Restructuring Plans: How a Part 26A Plan Can Rescue a UK Company
A restructuring plan is a court-sanctioned deal between a company and its creditors under Part 26A of the Companies Act 2006. Its power is cross-class cram-down: the court can impose the plan on creditor groups that vote against it — including HMRC and secured lenders — while the directors stay in control of the business.
What is a restructuring plan?
The restructuring plan was introduced by the Corporate Insolvency and Governance Act 2020 and sits in Part 26A of the Companies Act 2006. It lets a company in financial difficulty propose a compromise or arrangement with its creditors — and, where needed, its shareholders — that the court then sanctions, making it binding on everyone in the classes it covers.
It borrows its mechanics from the long-established scheme of arrangement, with one decisive addition: cross-class cram-down. Under a scheme, every class of creditors has to vote in favour. Under a restructuring plan, the court can sanction the plan even if one or more classes vote against it, provided strict conditions are met. That turns a single hold-out creditor — a bank, a landlord group, or HMRC — from a veto into one voice among several.
A plan is not an insolvency procedure in the way administration or liquidation is. No insolvency practitioner takes control, the directors keep running the business, and the company does not need to be insolvent to use it. It is a tool for fixing a balance sheet while the business carries on trading.
By value of those voting in each class needed to approve
Court can bind classes that vote against, including HMRC
Convening hearing, then sanction hearing
Which companies can use a restructuring plan?
Two statutory conditions have to be met before a company can propose a plan:
Condition A: financial difficulty
The company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern.
Condition B: a genuine purpose
The purpose of the plan is to eliminate, reduce, prevent or mitigate the effect of those financial difficulties.
In practice, the question that matters more is whether the business is viable once the debt is dealt with. A plan fixes the balance sheet; it does not fix a loss-making operation. The court, and the creditors voting on the plan, will want to see a credible business plan showing how the company trades profitably afterwards — cost reductions, operational changes, management changes and a realistic working-capital position.
Plans are most useful where a CVA would not work: typically because HMRC's preferential debt is large, a secured lender needs to be compromised, or one creditor group is likely to vote against and would otherwise block the deal.
How cross-class cram-down works
Creditors vote in classes made up of people whose rights are similar enough that they can sensibly consult together — for example secured lenders, preferential creditors such as HMRC, trade suppliers, and landlords. A class approves the plan if at least 75% by value of the creditors in it who vote are in favour. Unlike a scheme of arrangement, there is no separate majority-by-number test.
If a class votes against, the court can still sanction the plan when both of these conditions are met:
The "no worse off" test
No member of the dissenting class would be any worse off under the plan than in the relevant alternative — what would most likely happen if the plan were not sanctioned. For a struggling SME, that is usually administration or liquidation, which is why an independent estimated outcome statement is central evidence.
An "in the money" class has approved
At least one class that would receive a payment, or has a genuine economic interest in the company, in the relevant alternative has voted in favour.
The court still has discretion
Meeting the two conditions does not guarantee sanction. Recent Court of Appeal decisions have made clear that judges will look hard at how the benefits of the restructuring are shared between creditor groups and shareholders, and whether dissenting creditors are being treated fairly rather than simply outvoted. A plan that gives shareholders or new money a disproportionate share of the upside, at the expense of crammed-down creditors, is at real risk. The lesson for SMEs is to design a plan that is demonstrably fair, not just technically compliant.
The restructuring plan process, step by step
1. Viability review and business plan
Establish that the business can trade profitably once its debt is restructured, and build the plan that proves it: cost reductions, operational reorganisation, management changes and a realistic working-capital forecast.
2. Relevant alternative and creditor classes
Commission independent evidence of what creditors would receive in the relevant alternative, usually administration or liquidation, and group creditors into classes. Getting classes right is one of the main points the court tests, and fewer, clearer classes make for cleaner votes.
3. Practice statement letter
Creditors are formally notified of the proposed plan, the classes and the convening hearing, giving them the chance to raise objections about class composition early. It is also the moment to collect up-to-date contact details and open a proper dialogue with every creditor.
4. Convening hearing
The court considers the proposed classes and whether it has jurisdiction, then orders the class meetings to be held. It does not decide on the merits of the plan at this stage.
5. Explanatory statement and class meetings
Creditors receive a detailed explanatory statement covering the plan, the business plan and the relevant alternative, then vote at their class meetings, which are commonly held virtually.
6. Sanction hearing
The court decides whether to sanction the plan, applying cross-class cram-down where a class has voted against. Once sanctioned and filed at Companies House, the plan binds every creditor in the classes it covers.
7. Implementation
The company delivers the payments and the operational changes it committed to. This is where a turnaround-led plan earns its keep: the balance sheet is fixed on the day of sanction, but viability is only proven in the months that follow.
A plan does not come with an automatic moratorium. If creditors are threatening enforcement while it is prepared, the standalone Part A1 moratorium, also introduced in 2020 and overseen by a licensed insolvency practitioner acting as monitor, can provide breathing space. If a winding-up petition has already been issued, see our guide on how to stop a winding-up petition.
Restructuring plan vs CVA vs administration
For most UK SMEs the practical choice is between a CVA, a restructuring plan and administration. Each has a place.
| Restructuring plan | CVA | Administration | |
|---|---|---|---|
| Who is in control? | Directors | Directors, with an IP as supervisor | Administrator (an IP) |
| Approval | 75% by value in each class, then court sanction | 75% by value of creditors voting; no court hearing | No creditor vote needed to appoint |
| Can bind dissenters? | Yes, across classes (cram-down) | Only unsecured creditors outvoted in the single vote | Not applicable |
| Secured and preferential debt (incl. HMRC) | Can be compromised | Not without their consent | Paid in statutory order |
| Moratorium | None built in | None built in | Automatic |
| Publicity | Public court hearings | Lower profile | Public, Gazette notice |
| Relative cost | Highest of the three for an SME | Lowest; fees paid from contributions | Higher than a CVA |
The rule of thumb: if a CVA can do the job, it is usually cheaper and quicker. A restructuring plan earns its extra cost when there is a creditor a CVA cannot reach — preferential HMRC debt, a secured lender, or a class that would block a single-vote deal. For the fees involved in a CVA, see how much a CVA costs; for the full comparison of formal routes, see CVA vs administration vs turnaround vs liquidation.
Restructuring plans and HMRC
Since December 2020, HMRC has ranked as a secondary preferential creditor for taxes a business collects on its behalf — VAT, PAYE income tax, employee National Insurance and CIS deductions. That change made CVAs harder for many SMEs, because a CVA cannot compromise preferential debt without HMRC's agreement.
A restructuring plan can. HMRC can be placed in its own class and, if it votes against, crammed down — provided it would be no worse off than in the relevant alternative. Several SME plans have now been sanctioned over HMRC's objection.
But HMRC has also successfully opposed SME plans it judged unfair or poorly evidenced. The courts have been clear that a plan cannot be used simply to push losses on to the taxpayer while shareholders keep the upside.
What works with HMRC
- • Engage early and share draft documents before the practice statement letter, so there are no surprises
- • Give full disclosure of assets, liabilities, the business plan and directors' own contribution
- • Offer HMRC a better return than the relevant alternative, and show your workings
- • Explain why the tax arrears arose and what has changed to stop them recurring
If HMRC arrears are the core problem, it is worth first checking whether a Time to Pay arrangement will do — our guide to dealing with HMRC debt sets out the options.
How long does a restructuring plan take, and what does it cost?
For an SME, a realistic timetable is two to four months from the practice statement letter to sanction, after several weeks of preparation. Contested plans, or plans with many classes, take longer and depend heavily on court availability.
On cost, the plans that make the headlines — retailers, property groups, utilities — often run to millions of pounds in legal and advisory fees. That is not the right benchmark for a £3m–£20m turnover business. An SME plan can be delivered for a small fraction of that, but it will still cost more than a CVA, because of:
- • Two court hearings, with legal representation and usually counsel
- • Independent evidence of the relevant alternative
- • A detailed explanatory statement and business plan
- • Creditor communications and class meetings
The biggest lever on cost
The largest single saving comes from who prepares the plan. When an experienced turnaround team designs the plan, builds the business plan and drafts the documentation itself, lawyers and counsel can focus on the court work rather than billing for every step. That is how K2 ran its own SME plan, and the saving in legal and advisory fees was significant.
What we learned running an SME restructuring plan
K2 designed and executed the DSTBTD Limited restructuring plan, a pioneering SME Part 26A plan, preparing all of the documentation in-house. The lessons apply to any smaller company considering a plan:
Keep the classes simple
Only two classes were used — secondary preferential and unsecured creditors — and both voted decisively in favour, by 100% and 99.5%.
Talk to HMRC early and often
Regular, transparent dialogue with several HMRC departments, and sharing drafts early, overcame obstacles and secured buy-in.
Over-disclose
Extensive disclosure of assets, liabilities and the business plan, using CVA-style documentation, built credibility with the court and creditors.
Plan for publicity
Hearings are public. Prepare staff, customers, suppliers and the bank before press attention affects trading relationships.
The plan also carried a detailed operational roadmap — cost reduction, reorganisation, management changes and improved working capital. That is the part a court-only approach tends to miss, and it is the part that decides whether the company is still trading in two years' time. Read more about K2's turnaround methodology.
Frequently asked questions
What is a Part 26A restructuring plan?
A restructuring plan is a court-sanctioned compromise between a company and its creditors (and, if needed, its shareholders) under Part 26A of the Companies Act 2006, introduced by the Corporate Insolvency and Governance Act 2020. Creditors vote in classes, and the court can sanction the plan even if one or more classes vote against it, provided the dissenting classes would be no worse off than in the most likely alternative and at least one class with a genuine economic interest has voted in favour. The directors stay in control of the company throughout.
What is cross-class cram-down?
Cross-class cram-down is the power of the court to impose a restructuring plan on a class of creditors that voted against it. The court can only do so if no member of the dissenting class would be any worse off under the plan than in the relevant alternative, which is usually administration or liquidation, and if at least one class that would receive a payment or has a genuine economic interest in the relevant alternative has approved the plan. Even then, the court has discretion and will look at whether the benefits of the restructuring are shared fairly.
What is the difference between a restructuring plan and a CVA?
A CVA is an insolvency procedure supervised by a licensed insolvency practitioner and approved by a 75% by value creditor vote, with no court hearing. It cannot compromise secured or preferential debts, including HMRC's preferential claims for VAT and PAYE, without their consent. A restructuring plan is a court process: creditors vote in classes, the court sanctions the plan, and it can bind secured creditors, preferential creditors such as HMRC and even shareholders through cross-class cram-down. A plan is more powerful but more expensive and more public than a CVA.
How long does a restructuring plan take?
For an SME, a restructuring plan typically takes around two to four months from the practice statement letter to the sanction hearing, after several weeks of preparation to build the business plan, the creditor classes and the evidence of the relevant alternative. Timings depend on court availability, the number of creditor classes and whether any creditor, such as HMRC, opposes the plan. Contested plans take longer.
How much does a restructuring plan cost?
Restructuring plans for large companies often cost millions of pounds in legal and advisory fees. SME plans can be delivered for a fraction of that, but they still cost more than a CVA because there are two court hearings, class meetings, independent evidence of the relevant alternative and, often, counsel. The biggest cost drivers are the number of creditor classes and whether the plan is opposed. Preparing documentation in-house with an experienced turnaround team, rather than outsourcing every step, is the most effective way to keep costs down.
Can a restructuring plan bind HMRC?
Yes. Unlike a CVA, a restructuring plan can compromise HMRC's preferential claims for taxes such as VAT, PAYE and employee National Insurance, and HMRC can be crammed down if it votes against. HMRC scrutinises SME plans closely and has opposed several, so a plan needs a credible business plan, full disclosure and early, open engagement with HMRC to succeed.
Is a restructuring plan suitable for a small company?
It can be. Restructuring plans were first used mainly by large companies, but SMEs have successfully used them, particularly where a CVA would not work because HMRC's preferential debt is significant or a key creditor group would block it. The business must be viable once its balance sheet is fixed, and the cost must be justified by what the plan achieves. A company with simple unsecured debt and supportive creditors will usually find a CVA cheaper and quicker.
Is a restructuring plan right for your company?
K2 has designed and run an SME restructuring plan end to end. We offer a no-charge initial assessment and will tell you honestly whether a plan, a CVA or an informal turnaround is the better route for your business.
30+ years turnaround experience · Confidential consultation · Honest about viability
Related Guides
Compare restructuring plans with the other rescue routes.
Business Rescue & Corporate Recovery
Every rescue route for a UK company in difficulty, and when each one fits
Company Voluntary Arrangement (CVA): Full Guide
How a CVA works, who qualifies and how it compares with a plan
Company Restructuring
The full picture of restructuring options for a company in distress
DSTBTD: An SME Restructuring Plan
Lessons from the Part 26A plan K2 designed and executed