Welcome to the 148th Pari Passu Newsletter, 

Cross-Class Cram-Down (CCCD) has become something we take for granted in restructuring law. By allowing a single class of creditors to impose a restructuring plan on dissenting creditor classes, CCCD overturns the conventional logic of unanimous creditor consent and reshapes the dynamics of distressed debt negotiations. 

In the United States, CCCD has long been a cornerstone of Chapter 11 of the Bankruptcy Code, introduced in 1978. Chapter 11 is a full-scale business rescue regime, equipped with an automatic stay, debtor-in-possession powers, and judicial oversight that governs everything from voting thresholds to asset sales and valuation fights. Within this machinery, CCCD serves as a last-resort mechanism when consensus fails, allowing viable reorganizations to proceed despite dissent.

The UK’s approach, by contrast, is a recent transplant. In 2020, under the pressure of the COVID-19 crisis, the government enacted Part 26A of the Companies Act 2006, introducing CCCD into English law for the first time. The legislation was passed through Parliament in just six weeks, leaving little time for detailed drafting or statutory guidance [23]. The result? An immensely flexible restructuring tool, but one whose boundaries and safeguards have been largely left to the courts to define.

In this article, we unpack the mechanics of CCCD through a side-by-side comparison of Chapter 11 and Part 26A. We’ll walk through key legal concepts such as class formation, voting thresholds, minimum protections, and distribution rules. While this newsletter is by no means a textbook, we hope to provide a very comprehensive introduction to two of the world's most important corporate rescue tools!

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Overview of Class Voting and Cross-Class Cram-Down

A good place to start before we examine the legal restructuring tools is to actually answer the question: What is CCCD? First, let’s recap what a ‘corporate rescue tool’ is, as discussed in our CVA Primer. A corporate rescue tool is a legal mechanism that lowers the level of consent needed from creditors to change a company’s debt obligations. 

Without such a tool, renegotiating debt can be extremely difficult. Contracts usually require unanimous consent from all creditors to make changes. This creates a ‘holdout’ risk. A minority of creditors can refuse to agree to the restructuring plan, hoping to extract better terms for themselves, since their consent is necessary for the deal to go ahead.

Jurisdictions around the world have developed corporate rescue tools to lower this consent threshold. Some are stronger than others, as they allow companies to get a deal through with even less creditor support. Rather than just define CCCD, let’s walk through a few scenarios to properly understand what CCCD does and how significant it is.

Single Class Voting

Let’s suppose Company ABC is financially distressed. Company ABC decides it wants to conduct a debt-for-equity swap for most of its debt to delever its balance sheet. However, a minority of creditors making up 25% of claims against Company ABC do not agree to the deal. This is because the minority creditors do not like the valuation of the equity swap, believing they deserve a better deal. As it stands, any amendment to the existing credit documents (to conduct the debt-for-equity swap) would require unanimous (100%) agreement of all of Company ABC’s creditors. As Company ABC is unable to meet the minority creditors’ demands, no restructuring deal can be put in place. 

Luckily enough, Company ABC can use ‘Corporate Rescue Tool I’ (CRT I)  to ‘cram down’ the minority’s dissent. In CRT I, all creditors are pooled together to vote on a restructuring deal, regardless of the rights or priorities of the creditors. Their vote is measured by the face value of their claim against the company, e.g., Company ABC owes a bondholder $500, then that bondholder votes for $500. Critically, the approval threshold for CRT I is 75% of the value of all existing creditor claims against Company ABC. Therefore, as the minority creditors only make up 25% of the value of claims, Company ABC is able to push the debt-for-equity swap through with the support of 75% of its creditors. The red line in Figure 1 marks the 75% approval threshold, and the black shaded area is the vote in favour of the proposed plan. The 75% threshold here is met, and the proposed restructuring deal is passed and implemented despite the minority creditors’ dissent. 

While this restructuring process is faster and simpler, it can lead to unfair outcomes. Creditors who are less affected by the plan can outvote those who suffer more under the plan, purely because the less affected creditors have larger claims against the company. For example, secured creditors could make up 80% of total claims against Company ABC, and they are receiving equity for writing of their debt, but the unsecured creditors receive nothing for writing-off their debt because their claims only amount to 20% against Company ABC. Hence, a plan can pass even if the most affected parties strongly object, raising concerns about fairness and misuse of the process. Indeed, this risk of vote swamping is why the US does not have any single class voting corporate rescue tools. It is also partly why the CVA is restricted to just unsecured debt and why dissenting creditors have an opportunity to challenge a CVA in court for unfair prejudice. 

Class Voting: Consensual 

In an alternative set of facts, Company ABC decides to use ‘Corporate Rescue Tool II’ (CRT II) to push its restructuring deal through. CRT II requires that creditors be separated into separate classes according to the nature of their claims. For example, secured and unsecured creditors would be placed into separate classes for voting. In CRT II, creditors are separated into classes considering both (a) their existing rights against the company and (b) their rights under the proposed plan. 

Company ABC decides to use CRT II and it proposes three classes of creditors: A, B, and C. For the restructuring deal to pass when using CRT II,  75% by value must vote in favour of the restructuring deal in each class. 

Therefore, unlike in CRT I where only 75% by value of total claims is needed, Company ABC would not be able to get away with giving a class of creditors nothing, as they would almost certainly object to the restructuring deal. In CRT I, Company ABC could rely on offering generous terms to select creditors to make up the 75% threshold of total claims. In CRT II this is not possible as the Company needs to secure 75% in all classes (No CCCD), and where a class believes they are being treated unfairly, they will not vote in favour of the plan and the restructuring deal fails. Here, Company ABC decides to offer generous terms to all classes of creditors to achieve the 75% threshold in each class.

This sort of corporate rescue tool resembles the Part 26 Scheme of Arrangement in the UK and the Consensual Chapter 11 in the US. Part 26 Schemes should not be confused with Part 26A Restructuring Plans, as the former is a much older corporate rescue tool that does not have CCCD, and the latter is a much newer tool that does have CCCD. The Consensual Chapter 11 (when all classes vote in favour of the plan) and Part 26 Scheme are similar in that they both separate creditors into different classes for voting on proposed deals, but they do not involve CCCD.

The advantage of this structure is that it ensures fairness for creditors by requiring broad-based creditor approval. By giving each class a separate vote, it protects creditors from being overridden by others with different interests or lesser exposure. Further, it makes the court’s job much easier as the supermajority voting in favour indicates that the plan is commercially reasonable to creditors with similar rights. However, it is significantly harder for debtors to push through a deal, as the company must secure support within every distinct group of creditors, all with their own interests, priorities, and exposure to losses. Even if most creditors support the deal, a single dissenting class can block it entirely, giving small groups substantial leverage and increasing the risk of deadlock. Thus, companies may be forced to water down or over-compromise their plans to appease many classes, which can make otherwise efficient or commercially viable restructurings much more difficult to achieve. 

Class Voting: Cross-Class Cram-Down

In our final scenario, Company ABC decides to utilise ‘Corporate Rescue Tool III (CRT III)’ to push a restructuring deal through. Here, Company ABC offers the following terms to its creditors:

• Class A: 25% equity in the reorganised company in exchange for a 15% write-down of its existing debt

• Class B: 10% equity in the reorganised company in exchange for a 40% write-down of its existing debt

• Class C: Nothing in exchange for a 90% write-down of its existing debt

Figure 3 depicts the voting results. Class A approves the proposed restructuring with 75% in value voting in favour. Only 50% of Class B creditors approve the proposed restructuring, which means it is a dissenting class. No Class C creditors approve the deal, also making it a dissenting class. In CRT II, we can see that this deal would immediately fail as the 75% consent thresholds are not met in Classes B and C. 

However, CRT III allows the company to use CCCD, which means a restructuring plan can still be approved even if one or more classes vote against it, subject to more strenuous legal conditions that the company must satisfy.

In our scenario…

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