Vol 21 (2024) - Issue 4

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Valuation: The Crux of a Good Restructuring Plan

Synopsis
In June 2020 the Corporate Insolvency and Governance Act introduced a range of permanent measures aimed to relieve the burden on businesses both during and after the Covid-19 pandemic - amongst these measures was the Restructuring Plan (the ‘Plan’).
The Restructuring Plan established a new tool for UK restructuring practitioners, drawing much of its substance from the pre-existing Part 26 CA06 scheme of arrangement (the ‘Scheme’) but differing via the existence of a ‘cross-class cram down’ mechanism which enables the court to sanction a Plan even when creditor classes dissent, as long as certain conditions are met, i.e. (i) one ‘in the money’ creditor class (most likely senior secured lenders) votes in favour, and (ii) that any dissenting creditor class is estimated to receive more under the Plan outcome than in the ‘relevant alternative’.
The relevant alternative is defined as ‘whatever the court considers would be most likely to occur in relation to the company if the compromise of arrangement were not sanctioned’. Whilst the definition is intentionally broad, the relevant alternative is the fulcrum of a
Restructuring Plan – understanding value under this counterfactual scenario is central to demonstrating a Plan’s fairness, and ultimately in determining the court’s willingness and ability to sanction it.
With the onus on proposing companies to provide the necessary evidence in support of a Plan, understanding and applying valuation best practice is critical in assessing the relevant alternative and proving the hypothesis that no party is worse off.