Saipem SpA & Ors v Petrofac Limited & Anor

For the “no worse off” condition under section 901G of the Companies Act 2006, the court compares the financial value of a creditor’s existing rights in the relevant alternative with the value of the rights offered under the restructuring plan. The comparison extends to rights against third parties which the plan releases, but not to commercial advantages unconnected with any affected right.

Cross-class cram down also requires a fair allocation of restructuring benefits. Creditors who would receive nothing in the relevant alternative are not automatically excluded. Market-equivalent returns on new money are restructuring costs; any material excess is a restructuring benefit requiring justification and fair allocation. The plan company bears the burden of proving market equivalence or otherwise justifying that allocation.

The appellants were unsecured creditors of two companies in the Petrofac group whose claims arose principally from a failed joint venture. Marcus Smith J sanctioned related restructuring plans under Part 26A of the Companies Act 2006: [2025] EWHC 1250 (Ch). The plans compromised secured and unsecured liabilities and allocated most of the post-restructuring equity to providers of new finance.

The relevant alternative was an insolvent group-wide liquidation. The appellants would obtain a slightly greater direct recovery under the plans, but argued that liquidation would also remove a competitor and generate substantial indirect commercial benefits for them.

The appeal raised two central questions: the scope of the statutory “no worse off” condition, and whether the plans fairly allocated the value preserved or generated by the restructuring, particularly the returns attached to new money.

1. Appeal allowed on the fairness ground; sanction orders set aside. The “no worse off” ground failed, but the judge’s exercise of discretion was vitiated by a material error concerning the price and risk of the new money. The Court of Appeal declined to exercise the sanction discretion afresh on the available evidence.

2. The comparison under section 901G(3) of the Companies Act 2006 concerns the financial value of a creditor’s existing rights in the relevant alternative and the value of the new or modified rights offered for their compromise. Where a plan also releases rights against third parties, those rights enter the comparison. Wider commercial prejudice which is not referable to an affected right belongs, if relevant, to the discretionary fairness assessment. The appellants’ anticipated benefit from the disappearance of a competitor was therefore outside Condition A, notwithstanding their joint venture relationship with the plan companies.

3. Satisfaction of the “no worse off” condition is necessary but insufficient for cross-class cram down. The court must consider whether the benefits preserved or generated by the restructuring are fairly allocated. A creditor’s position outside the money in the relevant alternative is an important reference point, but creates no rigid rule excluding that creditor from restructuring benefits. The cram-down jurisdiction prevents unjustified vetoes; it does not permit assenting classes to appropriate an inequitable share of value.

4. New money obtained on market-equivalent terms is ordinarily a cost of restructuring. This remains so where existing creditors provide it, and repayment may properly rank ahead of existing debt. A return materially exceeding the market price is instead a benefit conferred by the restructuring. The plan company must prove market equivalence or justify the allocation of that benefit.

5. The correct benchmark was the cost of finance for the post-restructuring group after removal of its existing liabilities, not the risk facing the insolvent group beforehand. The independent valuation attributed between US$1.5 billion and US$1.85 billion of equity value to the restructured group, while new-money providers received equity worth about US$1 billion on the low case. That disparity required cogent market evidence or adequate market testing. Neither was provided.

6. The allocations had effectively been fixed before the independent valuation became available and were not revisited. The finding that the new money was competitively priced and proportionate could not stand. Since the resulting allocation covered more than two-thirds of the value preserved or generated, the error was material. The order sanctioning both plans was set aside.

1. Court of Appeal (Civil Division): By [2025] EWCA Civ 821, dismissed the appeal concerning the statutory “no worse off” condition, allowed the fairness ground and set aside the sanction orders.
2. High Court, Insolvency and Companies List: Marcus Smith J sanctioned the two related restructuring plans under Part 26A of the Companies Act 2006: [2025] EWHC 1250 (Ch).