Valuation Issues in the UK Restructuring Plan

Abstract

The newly enacted restructuring plan under Part 26A of the Companies Act 2006 represents one of the key pieces of reform introduced by the Corporate Insolvency and Governance Act 2020. Central to the restructuring plan, which is modelled after the English scheme of arrangement, is the introduction of a new cross-class cramdown mechanism and a new ‘genuine economic interest’ principle, both of which are intended to facilitate restructurings by preventing out-of-the-money creditors from holding up a restructuring plan. Their introduction will invariably raise disputes over the enterprise value of the debtor company, a subject area which remains relatively underexplored in English restructuring law. Where a going concern valuation of the debtor company is found to be appropriate, how should such a valuation be conducted? This article explores two potential options: first, an expert valuation approach as adopted in the US which is reliant on expert evidence and, second, a market testing approach which entails the conduct of an auction or a similar sales process to value the debtor company. It considers recent empirical evidence in the US which casts doubt on criticisms of the expert valuation approach raised by English academics and notes certain potential disadvantages of a market testing approach.