The most recent government figures show that the number of corporate insolvencies in Scotland continues to rise as businesses refinance on higher interest rates, costs increase, and consumer confidence remains low.

Changes imposed by the Autumn Budget will also likely have an impact on certain businesses.

With these pressures not expected to ease in the short term, it’s unlikely that the insolvency rate will fall significantly any time soon.

There are a number of options open to organisations facing financial distress and their advisers – and the right option will depend on the specific circumstances of the business, the patience (or otherwise) of their creditors, and importantly any legal obligations (including as to duties owed by directors) being adequately addressed.

One solution that we hope to see increased use of in Scotland over the coming years is restructuring plans. Restructuring plans were introduced as part of significant legislative reform that updated and enhanced the UK’s legal framework for corporate restructuring. The process was introduced under the Corporate Insolvency and Governance Act 2020 during the Covid pandemic.

A restructuring plan allows a company in financial difficulty to propose and seek the court’s sanction of a compromise or arrangement with its creditors to eliminate, reduce, prevent or mitigate the effect of its financial difficulties to enable it to continue as a going concern and hopefully avoid insolvency proceedings being commenced. 

An important difference between a restructuring plan and other insolvency solutions like schemes of arrangement and company voluntary arrangements (previously the tool of choice for restructuring retail businesses facing distress, at least in England and Wales) is the ability to invoke something known as ‘cross-class cram down’. This feature of a restructuring plan allows the court to impose a plan on dissenting creditors provided the court is satisfied that (i) none of those dissenting creditors would be worse off under the plan than they would be in the ‘relevant alternative’ (i.e. the likely scenario were the plan not approved); and (ii) the plan has been approved by 75% in value of a class (or classes) of creditors who would receive a payment, or, have a ‘genuine economic interest’ in the company in the event of the ‘relevant alternative’.

In the four years since restructuring plans were introduced, over 35 restructuring plans have been launched across the UK, with recent plans for Superdry, Cineworld and Revolution Bars seeing sanction in England & Wales in the last few months. While restructuring plans appear to be emerging as the restructuring tool of choice in England & Wales, only two plans have been launched and sanctioned in Scotland.

In March 2021, Premier Oil invoked Scotland’s first restructuring plan. However, after a heavily contested scheme of arrangement, the restructuring plan was supported by creditors. Burness Paull’s restructuring and insolvency team, led by Gary Moffat, held a key role as Scots counsel in advising the key group of supportive creditors.

Burness Paull has now acted as Scots counsel in advising garden centre group Dobbies on its restructuring plan, which was sanctioned by the Court of Session in Scotland on 9 December 2024. Whilst this is the second restructuring plan to be sanctioned by the Scottish Courts, it is the first instance of the ‘cross class cram down’ mechanism being implemented to impose the terms of the plan on those plan creditors who failed to approve the plan at voting stage (namely landlords and certain general property creditors).

A major reason why restructuring plans have been used sparingly in Scotland up to now the cost involved. It is an expensive option (in comparison to other processes) due to the involvement of the court, the risk of opposition and a number of advisers being required – accordingly, it is a tool which has generally been more suited to larger businesses or groups with access to funding or wider resources to fund the process.

However, a restructuring plan is a solution that offers considerable flexibility, and the ability to force dissenting creditors into an agreement that helps ensure the survival of the business is an appealing one from a director perspective.

It is hoped that through evolution of case law, practice and perhaps future legislative reforms that restructuring plans are no longer the preserve of larger businesses and they become more accessible to the wider market, giving businesses the opportunity to continue as a going concern and avoid insolvency. Certainly, Burness Paull is already seeing increasing interest in restructuring plans as a tool to effect the restructuring of businesses operating in Scotland across a number of sectors.

If you require legal advice around restructuring plans, or other corporate restructuring or insolvency matters, please do not hesitate to get in touch with our restructuring and insolvency team.

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