Restructuring Plans Under Part 26A: A Guide For UK Businesses

Tough financial times can catch even the most prepared business owners off guard. Maybe you’re facing mounting debts, declining turnover, or relentless pressure from creditors. If you’re feeling the heat, you’re not alone - and the law has evolved to give struggling UK companies a more flexible tool to turn things around: the “Restructuring Plan” under Part 26A of the Companies Act 2006, often called simply “26A.”

But what does “26A” mean in practice for your business? And how can you harness its unique features to protect jobs, preserve business value, and avoid insolvency? In this guide, we break down 26A Restructuring Plans in plain English - so you can decide whether this powerful legal option could help you get back on track.

Let’s unpack how 26A works, when you might use it, what the process looks like, and the legal checks and planning you’ll need along the way.

What Is A 26A Restructuring Plan?

A 26A Restructuring Plan is a court-supervised process that lets financially distressed companies agree a deal with their creditors and shareholders. If approved, this “plan” can bind everyone - even those who vote against it.

It was introduced as part of the UK’s response to the COVID-19 pandemic, but isn’t just for emergencies. It’s now a permanent option, found in Part 26A of the Companies Act 2006, and widely used for everything from high street retailers to tech start-ups facing unexpected bumps.

So, why might you consider a 26A Restructuring Plan? Here are some quick advantages:

• Rescue the company: Restructure debts and obligations, preventing closure or administration.
• “Cross-class cram down”: Force the plan through even if some classes of creditors or shareholders say no (provided strict legal conditions are met).
• Customised solutions: Tailor what you offer to different stakeholder groups - it isn’t just “one size fits all.”
• Court approval means certainty: Once the plan is sanctioned, it’s binding and enforceable.

Think of a 26A Restructuring Plan as a flexible alternative to administration or liquidation, designed to keep viable businesses afloat and avoid the “all or nothing” insolvency outcomes that can hit jobs, suppliers and communities hard.

When Might A 26A Restructuring Plan Be Right For My Business?

It’s normal to wonder if your company’s situation fits the bill - let’s look at the key conditions for using a 26A Restructuring Plan:

• Financial difficulty: Your business is experiencing (or is likely to experience) financial difficulties that affect its ability to carry on.
• A “compromise” or “arrangement” is necessary: You need to alter rights owed to creditors or shareholders (for example, changing repayment terms, rates, or even writing down debt).
• Classes of creditors/shareholders: Different groups (e.g. secured creditors, unsecured creditors, shareholders) must be represented fairly.

Common triggers for considering a 26A Plan include:

• Mounting cashflow pressure and risk of insolvency
• Creditor threats of winding-up or legal action
• Major contracts or leases that the business cannot currently afford
• Desire to restructure in a way that’s more flexible than a Company Voluntary Arrangement (CVA) or administration

If any of these situations sound familiar, a 26A Plan could be on the table - provided you follow the detailed process required.

How Do 26A Restructuring Plans Compare With Other Restructuring Options?

There are several ways to restructure a business, but 26A Restructuring Plans stand out for a few reasons:

• More flexible than CVAs: Unlike a CVA, 26A plans can affect all types of creditors and shareholders, not just unsecured creditors.
• Great for complex businesses: Suitable for companies with multiple debt types or shareholder classes.
• Cram-down mechanism: Court can approve the plan even if some stakeholder classes vote against it - a major innovation.
• No need to prove insolvency (yet): Whereas administration often requires you to already be insolvent, 26A applies as soon as financial difficulty looms.

That said, 26A is not always the best route for every business. Simpler, less expensive options like refinancing loans or negotiating directly with creditors may be worth trying first. Professional legal advice is essential to pick the right approach for your circumstances. This guide to business restructuring in Britain covers other options as well.

What’s The Step-By-Step Process For A 26A Restructuring Plan?

It’s important to know that this isn’t an “off the shelf” process - planning takes time, and success means getting all parties (and the court) on board. Here’s a brief roadmap for how it works:

1. Assess The Business & Financial Position

Review your current debts, contracts, creditor list and overall solvency. You’ll need a clear picture of the company’s finances and a realistic idea of what the plan must achieve.

2. Develop A Restructuring Proposal

This is where you (usually with expert help) design a plan that sets out how debts will be managed, how each class of creditors/shareholders will be treated, and what happens if the plan succeeds (or fails).

3. Classify Stakeholders Into Groups

Stakeholders with similar rights are grouped into “classes” (for example, secured lenders, trade creditors, preference shareholders, ordinary shareholders). Each class must vote on the plan separately.

4. Apply To Court For The First Hearing (“Convening Hearing”)

This hearing checks that the proposed class groupings are fair and gives permission for meetings to be called so stakeholders can vote. You’ll need supporting documents like a statement of the company’s position and the proposed plan itself.

5. Hold Meetings And Secure Votes

Each class votes. Approval from 75% (by value) of those voting in each class is needed - but under 26A, even if one or more classes say no, the court can still approve the plan (if the so-called “cross-class cram down” test is met).

6. Return To Court For The Final Hearing

The court will review all the evidence, objections, and whether the plan is fair and legal. It has the power to sanction (approve) the plan even over the objections of some classes, provided:

• None of the dissenting classes would be any worse off than in the “relevant alternative” (most commonly, liquidation or administration)
• At least one class who would get paid under that alternative has voted in favour of the plan

7. Implement The Plan

Once sanctioned, the plan becomes binding on all affected parties. You can now put the plan into operation, manage communications, comply with the legal requirements, and get the business back on track.

Taking advice from experienced restructuring professionals is strongly advised at every stage. This is a formal court process, with strict timelines and documentation requirements.

What Legal Documents Do I Need For A 26A Plan?

You won’t be surprised to hear that a 26A Plan involves a lot of paperwork - but all for good reason. Typically, you’ll need:

• The Restructuring Plan Document: The core legal agreement outlining what changes are proposed, who they affect, and how the process will work.
• Explanatory Statement: A plain English (but thorough) explanation for stakeholders, including the reasons for the plan and financial forecasts.
• Board/Shareholder Resolutions: Documenting company approval for launching and implementing the plan.
• Supporting Reports: Professional opinions on company financials, evidence to support why the plan is fair, and impact assessments.
• Meeting Notices and Voting Forms: Notices to all classes and forms for voting and objections.

Given how much hinges on getting these documents right, don’t rely on generic templates - each plan is unique, and the legal precision needed is high. Professionally drafted agreements and legal review at each step are crucial to avoid costly slip-ups.

If you’re new to this whole process, it’s a good idea to chat to a commercial contracts specialist with experience in restructuring plans - they can explain what documents will apply to your business.

What Laws And Regulations Apply To 26A Restructuring Plans?

The main law governing 26A Restructuring Plans is - you guessed it - Part 26A of the Companies Act 2006. However, you’ll also need to keep in mind:

• The Insolvency Act 1986: Especially regarding company financial distress, duties of directors, and the “relevant alternative” test.
• UK Corporate Governance Codes: Duties to act for the benefit of creditors if insolvency is likely or ongoing.
• Employment Law: If your restructure could affect staff, employer compliance must be considered (explore redundancy obligations here).
• Contract Law: Contracts not varied under the plan remain in force - don’t forget landlord and supplier agreements.
• Privacy Law And Data Protection: Handle employee, creditor, and shareholder data carefully throughout (see our GDPR compliance guide for more).

Falling foul of any one of these areas can complicate or even derail a restructuring. It’s wise to get comprehensive legal advice to ensure all angles are covered and you continue to meet your director duties throughout.

What Are The Risks & Challenges Of 26A Restructuring Plans?

While 26A offers powerful flexibility, it’s not without its pitfalls. Here are some key risks to factor in:

• Cost and complexity: Court involvement and multi-party negotiations can quickly become expensive and time-consuming.
• Stakeholder resistance: Creditors or shareholders who feel “crammed down” may object or lobby the court to reject the plan.
• Director duties: Missteps could expose directors to claims if they are seen to favour one group over another without good evidence.
• Implementation risk: Even after court approval, practical delivery of the plan (especially if cashflow is tight) can be challenging.
• Publicity: Unlike out-of-court negotiations, a 26A Plan is a matter of public record, and turbulent processes can impact reputation.

The upshot? Early, informed planning and careful legal compliance will give your 26A Restructuring Plan the best chance of success - and ultimately, of protecting the future of your business.

Can Startups And SMEs Use 26A Restructuring Plans?

Absolutely - while some of the earliest cases involved large listed companies, 26A is designed for any company facing genuine financial difficulty, whether that’s a new high-growth business or a family-run firm. In practice, the court expects the plan to be proportionate - both in process and in cost - to the size of the company and the complexity of its debts.

If you run a small business or startup, a properly-prepared 26A Restructuring Plan can be a vital tool to steer through a rocky patch, avoid administration, and position for growth on the other side. The trick is to act early, before problems become unmanageable, and to get the right support from experienced restructuring advisors.

Key Takeaways

• A 26A Restructuring Plan is a flexible court-approved process to restructure your business debts and obligations under Part 26A of the Companies Act 2006.
• It allows you to compromise with different classes of creditors and shareholders - even if some say no, provided the court approves (“cross-class cram down”).
• You’ll need to carefully classify creditors/shareholders, prepare complex legal documents, and secure court approval at each stage.
• Key regulations (including insolvency, contract, employment, and GDPR rules) will still apply, and director duties must be followed throughout.
• It’s a sophisticated solution best suited for businesses that need to restructure but want to avoid formal insolvency proceedings.
• Getting tailored advice from restructuring and legal professionals gives your plan the highest chance of success and compliance.

If you think a 26A Restructuring Plan might be right for your business, don’t go it alone. To discuss your options and get expert legal support, contact the Sprintlaw team at team@sprintlaw.co.uk or call us on 08081347754 for a free, no-obligations chat. We’re here to help you find a clear path forward - whatever challenges your business faces.