The restructuring plan: Part 26A Companies Act 2006

Part 26A creates a court-sanctioned process for compromising rights against creditors and members. Unlike the Part 26 scheme of arrangement it is modelled on, Part 26A permits cross-class cram-down: even where a class votes against the plan, the court can sanction it provided statutory conditions are met. The result is a powerful tool for binding dissentient stakeholders — typically junior creditor classes — to a deal supported by the senior money.

Part 26A is available where two conditions are satisfied:

• ›Condition A: the company has encountered, or is likely to encounter, financial difficulties affecting (or threatening to affect) its ability to carry on business as a going concern.
• ›Condition B: the compromise or arrangement is proposed for the purpose of eliminating, reducing, preventing, or mitigating those financial difficulties.

The financial-difficulty threshold is deliberately low — the company need not be insolvent, only at risk. This contrasts with Part 26 schemes, which have no financial-difficulty requirement at all.

Hearing 1: Convening hearing

The company applies for orders convening meetings of relevant classes. The court's role at this stage is procedural: determining whether the proposed class composition is correct, authorising convening of meetings, and setting out the threshold the company will need to satisfy at sanction.

Class composition is the most heavily litigated aspect of Part 26A. The court applies the test from Sovereign Life Assurance Co v Dodd: a class must be confined to creditors whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. Errors in class composition undermine the entire process.

Hearing 2: Sanction hearing

After class meetings, the company returns for sanction. The court must be satisfied that each approving class voted by a 75% majority in value; procedural requirements have been complied with; the plan is one an intelligent and honest creditor, acting in their own interest, might reasonably approve; and — if cross-class cram-down is sought — the statutory conditions in s.901G are met.

The court may sanction a plan even though one or more classes voted against it, provided:

• ›Condition A — the no-worse-off test: none of the members of the dissenting class would be worse off than they would be in the 'relevant alternative' (typically administration or liquidation).
• ›Condition B — the in-the-money test: the plan was approved by at least one class that would receive a payment, or have a genuine economic interest in the company, in the relevant alternative.

The relevant alternative is the outcome the court considers most likely if the plan were not sanctioned. Establishing this requires detailed valuation evidence — most commonly desktop and enterprise-value analyses produced by specialist restructuring advisers.

• ›Re Virgin Active [2021] EWHC 1246 (Ch) — first major cross-class cram-down of dissenting landlord classes.
• ›Re Houst [2022] EWHC 1941 (Ch) — first cram-down of HMRC as secondary preferential creditor; significant given HMRC's restored preferential status from 1 December 2020.
• ›Re Adler Group [2024] EWHC 105 (Ch) — jurisdictional principles for foreign-incorporated companies and the limits of cross-class cram-down.

The case law is developing rapidly and directors considering a Part 26A plan should expect a bespoke analysis of how the latest authorities apply to their specific facts.

• ›Often preceded by a Part A1 moratorium for breathing space while the plan is finalised.
• ›May run in parallel with administration, where the plan is the substantive exit route.
• ›Where the company is solvent, no preceding insolvency procedure is required.
• ›Can compromise secured debt — unlike a CVA — which is the principal reason for use in leveraged restructurings.

Cost is the main practical limitation. The two-hearing structure, class composition analysis, valuation evidence, and explanatory statement preparation typically cost £500,000 upwards for even straightforward plans. SMEs are generally better served by:

• ›Company Voluntary Arrangement — cheaper, faster, but cannot bind secured creditors or cram down dissenting classes.
• ›Pre-pack administration — fast asset rescue but reputational and SIP 16 considerations apply.
• ›Informal restructuring with consensual creditor agreement — viable for smaller debt structures.

Part 26A is most useful where the company has multiple creditor constituencies — secured lenders, bondholders, landlords, trade creditors — and consensus cannot be achieved without the cram-down mechanism.

For the breathing-space tool, see Part A1 moratorium (CIGA 2020). For CVA, see company voluntary arrangement. For administration, see administration.

At IQ Insolvency, every engagement is led by a licensed insolvency practitioner from the first conversation. Part 26A plans are highly specialised — we advise directors on whether Part 26A is the appropriate tool, how to engage with the City firms typically retained, and how the procedure fits broader strategic objectives. Call 020 8153 1270 for a confidential same-day conversation. No call centres. No handoffs.