Arrangements and reconstructions for companies in financial difficulty Section 7 and Schedule 9 Schedule 9
Paragraph 1 inserts Part 26A into the Companies Act 2006 immediately after Part 26 ("Arrangements and Reconstructions", now named "Arrangements and Reconstructions General"); it is entitled: "Arrangements and Reconstructions for Companies in Financial Difficulty".
	Section 901A sets out that this Part of the Act applies to a company: that has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect its ability to carry on business as a going concern; and a compromise or arrangement (a ‘restructuring plan’) is proposed between the company and its creditors and/or its members, for the purpose of eliminating, reducing, preventing or mitigating those financial difficulties. In this Part, the term "arrangement" includes a reorganisation of the company’s share capital by consolidation of shares of different classes or by the division of different shares into shares of different classes (or both). "Company" means a company liable to be wound up under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989. In relation to section 901J "company" refers to a company within the meaning of the Companies Act 2006. The provisions of this Part have effect subject to Part 27 (mergers and divisions of public companies) where that Part applies.
	Section 901B allows the Secretary of State, by regulations, to provide that this Part does not apply where (a) the company proposing the restructuring plan is an authorised person (within the meaning of the Financial Services and Markets Act 2000) or an authorised person of a specified description (specified in regulations), or (b) a plan is proposed between a company, or a company of a specified description, and any of its creditors and those creditors are, or include, creditors of a specified description. This will allow for the exclusion under this Part of certain companies providing financial services. Such regulations are subject to the affirmative resolution procedure.
	Section 901C sets out who may apply to the court for an order to summon a meeting. This section provides that, as a default, creditors and members whose rights would be affected by the compromise or arrangement must be permitted to participate in a meeting ordered by the court. However, if the court is satisfied that a class of creditors or members has no genuine economic interest in the company (an ’out of the money’ class), the court may order for that class of creditors or members to be excluded from the meeting summoned in subsection (1). An application to exclude an out of the money class of creditors or members must be made by the original applicant under subsection (1). This section is subject to 901H (see below).
	Sections 901D and 901E deal with what information must be provided to creditors and members where a meeting is summoned under section 901C. Every notice of the meeting must be accompanied by a statement that, amongst other things, explains the effect of the proposed "restructuring plan" and any material interests of the directors of the company and the effect of the plan on those interests, if it is different to that on the similar interests of others. Likewise, if the plan affects the rights of debenture holders of the company in a different way, the statement must provide the same details for the trustees of any deed for securing the issue of the debentures. Where notice of the meeting is given by advertisement, that advertisement must state how a copy of the statement may be obtained free of charge by any creditor or member. If the company fails to comply with these sections, the company and any officer of the company who is in default (which could include a liquidator or administrator of the company and a trustee of a deed for securing the issue of debentures) commits an offence, unless the default was due to the refusal of a director, or trustee for debenture holders, to supply the necessary particulars of their interests (in which case that person commits an offence). It is the duty of any director of the company and any trustee for its debenture holders to give notice to the company of such matters that are necessary for the statement.
	Section 901F says that if 75% or more in value of creditors (or class of creditors) or members (or class of members) present and voting either in person or by proxy at the meeting agree to a restructuring plan, then an application may be made to the court to sanction the plan. Drawing on well-established principles in schemes of arrangement, the court has absolute discretion over whether to refuse to sanction a plan even though the necessary procedural requirements have been met. This may be, for example, because a plan is not just and equitable. The restructuring plan is binding on all creditors and members included within its scope (including those affected by any application made under section 901C(4)) once the court’s order sanctioning it is filed with the registrar of companies (or, if the plan is in relation to an overseas company not required to register particulars, published in the Gazette). Where the court makes an order sanctioning the plan, if the company is in administration or being wound up, the court order may provide an order for the administration or winding up to be stayed, or for the appointment of the administrator or liquidator to cease to have effect; or give such directions with regard to the conduct of the administration or liquidation as it thinks appropriate for facilitating the plan. This section is subject to sections 901G and 901H (see below).
	Section 901G sets out when a restructuring plan may be sanctioned using cross-class cram down. This section provides that the court may sanction a restructuring plan despite it not having been agreed by 75% in value of a class of creditors or a class of members ("the dissenting class"), if certain conditions apply. Those conditions are that: (a) none of the members of a dissenting class would be any worse off under the restructuring plan than they would be in the event of the relevant alternative (see below); and (b) that at least one class who would receive a payment or would have a genuine economic interest in the company in the event of the relevant alternative, must have voted in favour of the plan.
	When determining the "relevant alternative" the court should consider what would be most likely to occur in relation to the company if the restructuring plan were not sanctioned. As with section 901F, the court will still have an absolute discretion whether or not to sanction a restructuring plan, and may refuse sanction on the grounds that it would not be just and equitable to do so, even if the conditions in section 901G have been met.
	The Secretary of State may by regulations subject to the affirmative procedure, add, remove or vary the conditions that must be met before the court may sanction a restructuring plan to which a class, or classes, of creditors or members have dissented.
	Section 901H provides specific provisions for those companies seeking a restructuring plan in relation to moratorium debts and priority pre-moratorium debts as defined in new section 174A of the Insolvency Act 1986. If an application to the court under 901C(1) is made before the end of the period of 12 weeks beginning the day after the end of a moratorium under Part A1 of the Insolvency Act 1986 (or Part 1A of the Insolvency (Northern Ireland) Order 1989), and the proposed plan includes provision in respect of creditors with moratorium debts or priority pre-moratorium debts, the court may not sanction that plan if the relevant creditor has not agreed to that provision.. ‘Relevant accelerated debt’, as defined in new section 174A(4) of the Insolvency Act 1986 (see paragraph 133 of these Notes), is excluded from the definition of ‘priority pre-moratorium debt’ and therefore does not fall within the scope of section 901H. A restructuring plan may, therefore, propose to compromise relevant accelerated debt within 12 weeks of a moratorium coming to an end, and the creditors of such debt could be subject to cross-class cram down if the court sanctions the plan. An equivalent change has also been made to the existing Part 26 of the Companies Act 2006 (see new section 899A which is added by paragraph 35 of Schedule 9).
	Section 901I sets out that where the company to which a restructuring plan relates is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, any notice or other document required to be sent to creditors of the company must also be sent to the Pensions Regulator. Where the company is an employer in respect of a pension scheme eligible under section 126 of the Pensions Act 2004 or Article 110 of the Pensions (Northern Ireland) Order 2005, any notice or document must also be sent to the Board of the Pension Protection Fund.
	Section 901I allows the Secretary of State to make regulations providing for the Board of the Pension Protection Fund to exercise any of the pension scheme trustees’ or managers’ rights as a creditor under Part 26A, in certain specified circumstances. The regulations can provide for these rights to be exercised by the Board of the Pension Protection Fund instead of, or in addition to, the scheme trustees or managers. Regulations may also provide for the rights to be exercised for a specific period and for conditions to apply before the Board may exercise those rights.
	Section 901J provides the court with powers, while sanctioning a ‘restructuring plan’ that involves the reconstruction of one or more companies, or the amalgamation of two or more companies, to make provision to facilitate that reconstruction or amalgamation.
	Section 901K if a court order sanctioning a restructuring plan amends the company’s articles of association or any constitutional resolution or agreement, the company must send a copy of the amended articles or resolution/agreement to the registrar of companies with a copy of the court order. If the company fails to comply then the company and every officer of the company who is in default commits an offence.
	Section 901L allows the Secretary of State, by regulations, to amend the Companies Act 2006 to give full effect to Part 26A. Such regulations are subject to the affirmative resolution procedure.
	Part 2 makes consequential amendments to other legislation affected by these changes, to ensure that the new Parts 26A fits as appropriate.