Part 26A Restructuring Plans – a recap for commercial landlords

In brief

Since its introduction under the Corporate Insolvency and Governance Act in 2020, the restructuring plan has established itself as a powerful tool for distressed companies seeking to compromise their liabilities. Commercial landlords may find themselves compelled to engage at pace with proposals that seek to restructure existing obligations and effect significant alterations to lease terms. Whilst the statutory framework remains relatively new, several restructuring plans have already been challenged in the Court of Appeal. The judiciary has also issued an updated practice statement containing guidance on the procedure to be followed when seeking the court's sanction of a restructuring plan. Against this backdrop, this article summarises the current landscape and sets out some practical considerations to assist landlords.

Recap

Restructuring plans were introduced as a means of saving companies facing financial difficulties by restructuring their existing commitments. A company proposing a restructuring plan must satisfy two conditions:

1. it must have encountered, or be likely to encounter, financial difficulties affecting its ability to carry on business as a going concern; and
2. the plan must be proposed for the purpose of eliminating, reducing, preventing or mitigating those financial difficulties.

Creditors are divided into classes based on their interests. Landlord creditors often span several classes, subdivided by reference to matters such as the profitability of the relevant premises. A restructuring plan requires approval by a majority in number representing at least 75% in value of the creditors or each class of creditors and must then be sanctioned by the court.

The defining feature of the restructuring plan, distinguishing it from the scheme of arrangement, is the power to "cram down" dissenting classes. The court may sanction a restructuring plan despite the dissent of one or more classes, provided that:

1. no member of the dissenting class would be any worse off under the plan than in the "relevant alternative" - that is, whatever the court considers would most likely occur if the plan were not sanctioned (in practice, this is almost always administration or liquidation); and
2. at least one "in-the-money" class has voted in favour: the plan must have been approved by at least one class of creditors or members who would receive a payment, or have a genuine economic interest in the company, in the event of the "relevant alternative".

In other words, the court has the power to sanction the plan and bind an entire dissenting class, provided the above tests are satisfied. A class vote is therefore not a veto. For this reason, the "no worse off" and the "relevant alternative" tests have become the central battlegrounds in contested restructuring plan proceedings.

Current landscape

Following the withdrawal of the appeal to the Supreme Court concerning the High Court's refusal to sanction the restructuring plan in respect of Waldorf Production UK Plc, the principles governing the court's discretion to cram down remain those set out in the Court of Appeal decisions in AGPS Bondco Plc [2024] EWCA Civ 24, Thames Water [2025] EWCA Civ 475, and Petrofac Limited [2025] EWCA Civ 821.

In brief, some of the key points arising from these decisions are as follows:

1. In AGPS Bondco Plc, the Court of Appeal overturned the High Court's decision to sanction the plan. In relation to the pari passu treatment of creditors, Snowden LJ clarified that:
   1. where the "relevant alternative" would treat all creditors pari passu, creditors across all classes ought to be treated pari passu under the proposed plan;
   2. the purpose of this principle is to ensure that losses are borne equally, and recovery is rateable in proportion to the size of creditors' claims;
   3. creditors should be paid at the same time; and
   4. there must be a good reason or a proper basis for any departure from the pari passu principle.
2. In Thames Water, the Court of Appeal dismissed the appeal against the sanction of the plan. It held that the court could take account of the treatment of out-of-the-money creditors when considering the fair distribution of the benefits preserved or generated by a plan.
3. In Petrofac, the Court of Appeal considered the "no worse off" test. It confirmed that the exercise requires a comparison between the value of the existing rights held by the creditor against the company in the "relevant alternative" and the value of the rights conferred under the plan.

Impact on landlords

The severity of the impact of a restructuring plan on a landlord will depend upon the class to which that landlord is allocated. Landlords of premises that are profitable or critical for the plan company's continued operations will be far less affected than landlords of premises that are unprofitable or redundant to the company's ongoing business.

Common impacts include:

1. Amendments to the frequency of rent payments. Where rent is payable on the usual quarter days, this is often varied to permit the company to pay monthly.
2. A reduction in the amount of rent payable. The extent of the reduction can vary between different classes of landlord creditor: for profitable sites, landlords can expect a modest reduction; partially profitable or break-even sites will usually attract a larger percentage reduction; and unprofitable or non-critical sites often result in a reduction to nil.
3. A release of all arrears of rent and other sums due under the lease at the date the plan is sanctioned.
4. A tenant break option, even where the underlying lease does not provide for one.
5. The release of the tenant company's dilapidations liability.

What can landlords do?

Landlords facing a tenant restructuring plan are not without options.

As a starting point, a landlord may vote against the plan. However, more than 25% of the particular class of landlord creditors would need to vote against it. Even then, the plan may still be sanctioned by the court and imposed on the landlord as a consequence of the cram-down mechanism set out above. In those circumstances, a landlord may consider challenging the sanction of the plan on grounds of fairness. However, challenges are costly, time-consuming, and never guaranteed to succeed.

Consequently, landlords often need to consider other solutions:

1. As a first step, landlords should consider obtaining their own valuation evidence. If the current market rent for the premises exceeds the discounted rent imposed by the restructuring plan, landlords may be content to allow the lease to continue. Landlords should also consider whether there would be strong demand for the space if the premises were marketed, as well as the likely void period during which the landlord would bear liability for rates.
2. Most commercial leases permit landlords to forfeit the lease where an insolvency event occurs. Landlords will need to check the specific drafting, but an insolvency event may encompass a restructuring plan. If a landlord does want to forfeit the lease, it must take care not to waive the right to forfeit by taking any step which recognises the lease as continuing.
3. Landlords should check whether the lease contains a landlord break option. If so, they may exercise it to bring the lease to an end.
4. Landlords should also consider whether the plan itself contains a termination right. Plans will often allow landlords who are most prejudiced by the plan to terminate the lease within an initial period on relatively short notice, or at a later date such as the anniversary of the plan's sanction.