One year on from the Corporate Insolvency and Governance Act 2020

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-19 measures, including restricting the use of winding-up petitions between 27 April 2020 and 30 September 2020 (later extended to 30 September 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 Pre-pack sale regulation).

Virgin Atlantic Airways announced that it had launched its 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.

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.

While this measure is not technically connected to CIGA, the market had been hoping that the measure would be delayed given the financial impact of COVID-19 and the £33.5bn of VAT deferrals agreed as part of the government’s COVID-19 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 (11 pm 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.

Premier Oil used the restructuring plan as the first example of its use by a listed company. The plan was used by the Scottish group as part of a wider restructuring, culminating in the merger of Premier Oil plc with Chrysador Holdings Ltd, with Premier's shares being readmitted to trading under the new name Harbour Energy plc.

In the first fully opposed cross-class cramdown 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 High Court declined to sanction the restructuring plan of Hurricane Energy, after objections raised by the existing dissenting shareholders who would have seen their shareholding diluted to 5% under the plan. This is the first restructuring plan which has not been sanctioned. The court found that there was a realistic prospect that the shareholders would be better off if the plan wasn’t sanctioned, and therefore the conditions for the use of cross-class cram down were not satisfied. It was central to the judge’s findings that the evidence showed that the insolvency of the company wasn’t imminent and that the company could continue trading profitably for at least 12 months, if the plan wasn’t sanctioned. The case shows that it may be more challenging for a company to use a restructuring plan to cram-down a whole class of dissenting creditors or members where the most likely alternative to the plan is not an imminent insolvency.

Looking forward to the next year of CIGA, the key question is whether the restrictions on winding-up petitions will be lifted in September 2021, and the government will face some difficult choices here. The jury is out as to whether we will see the perpetually forecast tsunami of insolvencies materialise or whether this will keep on being kicked down the road. Only time will tell.