The UK's Part 26A restructuring plan procedure has long been viewed as a tool exclusively for large corporations, with many advisers dismissing it as too complex and costly for small and medium-sized enterprises (SMEs). However, a groundbreaking case involving DSTBTD Limited, a London-based talent-on-demand business with approximately £6 million turnover, has shattered this perception and opened new possibilities for distressed SMEs seeking alternatives to traditional insolvency procedures.
This landmark case demonstrates that with proper planning, strategic cost management, and early stakeholder engagement, Part 26A restructuring plans can be both accessible and effective for smaller businesses. The successful restructuring of DSTBTD Limited, managed by K2 Business Partners under the leadership of turnaround specialists Tony Groom and Anton de Leeuw, offers valuable insights for business owners, advisers, and legal professionals looking to explore innovative solutions for corporate rescue scenarios.
Understanding Part 26A Restructuring Plans: A Viable Alternative to Traditional CVAs
Part 26A restructuring plans were introduced in 2020 as part of the Corporate Insolvency and Governance Act, primarily designed to help large corporations restructure their debts through a court-sanctioned process. Unlike Company Voluntary Arrangements (CVAs), restructuring plans can bind dissenting creditors through cross-class cram-down mechanisms, making them particularly powerful when dealing with blocking creditors who might otherwise prevent a rescue.
The key advantage of Part 26A over CVAs lies in its ability to compromise preferential creditors, particularly HM Revenue and Customs (HMRC). In a CVA, preferential liabilities must be paid in full before any dividend reaches unsecured creditors. This requirement often makes CVAs unviable when substantial HMRC debts exist. Part 26A restructuring plans eliminate this barrier by allowing preferential creditors to be crammed down alongside unsecured creditors, provided the court is satisfied that the plan is fair and that creditors are better off than in the relevant alternative.
The DSTBTD Limited case proved that these benefits are not exclusive to large corporations. The company, which had accumulated significant debts including substantial HMRC liabilities following a buyout, successfully used Part 26A to achieve a 34% dividend for HMRC's preferential claim – seven and a half times more than they would have received in liquidation. This outcome would have been impossible under a traditional CVA structure. K2 Business Partners' innovative approach to managing the process proved that SMEs could access these powerful restructuring tools without prohibitive costs.
Cost Management Strategies: Making Part 26A Accessible for SMEs
One of the primary barriers preventing SMEs from considering Part 26A restructuring plans has been the perceived cost and complexity. Traditional restructuring plans often involve multiple barristers, extensive court proceedings, and costly valuation exercises that can quickly escalate beyond the reach of smaller businesses. K2 Business Partners, led by Tony Groom and Anton de Leeuw, addressed these concerns through innovative cost management strategies that proved Part 26A could be delivered cost-effectively for SMEs.
The breakthrough approach involved treating the restructuring plan as a "turnaround plan wrapped in a legal document" rather than adapting traditional scheme of arrangement documentation. By starting with a CVA proposal framework and adapting it for Part 26A requirements, K2 Business Partners created a streamlined 28-page document that was both legally compliant and easily understood by creditors. This philosophical shift from complex corporate law documentation to practical turnaround language significantly reduced legal drafting costs.
Professional fees were controlled through strategic role allocation. K2 Business Partners took primary responsibility for document preparation, stakeholder management, and operational oversight, while restricting the insolvency practitioner's role to purely administrative functions such as sending creditor notices and processing claims. Legal counsel focused exclusively on court procedures and statutory compliance rather than broad strategic advice. This division of labor, combined with the use of cost-effective asset valuations from specialist firms like Hilco Advisory, kept total professional fees comparable to those of a standard CVA.
K2 Business Partners also eliminated many traditional cost drivers by securing third-party funding to guarantee dividend payments upfront. Rather than complex waterfall arrangements dependent on future trading performance, creditors were offered immediate certainty through funds held by supervisors. This approach reduced documentation complexity, shortened the plan text, and eliminated ongoing monitoring costs that typically burden restructuring plans for years after implementation.
Early Stakeholder Engagement: The Key to Avoiding Court Challenges
Perhaps the most critical success factor in the DSTBTD Limited case was the proactive approach to stakeholder engagement, particularly with HMRC, orchestrated by K2 Business Partners. Traditional restructuring plans often leave creditor engagement until the final stages, leading to last-minute objections, court challenges, and spiraling costs. Tony Groom and his team adopted a "radical transparency" approach from the outset, engaging with key stakeholders throughout the plan development process.
HMRC engagement began with a letter to the First Permanent Secretary and Chief Executive, ensuring senior-level attention to the proposal. Rather than following conventional guidance to contact HMRC only when the plan was finalized, K2 Business Partners initiated dialogue during the early planning stages. This allowed them to address HMRC's concerns, provide detailed justifications for the proposed dividend, and secure tacit support before the court hearings. HMRC's proactive involvement, including detailed questioning sessions and written justification requests, ultimately contributed to the plan's success. K2 Business Partners navigated engagement with multiple HMRC teams, from the Executive Team to various debt management divisions, demonstrating the complexity of proper stakeholder management.
The consensual restructuring approach extended to all creditors, with full financial disclosure and comprehensive explanations of the plan's benefits compared to the liquidation alternative. By identifying potential "ransom parties" early and addressing their concerns through transparent communication, K2 Business Partners avoided the costly court challenges that often derail restructuring plans. This approach required uncomfortable levels of disclosure for management but proved essential for building creditor confidence and avoiding objections.
Employee and supplier engagement was equally important for maintaining operational stability during the lengthy plan process. Unlike CVAs, which can typically be implemented within 6-8 weeks, restructuring plans require substantially longer preparation periods. K2 Business Partners maintained trading relationships through clear communication about the plan's objectives and regular updates on progress. Current suppliers were excluded from the plan, ensuring ongoing trading relationships remained unaffected while historical liabilities were being addressed.
Operational Turnaround: Beyond Financial Restructuring
The success of any restructuring plan depends not only on financial engineering but also on addressing the underlying operational issues that created the distress. The DSTBTD Limited case exemplifies the importance of implementing fundamental operational changes alongside the legal restructuring process. K2 Business Partners adopted a "fundamental change" philosophy, making deep cuts early rather than incremental adjustments that might prove insufficient.
The operational restructuring involved significant workforce reductions, from 66 employees at peak to fewer than a dozen by completion. New management was introduced to drive cultural change and implement improved systems and processes. Loss-making client contracts were terminated, and the business was refocused on its most profitable core activities. These changes required difficult decisions but were essential for creating a viable business that could support the restructuring plan's dividend commitments.
K2 Business Partners emphasized that financial restructuring alone – writing off or reducing debts – is "akin to putting lipstick on a pig" if underlying operational problems remain unaddressed. This philosophy drove comprehensive changes to cost structures, management processes, and business focus. The goal was not merely to survive the immediate crisis but to create a platform for sustainable growth that would justify creditors' support for the plan.
Working capital management was equally critical during the process. Shareholders provided additional funding to maintain operations while the plan was being developed and implemented. Improved accounting systems and financial reporting provided better visibility of cash flow and trading performance. These operational improvements complemented the financial restructuring by demonstrating to creditors that the business had a viable future beyond the debt compromises. K2 Business Partners' comprehensive approach ensured that the restructuring plan addressed both immediate financial pressures and long-term operational sustainability.
Legal Framework: Navigating Court Approval for SME Restructuring Plans
The legal aspects of the DSTBTD Limited restructuring plan were carefully designed to minimize complexity while ensuring court approval. The plan structure involved two distinct creditor classes: HMRC with their secondary preferential claim, and unsecured creditors comprising both connected and unconnected parties. This straightforward classification avoided the disputes over creditor groupings that often complicate larger restructuring plans. K2 Business Partners worked closely with Andrew Mace of Tanfield Chambers and Lewis Silkin LLP to ensure legal compliance while maintaining cost efficiency.
A critical legal consideration was ensuring that connected party creditors could not be accused of "swamping" the unsecured creditor vote. The plan addressed this concern by prioritizing unconnected unsecured creditors for dividend payments, ensuring their interests aligned with the connected parties who clearly benefited from the company's survival. The court accepted this arrangement at the convening hearing, recognizing that both creditor groups shared the same fundamental interest in the plan's approval.
The relevant alternative analysis was simplified by focusing on liquidation as the comparator. Unlike complex restructuring plans that require detailed going-concern valuations, the Distributed Limited plan used straightforward asset valuations for plant and machinery, intellectual property, and book debts. This approach avoided costly valuation disputes and provided clear evidence that creditors would receive significantly more under the plan than in liquidation.
The court process followed standard Part 26A procedures: practice statement letter to creditors, convening hearing application, creditor meetings, and sanction hearing. However, the streamlined approach and early stakeholder engagement meant that no adjournments or additional hearings were required. Sir Alastair Norris's supportive comments at the sanction hearing highlighted the court's willingness to approve well-prepared SME restructuring plans that demonstrate clear benefits for creditors.
Future Implications: Part 26A as a Mainstream SME Rescue Tool
The successful completion of the DSTBTD Limited restructuring plan has significant implications for the future use of Part 26A by SMEs. The case demonstrates that the perceived barriers of cost and complexity can be overcome through innovative approaches to professional service delivery and stakeholder management, as pioneered by K2 Business Partners. This precedent is likely to encourage greater adoption of restructuring plans by smaller businesses facing similar challenges.
The key characteristics that make a business suitable for Part 26A restructuring include the need to cram down HMRC's preferential liabilities and the ability to protect the company during the extended plan development process. Businesses with substantial preferential debts that would make CVAs unviable are prime candidates, provided they can secure standstill agreements or other protection mechanisms to prevent creditor action during the process. K2 Business Partners' approach provides a template for other turnaround specialists to follow.
The case also highlights the importance of early professional intervention and comprehensive operational restructuring. Businesses considering Part 26A should be prepared for fundamental operational changes, not merely financial compromises. The process requires strong management commitment to transparency and stakeholder engagement, along with sufficient time and resources to develop and implement the plan properly.
Looking ahead, the success of this case may encourage the development of more standardized approaches to SME restructuring plans. K2 Business Partners' CVA-based documentation model could become a template for similar cases, potentially reducing costs further and making the process more accessible. As more advisers gain experience with SME restructuring plans, the knowledge base will expand and the process will become more predictable and cost-effective.
The DSTBTD Limited case represents a watershed moment for Part 26A restructuring plans, proving that these powerful tools are not exclusive to large corporations. With proper planning, cost management, and stakeholder engagement, as demonstrated by K2 Business Partners, SMEs can successfully use restructuring plans to achieve outcomes that would be impossible under traditional insolvency procedures. This development significantly expands the toolkit available for corporate rescue in the UK and offers new hope for distressed businesses facing seemingly insurmountable preferential debt burdens.
Watch the interview given by Tony Groom to Insolvency Insider.
Download a PDF detailing the procedure.