Corporate Insolvency and Governance Act 2021- One year on

CIGA became law and introduced two new restructuring procedures - the restructuring plan under Part 26A of the Companies Act 2006 and a new standalone moratorium procedure under Part A1 of the Insolvency Act 1986 - as well as an ipso facto provision (which prohibits the termination of supply contracts on the grounds of insolvency).

It also introduced various temporary Covid measures, including restricting the use of winding-up petitions between 27 April 2020 and 30 September 2020 (later extended to 30 June 2021) and suspending personal liability for wrongful training between 1 March 2020 and 30 September 2020 (later revived from 26 November 2020 to 30 June 2021). Read our suite of briefings here.

As CIGA progressed through Parliament, an amendment was adopted to revive the (recently expired) sunset provision allowing the government to make regulations regarding pre-pack sales to connected parties, which have now been introduced (see 30 April 2021 below).

Virgin Atlantic Airways announced that it had launched the first restructuring plan under Part 26A of the Companies Act 2006 in order to implement a solvent recapitalisation. Ashurst acted on this plan, see our client briefing here.

The plan was subsequently sanctioned on 2 September 2020. As all four creditor classes voted in favour of the plan, the court applied the 'tried and tested approach' to the exercise of discretion established for schemes of arrangement.

Pizza Express became the second company to use the new restructuring plan. The sanctioned plan effected a debt-for-equity swap and an old-debt-for-new-debt swap, as part of a wider operational restructuring, which included a CVA to deal with the group's rental liabilities.

The start of December saw the return of Crown preference. For insolvency proceedings opened from 1 December 2020, HMRC now ranks as a secondary preferential creditor ahead of floating charge holders and unsecured creditors for VAT and certain other withholding taxes. See our briefing here.

Whilst this measure is not technically connected to CIGA, the market had been hoping that this measure would be delayed given the financial impact of Covid and the £33.5bn² of VAT deferrals agreed as part of the government's Covid support measures. Given the suppressed insolvency rates that we have seen since the start of the pandemic, it's likely that the full economic impact of this measure has not yet been felt.

The 'gategroup' restructuring plan was launched. The timing of this was very significant. As the plan was launched prior to the end of the Brexit transition period (11pm on 31 December 2020), the Lugano Convention still applied to the UK and the court was required to consider whether the Lugano Convention applied to the plan.

In a clear departure from the case law on schemes of arrangement, the court found that restructuring plans are insolvency proceedings falling outside the scope of the Lugano Convention. This may change how restructuring plans are recognised in some foreign jurisdictions going forward. See our briefing here.

The High Court sanctioned the DeepOcean restructuring plans by exercising its discretion to apply cross-class cram down for the first time. The case is also notable as it established that it is not essential for a restructuring plan to seek to rescue a company as a going concern. See our briefing here.

The sixth restructuring plan was sanctioned for Smile Telecoms. Here, a telecoms group operating in Africa used the court's cross-class cram down power to facilitate further super-senior borrowings (as a bridge to an expedited sales strategy), notwithstanding that the senior lender class did not approve the plan by the requisite 75%: only 71% by value voted in favour.

Regulations were made under the government's power (revived by CIGA) to regulate pre-pack sales to connected parties. As a result, for administrations opened on or after 30 April 2021, connected persons buying all or a substantial part of a company's business or assets within the first 8 weeks of the administration will now be required to obtain an independent written opinion on the sale. See our briefing here.

The regulations followed a report published by the Insolvency Service in October 2020, highlighting continuing concerns about the potential for abuse of the pre-pack process and the need for further creditor protection, particularly if the rush of insolvencies predicted to arise as a result of the Covid pandemic materialises. So far, it has not.

In the first fully opposed cross-class cram down judgment, the Virgin Active restructuring plan was sanctioned. The main take-away from the judgment is that where 'out of the money' creditors vote against a plan or raise objections at sanction, this will carry very little weight. Rather, the key principle is that "it is for the company and the creditors who are in the money to decide, as against a dissenting class that is out of the money, how the value of the business and assets of the company should be divided".

The use of the plan alone enabled Virgin Active to conclude a financial and operational restructuring, in a way previously done by combining a scheme (or plan) with a CVA. See our briefing here.

The convening hearing for the Hurricane restructuring plan took place. The plan proposes a debt-for-equity swap benefitting the company's bondholders, with the existing shareholders being left with 5% of the equity.

The company proposed that only the bondholders would vote on the plan, arguing that the shareholders had no right to vote as the dilution of their shares by the plan would not technically affect their rights. The court disagreed, however, and gave the shareholders the right to vote on the plan as a separate class to the bondholders. The sanction hearing is listed for 21 June 2021 and it is expected that sanction of the plan will be strongly opposed by the shareholders.

National Car Parks' restructuring plan, which proposes to compromise leasehold liabilities, had its convening hearing. The sanction hearing is listed for 24 June 2021.