Vol 22 (2025) - Issue 5

Article preview

English Court Refuses to Approve Waldorf Production’s Restructuring Plan, Citing Concerns as to ‘Fair Allocation’ of Post-Restructuring Value

Synopsis
On 19 August 2025 the English Court refused1 to sanction the restructuring plan of Waldorf Production as a matter of its discretion.
The plan had been opposed by the UK tax authority, HMRC, and an unsecured creditor, Capricorn (the ‘Unsecured Plan Creditors’). In this midmarket case (involving <$225 million of debt), which closely follows the Court’s approval of Madagascar Oil’s restructuring plan and the Court of Appeal’s seminal judgment in Petrofac, the Court held that:
– the correct relevant alternative to the plan was indeed a formal insolvency process, as the plan company contended, and not another restructuring, as the Unsecured Plan Creditors argued;
– accordingly, the statutory ‘no worse off’ test was satisfied;
– however, there had been no (or no sufficient) attempt to consider the fair allocation to all stakeholders of the benefits expected to be generated by the restructuring – in particular, where the contribution to be made by the dissenting Unsecured Plan Creditors would enable a solvent sale of the plan company which could not otherwise be achieved (as the bondholders would, in practice, be unable to enforce their security);
– whilst the Court’s exercise of its power to bind a dissenting class does not require pre-plan negotiations with dissenting creditors as a formal ‘jurisdictional precondition’, the failure in this case to engage or negotiate with the Unsecured Plan Creditors (whose counter-proposals were rejected) denied the Court an important basis for assessing the fairness (or otherwise) of the distribution to Unsecured Plan Creditors envisaged under the plan. This elevated the burden on the plan company to establish that the plan proposed is fair;
– there was no evidence (e.g. liquidity or cash-flow forecasts) to substantiate the plan company’s argument that the Unsecured Plan Creditors’ counter-proposal was unaffordable; and
– accordingly, the plan company had not discharged the burden of showing that the plan was ‘fair’ and that it was ‘appropriate, just and equitable’ to
exercise the Court’s discretion to sanction it.
The Court carefully analysed what it termed the ‘trilogy’ of Court of Appeal judgments as to the treatment of dissenting classes (i.e. Adler, Thames Water and Petrofac).
It ultimately agreed that Waldorf’s plan had been ‘designed in a pre-Thames world’ and that the (lack of) negotiations with the Unsecured Plan Creditors had ‘clear echoes of the mistaken approach to out of the money creditors that was rejected in Thames Water’.
The plan company announced its intention to appeal the decision and successfully applied for a ‘leapfrog’ certificate for an appeal to the UK Supreme Court (i.e. bypassing the Court of Appeal). As at the date of publication, it remains to be seen whether the Appeal Panel of the Supreme Court will grant leave to appeal and whether the appeal will ultimately be pursued by the plan company.