As the five year anniversary of the first restructuring plan (Virgin Atlantic)1 looms, readers of our previous articles on the Thames Water and Petrofac restructuring plans might be forgiven for thinking that the fact dependent legal framework applied to restructuring plans means that any attempt to draw broad generalisations is destined to fail. However, if one steps back and reflects on how the law in this area has developed, there are certain principles that can be distilled and drawn out from the approximately 70 judgements handed down to date. This article explores such principles, including the role of the taxman (“HMRC”), the treatment of “out of the money” creditors, the nature of a restructuring plan as a "private arrangement", along with the pragmatic approach that the courts will employ when deciding whether to exercise their discretion to sanction any proposed restructuring plan.
HMRC
Few practitioners will forget the Re Houst2 case, the first restructuring plan in which HMRC was “crammed down". Although HMRC voted against the plan (on the basis that it allowed unsecured creditors to be paid in priority to it), HMRC did not actively oppose the plan at the sanction hearing. It relied instead on its historical correspondence, which cited general policy rather than considering the specific circumstances of the case. The High Court therefore used the cross class cram down power to sanction the plan, noting that HMRC was a "sophisticated creditor able to look after its own interests". Zacaroli J (as he then was) noted that HMRC had not engaged with the plan company in any meaningful way and specifically, had not sought "to negotiate an alternative deal".
Following this decision, HMRC's approach to restructuring plans quickly evolved. In the Great Annual Savings Company ("GAS")3 and Nasmyth4 cases the following year, HMRC took a much more proactive line, by opposing the restructuring plans at the sanction hearing. In GAS, although the valuation evidence demonstrated that HMRC was better off under the plan compared to the relevant alternative, the margin was so fine that any slight miscalculation would have resulted in HMRC ending up worse off. HMRC's opposition was successful, with the court noting that the "strong terms in which HMRC voiced its objection deserves considerable weight". Notably, the High Court was willing to consider HMRC's arguments and to rule in its favour, despite the fact that HMRC did not produce any competing evidence.
In Nasmyth, although it was undisputed that HMRC would be better off under the proposed restructuring plan compared to the relevant alternative, the High Court once again refused to sanction the plan based on HMRC's submissions. This was because (a) although HMRC would receive nothing in the relevant alternative, it would continue to be owed a significant sum by other group companies and (b) HMRC was not minded to agree “time to pay arrangements”, which were necessary to allow the plan to go ahead. The High Court took a pragmatic, holistic, approach by considering HMRC's position in the round as against limiting its analysis strictly to the returns that HMRC would receive under the plan. Mr Justice Leech again emphasised that the court "should not cram down HMRC unless there [were] good reasons to do so" in part because such a cram down might be "seen to approve the non-payment of tax".
Good reasons to do so were soon found in the Prezzo case later in 2023. This was another case in which HMRC accepted that it was no worse off under the proposed plan than under the "relevant alternative" to that plan. HMRC nevertheless opposed the plan. In Prezzo, however, the High Court was willing to sanction the plan despite HMRC's objections. This was because (i) HMRC received most of the "restructuring surplus" under the plan, (ii) HMRC would be repaid quicker under the plan compared to in the "relevant alternative" and (iii) the decision to continue paying specified trade creditors was justified since support from those trade creditors was essential to allow the company to continue trading. These cases, taken together, indicate that while the court will be reluctant to cram down HMRC and will give some considerable weight to HMRC's views when assessing any restructuring plan, there is no blanket, judicial policy preventing the use of restructuring plans to effect the cram down of HMRC claims.
Although each of GAS, Nasmyth and Prezzo very much turned on their facts, a key takeaway is that plan companies would be wise to make efforts to ensure HMRC is "on side" if at all possible. This principle has clearly been recognised by the market. The recent case of Enzen5 marked the first occasion in which a restructuring plan was supported by HMRC and HMRC attended as a supporting creditor.
Although HMRC had initially indicated it would oppose the Enzen plan, after negotiating an extra £100,000 payment to it, HMRC voted in favour. This approach was welcome by the High Court, which noted the "increased engagement as a welcome development on the part of a prominent creditor".
This engagement continued in the Outside Clinic case, in which HMRC again changed its position between the convening and sanction hearings. Although it had initially indicated that it would not be supportive of the plan, HMRC negotiated improved terms and then supported the plan at the sanction stage. This latest pair of cases demonstrate that HMRC's approach to restructuring plans has matured from an initially passive and uninvolved position to a refined and proactive strategy.
Any plan company that is considering compromising any debts owed to HMRC should therefore ensure that it engages early and commercially to ensure that the plan does not face opposition at hearing stage from a creditor which no doubt has special status in the eyes of the courts.
"Out of the money" creditors
Perhaps one of the most enduring areas of debate in the restructuring plan space concerns the treatment of "out of the money" creditors. In circumstances where a creditor stands to receive nothing in the "relevant alternative", the question of how much weight, if any, should be given to its views is not entirely clear cut. In other words, if a creditor has "nothing to lose", should the court take their views on a restructuring plan into account?
In the first case in which the cross class cram down was deployed, DeepOcean,6 the court found that where a creditor is "out of the money", the receipt of any benefits under a proposed restructuring plan means that "out of the money" creditors are "unlikely to be treated in a manner than it not just and equitable". This approach was followed in Virgin Active, in which it was held that "little or no weight" should be placed on the votes of "out of the money" creditors, as they had no economic interest in the plan.
This approach was not followed in Nasmyth. This is because, in Leech J's view, a creditor could be "out of the money" in the "relevant alternative" but retain a genuine economic interest. This was, he found, the case for HMRC, which was one of the largest creditors of the group and whose consent was needed to agree time to pay arrangements to be put in place in order for the plan to be viable.
The seemingly contradictory case law in this area led Hildyard J to highlight a "conundrum" between the fact that (i) the court is obliged to take account of the view of dissenting creditors when considering the allocation of the restructuring surplus and (ii) creditors who are "out of the money" should "logically be given little weight".7 He reconciled this by drawing a distinction between "personal" objections to the proposed plan i.e. dissatisfaction with the terms or perceived inadequate compensation, with the general requirement to consider overall fair distribution of the restructuring surplus. Hildyard J was satisfied that the distributions in the proposed restructuring plan were fair. In this case, the opposing creditors had failed to make any submissions as to why they objected to the plan.
The issue was considered again in the Thames Water8 judgement. The Court of Appeal rejected the "rigid approach" suggested by the plan company (that the views of out of the money creditors should be given no weight), noting that "while it may be right in some cases to conclude that the fact that a dissenting class would be out of the money in the "relevant alternative" is a sufficient justification to exclude them from whatever benefit the restructuring preserves or generates, that will not necessarily always be so". The Court of Appeal observed that the approach taken would depend in part on the type of plan proposed, for example, the treatment of creditors under an interim plan would be different to that under a distribution plan.
This approach was endorsed and developed in the Petrofac Court of Appeal judgement 9, in which it was held that the benefits preserved or generated by a restructuring plan would need to be fairly shared between plan creditors. In that case, the Court of Appeal found that the allocation of the benefits was unfair. When considering the provision of new money, the trial judge had wrongly considered the market for lending available to the pre-restructuring group rather than the restructured group. Considering the lending market for the restructured group, the returns to the new money lenders were so excessive that they were better characterised as a benefit of the restructuring, one that had not been fairly shared between the creditors.
There was, the court found, a distinction between funds provided at market rate as a "cost of the restructuring" and new funds provided with higher then market rates, which were better construed as a "benefit of the restructuring". Any benefit would need to be allocated fairly. For that reason, the Court of Appeal overturned the sanction of the plan at first instance.
Although Court of Appeal decisions on this issue are welcome, it makes clear that a fact-specific approach will be taken in each case. Plan companies should be wary of any approach that disregards the views of "out of the money" creditors on the basis that they do not have any economic interest. Recent case law indicates that the traditional view that out of the money creditors should be given little weight are now outdated. The court will consider carefully how any restructuring surplus is distributed and therefore, proper engagement is crucial for avoiding issues further down the line.
Private arrangements?
The key distinguishing factor that separates the restructuring plan from its close relative, the scheme of arrangement, is the cross-class cram down mechanism. In order to ensure that this is exercised fairly, Parliament drafted Part 26A of the Companies Act such that the court retains discretion when deciding to sanction a plan, even if all the statutory conditions are met (being the approval of at least 75% of one class of creditor with a genuine economic interest and the satisfaction of the "no worse off" test).
In the recent Thames Water case, Charlie Maynard MP sought to argue that this discretion should be used to refuse to sanction the proposed plan on the basis that the plan was not in the public interest. This was because the plan, Mr Maynard submitted, imposed unjustified further debt of £3 billion on the company, making special administration the better way forward. Mr Maynard therefore asked the court to refuse to sanction the plan.
The Court of Appeal was unconvinced by these submissions. In sanctioning the plan, it noted that while "in some limited instances the interests of third parties may be taken into account, […] a scheme or plan [was] essentially a domestic matter between the company and its members and/or creditors". The court's discretion could arguably be used to refuse to sanction a plan in circumstances where entities such as the Secretary of State or Ofwat, the "guardians of the public interest", opposed it.
However, the Court of Appeal reasoned, it would be wrong for the court to substitute its own judgement, or indeed a third party's judgement, for that of the regulator or Government. Although Thames Water is the only case to date that has been opposed on public interest grounds, the judgement in that case makes clear that while the court certainly has the ability and indeed the obligation to consider the proposed plan in the round and is not obliged to exercise its discretion to sanction a plan, the views of third parties will be of little, if any, significance unless they have a statutory or some other special role.
Pragmatic approach: But don't push it?
One of the distinguishing factors of English law is the commercial and pragmatic approach that judges take. This is especially the case in the restructuring and insolvency space, where judges are required to absorb substantial amounts of complex information in a compressed timetable. The Thames Water case was a good illustration of this – Mr Justice Leech produced a 178 page judgement in just over a week following a strongly contested four day hearing with nine expert valuation reports and extensive amounts of other documentation. However, it is clear that judicial appetite for such high pressure timelines is waning. As Snowden LJ put it in Adler:10
"the court’s willingness to decide cases quickly to assist companies in genuine and urgent financial difficulties must not be taken for granted or abused. In particular, where a restructuring is designed to deal with the foreseeable maturity of financial instruments, and a division of the anticipated benefits of the restructuring is being negotiated between sophisticated investors, sufficient time for the proper conduct of a contested Part 26A process must be factored into the timetable. This will include complying fully with the Practice Statement [2020] 1 WLR 4493, giving interested parties sufficient time to prepare for hearings, giving the court appropriate time to hear the case and to deliver a reasoned decision, and permitting time for the determination of any application for permission to appeal. If this is not done, the parties can have no complaint if the court decides to adjourn hearings and to take whatever time it requires to give its decision".
This message was repeated in the Thames Water Court of Appeal judgement, where it was held to be "unacceptable that the judge was put under enormous pressure to hear the case and hand down judgement in such a compressed fashion". While there will inevitably be a tension between the inexorable time pressure that companies in financial distress encounter and the desire to allow the courts sufficient time in which to undertake their work, plan companies should be cautious of creating any manufactured urgency out of a failure to address otherwise foreseeable matters.
In addition to its approach to timing, the court will also take a pragmatic view when assessing the plan itself. A good example of this is the court's approach when considering a possible departure from the pari passu principle. For example, in Adler, Snowden LJ made clear that a departure from the "fundamental" pari passu principle was unacceptable without good reason. However, the court was able to find such a reason in Sino Ocean, 11 the first case in which one class that ranked pari passu was able to cram down another class that ranked equally. This was because Mr Justice Thompsell was satisfied that while the classes ranked pari passu, the classes would have different rights against other companies in the group and would therefore be anticipated to receive different recoveries. This approach once against demonstrates that the court will not approach a blinkered approach and will look at the plan holistically, taking a practical view of how it operates.
Conclusion
While it is clear that a number of nascent principles are emerging in restructuring plan jurisprudence, the courts have been careful to ensure that these principles are flexible guidelines rather than irrefutable, cast iron rules. These guidelines mean that plan companies can anticipate and proactively address a range of issues before they arise, most of which should be capable of resolution through early and proactive stakeholder engagement.
While this provides plan companies with more certainty than was necessarily the case five years ago, the costs associated with restructuring plans have also continued to spiral. These material will inevitably see restructuring plans increasingly become the preserve of "big ticket" workouts.
This does not mean that the restructuring plans will become inapplicable to lower value cases. Companies in that category may still find that a well argued threat of a restructuring plan is a valuable tool for applying leverage to bring creditors to the negotiating table. While creditors may be reluctant to agree to compromise their claims, the threat of such claims being fully compromised under a restructuring plan may be what is needed to conclude a consensual deal. What remains to be seen is whether the restructuring process will itself evolve in the coming years to make it an economically viable tool across the full spectrum of restructuring cases.
[1] Re Virgin Atlantic Airways Ltd [2020] EWHC 2191 (Ch)
[2] Re Houst Limited [2022] EWHC 1941 (Ch)
[3] Re Great Annual Savings Company Ltd [2023] EWHC 1141 (Ch)
[4] Re Nasmyth Group Limited [2023] EWHC 696 (Ch)
[5] Re Enzen Global Ltd & Anor CR-2025-001153
[6] DeepOcean 1 UK Ltd & Ors, Re [2020] EWHC 3549 (Ch)
[7] Re Ambatovy Minerals Societe Anonyme [2025] EWHC 279 (Ch)
[8] Thames Water Utilities Holdings Ltd [2025] EWCA Civ 475
[9] Saipem and others -v- Petrofac [2025] EWCA Civ 821
[10] Re AGPS Bondco [2024] EWCA Civ 24.
[11] Re Sino-Ocean Group Holding Ltd EWHC 205 (Ch).
