Bankruptcy Blog

For decades, American bankruptcy courts have sat at the forefront of the restructuring world.  With the enactment of the Bankruptcy Code in 1978, US law introduced the modern approach to insolvency law.  For years afterwards, the Bankruptcy Code’s emphasis on restructuring and rehabilitation of the debtor stood in contrast with other countries’ focus on creditor’s rights.

In recent years, however, English courts have stepped into the limelight.  In 2020, English law amended the Companies Act 2006 to introduce Part 26A, which allows for restructuring plans, or “RPs.”  The new statute provides distressed companies with many of the same tools as chapter 11 of the US Bankruptcy Code, but with some additional advantages.

As with a chapter 11 restructuring, the RP process divides creditors into classes of similarly situated parties.  The creditors cast a vote on the RP, and at least 75% of the value of the claims in the class must vote in favor of the RP.  (Unlike chapter 11, there is no requirement for a minimum number of creditors voting, only a minimum value.)  If one or more classes vote to reject the RP, the court may still confirm it through a process that is somewhat similar to cramdown in chapter 11.  Finally, like chapter 11, the debtor’s management remains in control throughout the RP process.

There are a number of differences between Part 26A and chapter 11, some of which are driving more companies to consider the English courts.  First, the RP process is highly streamlined.  Companies can often obtain approval of their RPs in under three months, potentially with only two court hearings.  In contrast, most chapter 11 cases take two years or more, with dozens of hearings.  Prepackaged bankruptcy cases in the US might have a shorter period of time in front of the court, but they are not a feasible alternative for every distressed company.      

The speed of the English restructuring dovetails with certain other advantages.  The efficiency of the English process allows for fewer operational interruptions for the company.  Similarly, there is typically less publicity involved with an RP, in part because of the compressed nature of the proceedings and in part because the docket is not publicly available.

Another key difference is the availability of third-party releases.  In the US, the Supreme Court’s 2024 opinion in Harrington v. Purdue Pharma LP restricted the ability to use the bankruptcy process to impose nonconsensual releases of claims against non-debtor parties.  Since then, many US bankruptcy courts have struggled with the contours of the Purdue Pharma ruling and the permissibility of some non-debtor releases.  In contrast, English courts have been open to many types of third-party releases if in the context of a successful restructuring.

An English court must find that it has sufficient connections to England in order to exercise jurisdiction over a proposed RP.  Those connections can be found in UK incorporation, a debt instrument governed by English law, or an international company having its “center of main interests” in the UK.  In some cases, companies have been able to finesse those requirements by adding co-borrowers or guarantors to a debt issuance.

American companies seeking to take advantage of Part 26A will often take the additional step of filing a chapter 15 petition in the US.  Chapter 15 is a cross-border insolvency chapter under the Bankruptcy Code, which allows the US bankruptcy court to implement a restructuring that is led by a court in another country.  Thus far, US courts have not applied the Purdue Pharma ruling to chapter 15 cases, meaning that an RP with non-debtor releases will still get implemented in the US through the chapter 15 process.

The relatively new statutory process for RPs in England creates an efficient process for some companies to restructure their debt.  On the other hand, parties doing business with multinational corporations now need to be alert to the possibility of having their rights abridged by an English court through an RP.  The heralded efficiency of the Part 26A process is a boon for distressed entities, but raises some concerns about how effectively creditors can receive notice from thousands of miles away.