This is part of a series of bulletins for US lawyers and parties who may have litigation or disputes in England issued by partner Stephen Rosen who heads our UK/USA disputes team.

Bulletins from our UK/USA disputes team:

1) Pro-active steps to obtaining deposition evidence under the Hague convention.

2) Collective actions: England cautious catch-up with the US.

3) Care needed when serving US proceedings in the UK

Chapter 11, as a legal framework for corporate restructuring, has been part of the U.S. insolvency landscape for over 47 years since the US Bankruptcy Reform Act of 1978 but it was not until an Act of 2020 that the United Kingdom finally introduced an equivalent rescue procedure that was influenced by Chapter 11 but has notable differences.

Introduction of the UK rescue procedure

Back in 1986, the United Kingdom underwent a comprehensive reform of its insolvency law and procedure with the passing of the Insolvency Act 1986. That Act introduced new procedures for both corporate and personal insolvency in England and Wales and Scotland (although not Northen Ireland). As Scotland has its own legal system, this article is only concerned with the legal position in England and Wales.

Missing from the UK reforms of 1986 was a ‘debtor in possession’ rescue procedure akin to that of Chapter 11 and it was not until the passing of the Corporate Insolvency and Governance Act 2020 at the height of the Covid-19 pandemic that the UK finally introduced an equivalent rescue procedure to Chapter 11 by inserting new provisions into the Companies Act 2006 (the “UK Act”) as ‘Part 26A’. This new UK procedure is commonly referred to as a ‘Restructuring Plan’. However, while Part 26A of the UK Act was significantly influenced by the provisions of Chapter 11, there are also notable differences between the two procedures.

UK differences and similarities to Chapter 11

• The UK does not have an automatic stay on filing. A major difference between the US and UK procedures is the absence of an automatic stay on creditor actions if an application for a Part 26A Restructuring Plan under the UK Act is filed in court. Under Chapter 11, an automatic stay arises immediately upon filing the Chapter 11 petition with a U.S. Bankruptcy Court, but in the case of Part 26A, a separate application would need to be made by the company under Part A1 of the Insolvency Act 1986 to obtain a protective moratorium against hostile legal action, should this be required.
• In the UK junior classes may be able to receive value before senior dissenting classes. Under Chapter 11, junior classes cannot receive any value unless all senior dissenting classes have been paid in full. That is not the case with a Part 26A Restructuring Plan provided any dissenting classes are no worse off than they would be under the ‘relevant alternative’ (usually liquidation or administration).
• In the US there is an opportunity for priority loans. With Chapter 11, there is a statutory framework for obtaining super-priority financing, referred to as DIP (Debtor-in Possession) financing. These are court approved loans which have priority over other debts. Part 26A of the UK Act contains no specific provisions for such financing, though it may be a possibility in practice.
• The US has introduced a smaller business procedure. Like Chapter 11, Part 26A of the UK Act is a procedure of considerable complexity involving significant costs, including the legal costs of two court hearings, and is not therefore suitable for smaller companies. It remains to be seen whether the UK Parliament will introduce a simpler, less costly version of the procedure for smaller businesses, as has happened in the United States following the passing of the Small Business Reorganization Act in 2020 which has added a new, streamlined procedure (Subchapter V) to Chapter 11.
• The US court can appoint a trustee. Under Part 26A of the UK Act, the company’s existing management remains in control of the business (unless the company is already in administration or liquidation in which case the court has power to stay the administration/liquidation and remove the administrators/liquidators if it so decides). There is no independent supervision by an insolvency professional (called a “licensed insolvency practitioner” in the UK). While that is almost always the position under Chapter 11 as well, the U.S. court can also appoint a trustee to oversee the process if there are, for example, concerns about fraud or gross mismanagement on the part of the company’s directors or because it considers that appointing a trustee would be in the best interest of creditors and shareholders. There is no equivalent power under Part 26A of the UK Act and if the English court has such concerns, its only option may be to refuse sanction for the plan.
• The UK has applied a “fairness” test by a different route. 11 U.S. Code 1129 provides that the Chapter 11 plan must ‘not discriminate unfairly’ and must be ‘fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan’. In contrast Part 26A of the UK Act only refers to a ‘no worse off’ test when deciding whether to sanction a plan despite the opposition of dissenting creditors, but recent decisions of the English courts have now made clear that when exercising its discretion at the Sanction Hearing, the court must also consider the overall fairness of the plan. As the English Court of Appeal emphasised in Saipem & Ors v Petrofac Limited and Petrofac International (UAE) LLC [2025] EWCA CIV 821, the English courts have a wide discretion to refuse sanction if the plan does not provide for a fair distribution of the benefits of the restructuring among the different classes of creditors. There has therefore been, since the introduction of Part 26A of the UK Act in 2020, a decisive shift towards a ‘fairness test’ akin to that enshrined in §1129 of Chapter 11.

Successful use of the UK’s Restructuring Plans

Restructuring Plans have proven increasingly attractive to larger companies in financial distress able to afford the substantial cost of putting a restructuring plan into place and has already generated a significant body of case law, in particular concerning the most controversial aspect of the new procedure – the court’s power to impose the plan on dissenting classes of creditors, a power for which the U.S. term ‘cram down’ has been adopted.

UK cram downs

A UK company that has encountered, or is likely to encounter, financial difficulties that are affecting, or may affect, its ability to carry on business as a going concern can propose a compromise or arrangement (the restructuring plan) to its creditors or members (shareholders), or any class of them, in order to eliminate, reduce or mitigate those financial difficulties. Importantly, if sanctioned by the court, the restructuring plan will bind any dissenting classes of creditors or members – referred to as a cross-class cram down.

The UK court application

An application must be made to court with supporting evidence including a detailed plan. The application can be made by the company, any member or creditor of the company, or a liquidator or administrator of the company if the company is already in liquidation or administration, although in practice most such applications will be made by the company itself. Meetings of creditors and/ or members to vote on the restructuring plan can only be held if the court is satisfied on the evidence before it that an order should be made summoning such meetings (this first court hearing is known as the Convening Hearing).

Creditors and members are divided into voting classes. If 75% in value of the creditors and members as a whole or of any class of creditors or members vote at the subsequent meetings to approve the restructuring plan, the court will then be asked to sanction it. This second hearing is known as the Sanction Hearing. Even if the restructuring plan is not agreed by at least 75% in value of a particular class of creditors or (as the case may be) members of the company, termed the ‘dissenting class’, the court can still sanction the plan, cramming down the dissenting class, if satisfied that:

1. None of the members of the dissenting class would be any worse off under the restructuring plan than they would be in the event of what is called the ‘relevant alternative’ to the plan occurring instead, and
2. The restructuring plan has been agreed by at least 75% in value of a class of creditors or (as the case may be) of members who will receive a payment, or have a genuine economic interest in the company, in the event of the ‘relevant alternative’ occurring instead.

The ‘relevant alternative’ is defined as whatever the court considers would be most likely to happen to the company if the restructuring plan is not sanctioned – invariably that will be its entry into administration or liquidation under the Insolvency Act 1986.

By Senior Associate Gavin Kramer. Issued by Stephen Rosen head of UK/USA disputes team, Collyer Bristow.