the court retains a residual discretion and is not obliged to sanction. The plan takes effect when the sanction order is filed at Companies House.
Binding Dissenting Classes, or “Cross-Class Cram Down”
Under section 901G of the Companies Act 2006, the court can bind a dissenting class if two conditions are met.
Condition A: no member of the dissenting class would be worse off under the plan than in the relevant alternative.
Condition B: at least one class with a genuine economic interest in the company in the relevant alternative has voted in favour.
Meeting both conditions does not compel the court to sanction. The court then asks whether the restructuring surplus is distributed fairly across all affected classes. Creditor classes with no realistic prospect of recovery in the relevant alternative may be excluded from voting; they have no genuine economic interest to protect.
The Relevant Alternative and Valuation Evidence
The relevant alternative is the most likely outcome if the plan is not sanctioned, typically administration or liquidation. It sets the floor for the no-worse-off test and anchors the fairness analysis. Establishing it requires expert evidence addressing: going-concern and liquidation values; estimated returns to each creditor class; and the restructuring surplus generated by the plan over and above those returns.
In Re Chaptre Finance plc [2024] EWHC 2908 (Ch), the court confirmed that all expert evidence must comply fully with CPR Part 35. A non-compliant report may be of no value to the court. Creditors wishing to challenge the relevant alternative must serve their own compliant expert evidence; criticising the company's report in submissions alone is unlikely to succeed.
Fairness and Distribution (Who Gets What, and Why)
Passing the no-worse-off test establishes the floor below which no dissenting creditor can be taken. It does not justify sanctioning the plan on its own. The court must separately assess whether the restructuring surplus is distributed fairly.
In Re AGPS Bondco PLC [2024] EWCA Civ 24, the Court of Appeal set aside Adler's plan because it departed from pari passu distribution without adequate justification, giving earlier-maturing noteholders a material advantage over the dissenting 2029 noteholders.
Where creditors rank equally in the relevant alternative, the surplus should generally be distributed on equal terms. Any departure requires a clear and specific justification. The court will also ask whether a fairer allocation would have been available.
Implementation and Effect
The Part 26A plan takes effect when the sanction order is filed at Companies House under section 901F(5) of the Companies Act 2006. From that moment, the plan operates automatically: debt balances are written down or extended, leases varied or surrendered, security released or amended, and new money instruments activated. No further steps are required by individual creditors.
There is no automatic moratorium on a Part 26A application, unlike certain procedures under Part A1 of the Insolvency Act 1986. Companies needing protection from enforcement during the plan process must negotiate contractual standstills or apply separately for a moratorium. A sanctioned plan is very difficult to undo. Creditors with concerns must raise them at the convening hearing or at the sanction hearing, not after the order is made.
When a Part 26A Plan Works Well
Part 26A works well in cases where:
- the company needs to restructure debt across secured and unsecured creditor classes simultaneously
- there is at least one class with genuine economic interest supporting the plan
- early creditor engagement has been possible
AND
- there is sufficient time and advisory resources to run a two-hearing court process with compliant expert evidence
It is not appropriate where the business is not viable as a going concern, where all creditors are unsecured and broadly supportive of a CVA, where the financial position is so acute that the two-hearing timetable cannot be met, or where the restructuring surplus is negligible and the cost of the court process cannot be justified.
Seek Legal Advice Early
If you are a director, creditor, or shareholder in a company facing serious financial difficulty, it is crucial to get legal advice early on. When advising clients, we find that decisions taken in the first weeks of a distress situation frequently determine whether a restructuring is achievable and on what terms.
Witan Solicitors' commercial litigation team advises directors, creditors, and shareholders on the full range of restructuring and insolvency options, including Part 26A restructuring plans, CVAs, and administration. We also advise on how to assess and challenge proposed plans. If a shareholder dispute arises in the context of a distressed company, we can assist with that, too. Contact us on 0300 303 2071 or fill in our enquiry form.
FAQs
Does the company need to be insolvent to use Part 26A?
No. Section 901A of the Companies Act 2006 requires that the company has encountered, or is likely to encounter, financial difficulties affecting its ability to continue as a going concern. A solvent company with a foreseeable balance sheet or liquidity problem can qualify.
What is “cross-class cram down” and when can the court use it?
Cross-class cram down is the power under section 901G to bind a dissenting class to a plan it voted against. The court can exercise it only if: no member of the dissenting class would be worse off than in the relevant alternative; and at least one class with a genuine economic interest has approved the plan. Both conditions must be met, and the court must also be satisfied that the distribution of the restructuring surplus is fair.
How does a Part 26A plan differ from a CVA?
A CVA can only compromise unsecured debts, requires a single 75%-by-value vote across all unsecured creditors, and cannot bind secured creditors or HMRC preferential claims without consent. Part 26A operates class by class, can reach secured debt and equity simultaneously, and can bind dissenting classes by court order. It is broader but more costly and complex.
What is the relevant alternative and why does it matter?
It is the most likely outcome if the plan is not sanctioned, typically, administration or liquidation. It sets the floor for the no-worse-off test and anchors the fairness analysis. A creditor who would receive nothing in the relevant alternative cannot use that test to block a plan that offers them a recovery. Accurate and compliant expert evidence on the relevant alternative is one of the most consequential elements of any Part 26A process.
Can a creditor challenge a Part 26A plan after sanction?
Overturning a sanctioned plan is very difficult. Creditors with concerns must raise them at the convening hearing, at the creditor meeting, or at the sanction hearing. A challenge after the sanction order is filed at Companies House is possible only in narrow circumstances, for example, where the plan was procured by fraud or material non-disclosure, and the threshold is high.
