Are UK Restructuring Plans Still too Expensive?
by: Rachael Markham of Squire Patton Boggs (US) LLP  -   Restructuring GlobalView
Wednesday, July 12, 2023

As far as they go, restructuring plans have worked well since they were first introduced 3 years ago.  This is reflected in the most recent review of CIGA published by the Insolvency Service which reflects favourably on this new insolvency measure. However, there are still some barriers to its use.

Not unsurprisingly costs are quoted as one of biggest burdens, not only the costs of set up but also the costs to and of challenge.  The review quotes that the “need for two court applications two hearings and costs of counsel as well as required valuation evidence” drives costs up, with stakeholders estimating costs to be between £2m and £10m at the top of the market and between £1m to £2m in the mid-market.

Certainly for “small” enterprises, that level of cost would price restructuring plans out of reach.

The costs of challenge are also mentioned as a factor that limits the ability to challenge a restructuring plan.  In one large case, the costs of challenge were said to be around £1m and at mid-market, a challenger incurred costs of around £165,000. 

The review recognises these issues, but also note that restructuring plans were intended to be used for more complex restructures. 

The costs disclosed in the review are on the one hand not surprising, given that restructuring plans are still relatively new to the market place, and with time, we would expect the costs to come down.  The review itself notes that neither administrations nor CVAs took off immediately and it took a number of years before they did, but both processes are now commonplace. 

Perhaps it is too soon to expect the costs of proposing a restructuring plans to have started to fall, and given that recently we have seen plans being fiercely opposed, particularly by HMRC, it may take more time still, but as with administrations and CVAs we would expect costs to start to come down as restructuring plans bed in.  Until then, and in answer to the question posed, yes restructuring plans do seem to be expensive, at least for much of the mid-market.

 

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