Restructuring plans: A primer for private equity sponsors

The restructuring plan (RP) is a powerful tool that enables a financially-distressed company to undertake a comprehensive debt restructuring which is binding even on dissenting classes of creditors. Crucially, it's a court tool rather than an insolvency tool, avoiding the considerable downsides associated with an insolvency.  

Since its introduction five years ago, it has been used by sponsors to manage distressed businesses within their portfolios. Sponsors have been able to inject new money and remain in control, while effecting a debt restructuring, which may involve a compromise of some of the existing debt. 

RPs can be used to compromise the amount of debt, reschedule debt repayments, renegotiate covenants, undertake a debt for equity swap, inject new money, restructure lease arrangements or renegotiate tax liabilities with HMRC. It's well-suited to help companies with complex capital structures (for example, multi-site or multi-jurisdiction), as well as more straightforward capital structures. 

The RP, modelled on the pre-existing scheme of arrangement, also includes a cross-class cram down provision.  

What is a cross-class cram down?   

This allows courts to sanction a plan, even if it has been rejected by one or more classes of the plan company’s creditors if:    

• none of the members of the dissenting class would be any worse off than they would be in the relevant alternative     
• the RP has been approved by at least 75% in value of at least one class of creditors or members that would receive a payment or have a genuine economic interest in the plan company in the relevant alternative.  

Dissenting creditors who have been crammed down in previous RPs include financial creditors (secured and unsecured), trade creditors, landlords, HMRC, and shareholders.  

Crucially, any RP must be considered ‘fair and equitable’ by the court for it to be sanctioned.   

What are the practical advantages of restructuring plans?

The RP is derived from the Companies Act, 2006 and isn't a formal insolvency process, but a tool to effect restructurings in a distressed context. This brings several practical advantages:  

The corporate shell remains intact 

Maintaining the company’s legal structure can help preserve value and allows any regulatory permissions to remain in place.   

Continuity of contracts 

It's common for contracts to have a break clause in the event of an insolvency or administration process (like a prepack administration). With an RP, it's possible to compromise only those creditors you need to, leaving vital contracts in place to ensure continuity and minimal disruption. 

Some contracts have a break clause for compromises with creditors, so using an RP isn't without contractual risk.

How can PE sponsors benefit from restructuring plans?

There will be cases where other traditional restructuring tools are more effective. However, a significant advantage of the RP is that it's possible to deal with all creditors and shareholders in one process unlike, for example, a Company Voluntary Arrangement (CVA). 

By enabling a PE sponsor to compromise only those creditors which are necessary within a portfolio company, an RP can:    

• allow PE sponsors to inject new money into a distressed company as part of the restructuring process, while cramming down creditors who would otherwise rank higher than the new money in an insolvency      
• help PE sponsors address the challenges faced by an overleveraged business, restructure the balance sheet, and release working capital into the business      
• bring value to the sponsor, ensuring that any new investment is used to build a more resilient and sustainable business, as opposed to ‘throwing good money after bad’.    

What support do private equity sponsors need?

RPs can be complex, technical and unfamiliar to those outside the restructuring world. PE sponsors will need support from an experienced advisor to navigate the process in a smart and strategic way.

Taking an early view and determining the ‘relevant alternative’ 

The most likely scenario for a company if their proposed RP isn't sanctioned. It's a critical part of any RP involving detailed financial analysis and scenario modelling; while the relevant alternative may be an insolvency scenario, this isn't always the case. 

Valuation evidence is crucial 

The current value of the company or group must be considered, as well as the value post-restructuring. 

Establishing how any new money is priced is also a key issue 

This was highlighted by a recent Court of Appeal judgment overturning the sanction of twin RPs for Petrofac in July 2025. A key takeaway from this judgment is that the allocation of value generated by any restructuring must be fairly allocated between plan creditors – including the price paid for any new money. 

Any restructuring discussions entered into by a PE sponsor for a portfolio company are likely to initially focus on a consensual route. But developing a contingency plan in the form of an RP (or scheme of arrangement/CVA) can not only satisfy directors that all options have been considered, but can be a very useful negotiating strategy. 

Defending against the use of a restructuring plan 

PE sponsors also need to be able to defend against the use of an RP where it isn't in their best interests. Independent, objective advice is invaluable in allowing PE sponsors to understand what scope there is to negotiate better terms or protections.

We offer tailored training sessions for financial sponsors on how to use RPs to your strategic advantage and to defend against creditor actions. 

We're experienced advisors in RPs with market-leading capability having been involved in over two-thirds of RPs in the market so far in 2025. Our work includes:

For more information, contact Christopher McLean.