On 15 April 2025, the Court of Appeal handed down its reasons1 for dismissing the various appeals made against the sanction of the Thames Water restructuring plan by Mr. Justice Leech in February 20252 . This marks only the second occasion on which the Court of Appeal has considered issues relating to restructuring plans—the first of course being the Court of Appeal's decision in Adler in January 20243. In the time between the Adler and Thames Water appeal judgments, we have seen several key developments in the restructuring plan space which have (in most cases!) helped clarify the practice and scope of restructuring plans, but which also highlight the increasingly contentious nature of such processes and the difficult task of the court to adjudicate between competing interests. This therefore seems like a good opportunity to check in on the post-Adler and post-Thames state of restructuring plans and what the landscape now looks like after a tumultuous year (and a bit).
Views from the bench
The Thames Water appeal judgment set out some important (and interesting) overarching comments on what the court's approach should be when considering restructuring plans that come before it:
The role of the court is to work out how best to exercise its discretion on the facts of the case before it and the evidence presented, guided (as appropriate) by any relevant principles identified in previous cases.
When considering guidance from previous cases, it is important to recognise that:
- such guidance may not, where the matter has been uncontested, have been tested by adversarial argument; and
- restructuring plans can be used and structured in a multitude of different ways – for example, to carry out a comprehensive balance sheet restructuring via a debt for equity swap, as an alternative to an asset distribution process in a formal insolvency process, or (as was the case with the Thames Water plan) to provide a stable platform to allow the company to develop a longer term solution.
- As such, any guidance set out in respect of a restructuring plan used in a particular scenario or to effect a particular outcome may not be directly applicable to, or may be applied in different ways in, a restructuring plan that is used in a different context.
The developments and judicial opinions mentioned below in this briefing should therefore be read in the context of these comments.
All's fair in love and war (and restructuring plans...?)
The concept of "fairness" runs through restructuring plans and courts have been called upon to determine whether a proposed restructuring plan will result in an essentially "fair" outcome for affected creditors.
WHAT IS THE TRUE RELEVANT ALTERNATIVE?
The concept of the "relevant alternative"—the scenario that the court considers most likely (but not necessarily certainly) to occur if the restructuring plan is not sanctioned—goes to the fundamental question of whether the "restructuring surplus" (see below) is in fact being allocated in a fair way. Courts will look to the anticipated recoveries of creditors in the relevant alternative and compare them to what is proposed to be granted to them under the plan to ensure that creditors would be "no worse off" in the relevant alternative than under the plan. Unsurprisingly therefore, the question of what exactly the relevant alternative is has been raised a number of times. As noted in the Enzen sanction judgment4, generally speaking the directors of a company (with the benefit of expert evidence) are usually best placed to identify what would most likely happen if a restructuring plan fails, and the court will accept that evidence if it is rational and there is no other reason to doubt it. However, where there is conflicting evidence as to the most likely alternative outcome, the courts will have to weigh the options available.
In the Aggregate restructuring plan5, the dissenting creditor had proposed that the relevant alternative was not a formal insolvency (as argued by the company) but was instead a Luxembourg restructuring process on terms proposed by the creditor. However, the court considered that the Luxembourg alternative was in fact unworkable for a variety of reasons (not least that the senior creditors had given notice of enforcement to the company conditional only on the court refusing to sanction the plan) and therefore preferred the company's suggestion of formal insolvency as the most likely relevant alternative.
On Thames Water, an ad hoc group of Class B creditors had proposed their own rival restructuring plan (with modified economic terms to the company's own plan) which they argued would represent the true relevant alternative to the company's own plan. This argument was based on the assumptions that if the company's plan were to fail there would be sufficient time to implement the Class B plan, and that the Class A creditors (who largely supported the company's original plan) would switch their support to the Class B plan rather than risk the company's entry into special water administration ("SAR") proceedings. However, the judge instead found that it was reasonable for the directors of Thames Water to conclude that the relevant alternative was a SAR based on, amongst other matters, concerns that the rival restructuring plan was not implementable in the time available. An additional dynamic of interest was the indication by an ad hoc group of the Class A creditors that should the Class B alternative plan be pursued, they would propose a third restructuring plan, essentially on the same terms of the company's own plan, which they would most likely support over the Class B ad hoc group's plan if there were sufficient time to implement it (thereby avoiding a "whomever goes last wins" type outcome).
ALLOCATION OF THE "RESTRUCTURING SURPLUS"
The "restructuring surplus" (or the slightly less catchy "benefits preserved or generated by the restructuring", as preferred by the Court of Appeal on Thames Water) essentially comprises the benefits made available under a restructuring plan which would not otherwise be available in the relevant alternative. How it gets allocated and to whom is often a point of contention.
This question has arisen on a number of post-Adler restructuring plans, particularly with regards to whether it is acceptable for shareholders to retain any equity in a business despite being out of the money. When considering the horizontal comparator in the context of cross class cram down (essentially, the position of the dissenting class as compared to the position of other classes if the restructuring plan were approved), the starting position is that if creditors would be treated pari passu in the relevant alternative (e.g., a formal insolvency), such creditors should also be treated pari passu under the plan. However, there is no absolute priority rule applicable to restructuring plans, and a departure from pari passu treatment is permissible provided it is justified on a proper basis6 and/or where in-the-money creditors have elected to "gift" portions of the restructuring surplus (which is essentially their own money as economic owners of the business) to other classes of creditor as part of the overall deal.
In each of the Ambatovy7, Sino-Ocean8 and Enzen restructuring plans, shareholders have been permitted to retain at least a portion of their equity despite being out of the money with the following justifications:
- In Ambatovy, the shareholders were the only ones willing to provide the required new funding—the judge in this case noted that if an unconnected third party had provided all the new money and received 100% of the equity in return, there "could be no possible cause for complaint", and applied the same principle to where existing shareholders were providing the funding instead.
- In Sino-Ocean, the plan saw the company's existing shareholders retain equity (albeit on a diluted basis) by adducing expert evidence that, unless its two largest institutional shareholders (Chinese state-owned entities) were permitted to retain equity holdings of a certain level, the company would cease to be considered a state-owned entity, and would lose certain market advantages (such as potentially lower interest rates). Without such advantages, the company's evidence showed that the returns for all classes of creditor would be less than their returns under the plan, even if creditors themselves were to receive a greater proportion of the equity.
- In Enzen, the shareholders retained their interests (albeit also diluted by a new synthetic instrument to be issued under the plan). However, the shareholders were also the existing secured creditors of the company (having taken control of the business via an earlier enforcement process) and their decision on how to allocate the restructuring surplus (which they were essentially generating through a deleveraging, equitisation, and provision of new money) was considered "highly significant".
Thames Water saw another interesting take on the restructuring surplus debate—that there was in fact no restructuring surplus at all generated by the restructuring plan due to its "interim" nature (i.e., its purpose was to create a stable bridge towards a more holistic transaction to be carried out via a second restructuring plan), and therefore there was no need to consider the horizontal comparison. The Court of Appeal however rejected this argument—considering that, whilst somewhat intangible, the benefit from the "interim" restructuring plan was essentially the bridge itself, of preserving Thames Water as a going concern for a period of time to enable it to seek further value as part of the proposed second restructuring plan. This constituted a relevant benefit for the purposes of considering the horizontal comparison.
OUT OF MONEY, OUT OF MIND?
The Court of Appeal in Thames Water has provided some additional clarity on the statement made by Lord Justice Snowden in the Virgin Active sanction judgment9 and cited in the Adler appeal that the fact that out-of-the-money creditors have voted against the plan "should not weigh heavily or at all in the decision of the court as to whether to exercise its power to sanction the plan and cram them down".
Whilst the fact of opposition to a plan by out-of-the-money creditors itself should have little to no weight on the court's decision to exercise cram down or not, the Court of Appeal in Thames Water has said that this does not mean that the court should not consider the treatment of such creditors at all in assessing the distribution of the restructuring surplus, and there is no "hard-edged rule" that no account at all should be given to out-of-the-money creditors receiving no more than de minimis consideration. This may be appropriate in some cases, but with the scope of restructuring plans and what they can do being so wide, the nature of the benefits and whether a fair distribution requires a payment of more than a simple de minimis amount to out-of-the-money creditors will vary depending on the particular situation and proposal.
Interestingly, this guidance was anticipated (to an extent) in the earlier judgment of Mr. Justice Hildyard in Ambatovy, who opined that even where the objections of a dissenting creditor are to be given little weight, there remains an overriding duty on the court to consider whether there has been a fair distribution of the restructuring surplus, with the "essential question" (as quoted10 by Lord Justice Snowden in Adler with approval) being whether any class of creditor is getting "too good a deal".
EQUAL TREATMENT
The Class B dissenting creditors in Thames Water had argued that the Class A creditors were obtaining certain beneficial rights which were not available to the Class B Creditors – being that (a) at least two thirds of both the new money lenders and the Class A creditors were required to lock up to a recapitalisation transaction by 30 June 2025 as a condition to the draw down of certain tranches of the new money (which the Class B dissenting creditors claimed amounted to a veto right over the shape of the future holistic restructuring) (the "June Release Condition"), and (b) certain information rights were made available to the Class A creditors but not the Class B creditors (the "Information Rights").
In respect of the June Release Condition, the Court of Appeal opined that this condition essentially replicated the existing legal rights of the Class A creditors (as the more senior lenders) already had over any future restructuring proposal. In respect of the Information Rights notwithstanding any enhanced information rights for the Class A creditors, for the court to be able to sanction any second holistic restructuring plan the company should seek to demonstrate that it has communicated fairly with all plan creditors throughout the restructuring process. As such, neither the June Release Condition nor the Information Rights amounted to such an unfair advantage for the Class A creditors that the court should refuse to sanction the plan.
"ARTIFICIALITY" OR OTHERWISE OF A CRAMMING CLASS
Given the ability for assenting classes of creditors to cram down dissenting classes within a restructuring plan, there have been concerns around class "artificiality"—that a company will seek to engineer the creation of at least one class of creditors that will support the proposal and whose votes can be used to cram down dissenting classes, even where it is not strictly necessary under class composition rules for such creditors to sit within their own separate class. To quote Lord Justice Zacaroli from his High Court days: "...attempts artificially to create an in-the-money class for the purposes of providing an anchor to activate the cross-class cram down power should be resisted, particularly where such a claim is not impaired by the plan"11.
This issue was considered in both the Ambatovy and Sino-Ocean sanction judgments. In Ambatovy, the cramming (and only in-the-money) class was made up of the plan companies' shareholders in their capacities as super senior creditors, with such super senior funding having been injected relatively shortly before the plan was promulgated. The sensitivity was heightened in this case as the plans allowed the shareholders to retain all of their existing equity despite being heavily out of the money (see above). The judge held that the super senior class had not been artificially created on the basis that (a) the new money provided by shareholders was required by the companies to continue operating; (b) only the shareholders were willing to provide the funding (with the senior lenders having also been given the opportunity to participate); and (c) given the poor financial state of the companies at the time, it was understandable for the new money to be injected on a super senior basis.
In Sino-Ocean, there were four classes of creditors— one comprising lenders under Hong Kong law governed loans, and three comprising holders of English law governed instruments. The inclusion of the Hong Kong lenders within the plan was challenged as unjustified on the basis that they were also subject to a parallel Hong Kong scheme of arrangement which would be sufficient to compromise them. However, the judge held that there was "nothing artificial" with their inclusion in the English restructuring plan (with the Hong Kong lenders clearly affected by the wider restructuring transaction) and to find otherwise would prevent multi-national companies from using the restructuring plan to "deal holistically" with their different classes of creditors.
CONSIDERATION OF PUBLIC AND OTHER THIRD PARTY INTERESTS
Thames Water involved a consideration of the extent to which courts can take the "public interest" into account when considering plans that involve companies providing essential services to consumers. In this case, counsel for Charlie Maynard MP (who acted as a representative of consumer interests) had argued that the public interest would be better served by Thames Water being placed into a SAR rather than proceed with the company's restructuring plan, suggesting (amongst other things) that the company could potentially avoid certain fees and costs in respect of the required new money if such funds were instead provided by the government within the SAR.
The Court of Appeal took a fairly narrow view of their ability to consider the public interest arguments—noting that the court's involvement when considering fairness was generally limited to considerations of fairness as between the parties to the plan itself. In the case of Thames Water, the government and the regulator OfWat were "the guardians of the public interest", and they had elected to allow the company to pursue a private sector restructuring.
That said, when considering whether to sanction a restructuring plan, the court will consider whether there is a "blot" on the plan—a somewhat nebulous concept but can be taken to mean "some technical or legal defect"12 or something that would make a plan "unlawful or in any other way inoperable"13. The Court of Appeal held that in some limited circumstances, it is possible to take account of the interests of third parties outside of the scope of the plan when deciding if such a blot existed. For example, if the restructuring plan for Thames Water would result in it breaching its regulatory obligations, this could constitute such a blot. That said, the Court of Appeal also held that the costs the company has borne and will bear under the restructuring plan did not constitute a blot that would justify a refusal to sanction the plan, noting that Mr. Justice Leech was entitled to find that the overall costs of the proposed restructuring under the plan were at least equal to the potential negative consequences of a SAR. The Court of Appeal also agreed with the view of Mr. Justice Leech that the Class A creditors would likely have to write off a portion of their debt in order for Thames Water to be able to attract new equity investment, and therefore it was the creditors of Thames Water (rather than the customers) who would mostly likely bear the costs of the new financing in practice.
In the crosshairs—what can restructuring plans now do (or not do)?
The post-Adler period has seen restructuring plans used to deploy novel solutions, as well as the introduction of clarifications around the scope of what can be done under or included within a plan.
A PROMISE IS A PROMISE (OR IS IT)?
Companies are generally free to select the creditors it may wish to bring within the scope of a restructuring plan14, although any exclusion of creditors must be justified by good commercial reasons. For example, the claims of trade creditors, critical suppliers, employees etc. are often excluded from restructuring plans as it may be commercially undesirable or detrimental to seek to compromise such claims.
But is a previous promise not to include a particular creditor within the scope of any future restructuring plan a sufficiently good reason to exclude them from any such future plan? In the Cineworld restructuring plan15, certain landlords were included within the scope of the plan despite Cineworld having previously undertaken (in the context of previous lease renegotiations) that it would not seek to compromise those leases further by way of a restructuring plan. Despite the objections of these landlords, the court sanctioned the restructuring plan including those leases.
The judge noted that negative covenants (such as the undertakings in question in the Cineworld case) were found to be themselves capable of being compromised by restructuring plans—the agreement not to seek to compromise the leases were ancillary to the lease terms themselves and could therefore be compromised as a part of a compromise of those lease terms.
Additionally, the judge found that where the pari passu principle had been engaged and absent a good reason or justification to the contrary, any application to enforce a contract to exclude relevant creditors generally must give way to that principle. In this case, had the objecting landlords been excluded from the scope of the plan, they would have been in a significantly better position compared with landlords in similar commercial positions who were being compromised by the plan (which would have led to an unfair outcome for those included landlords), and the undertakings were not a sufficiently good reason to justify such differential treatment. This of course contrasts with cases like Ambatovy, Enzen and Sino-Ocean mentioned above where the company was able to demonstrate a reasonable justification for departing from the pari passu principle.
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Footnotes
1. Kington S.à.r.l., Thames Water and other v Thames Water Utilities Holdings and others [2025] EWCA Civ 475
2. Re Thames Water Utilities Holdings Limited [2025] EWHC 338
3. Re AGPS Bondco Plc [2024] EWCA Civ 24
4. Citation not yet available, but the judgment can be read here.
5. Re Project Lietzenburger Straße Holdco S.à.r.l. [2024] EWHC 468
6. Re AGPS Bondco Plc [2024] EWCA Civ 24
7. Re Ambatovy Minerals Societe Anonyme and Dynatec Madagascar Societe Anonyme [2025] EWHC 279
8. Re Sino-Ocean Group Holding Limited [2025] EWHC 205
9. Re Virgin Active Holdings Limited and others [2021] EWHC 1246
10. Quoted from Professor Sarah Paterson's paper "Judicial Discretion in Part 26A Restructuring Plan Procedures" (January 24, 2024), which was itself quoting Mr. Justice Mann in Bluebrook Limited [2009] EWHC 2114
11. Re Houst [2022] EWHC 1941
12. Re Co-Operative Bank Plc [2017] EWHC 2269
13. Re Noble Group Ltd [2018] EWHC 3092
14. SEA Assets Ltd v PT Garuda Indonesia [2001] EWCA 1696, cited in Re Virgin Active Holdings Limited and others [2021] EWHC 1246
15. Re Cine-UK Limited and others [2024] EWHC 2475 aoshearman.com
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