Re Petrofac (first instance)

The court considered applications to sanction restructuring plans under Part 26A of the Companies Act 2006 and addressed (i) class composition challenges, (ii) the identification of the "relevant alternative" for the purposes of section 901G(3) and (iii) the meaning and scope of the statutory "no worse off" test in Condition A of section 901G. The Convening Order had permitted creditor meetings, most classes assented and two classes contained dissenting creditors (Saipem and Samsung).

The judge declined to fracture the senior funded creditors classes and treated the Plans as a single integrated restructuring. Condition B (presence of an assenting class with a genuine economic interest) was accepted. On Condition A, the court held that the relevant alternative was group-wide liquidation rather than a modified consensual plan offered by the dissenting creditors ("Plan B"). The court found that indirect economic benefits to dissenting creditors from liquidation (for example competitive advantage) were real but too remote to form part of the Condition A jurisdictional inquiry, which focuses on immediate and direct financial consequences. Considering direct financial comparisons and the allocation of preserved value, the court concluded the dissenting creditors would not be any worse off under the Plan than under the relevant alternative. Finally, on the discretionary/fairness exercise the court held the allocation of benefits (including treatment of new-money providers and the Work Fee) was justifiable and the Plan should be sanctioned.

This is a first-instance sanction judgment concerning restructuring plans proposed by Petrofac Limited and Petrofac International (UAE) LLC under Part 26A of the Companies Act 2006. The Convening Order (and prior Convening Judgment [2025] EWHC 859 (Ch)) authorised multiple creditor meetings. Most classes approved the Plan with substantial majorities; three meetings recorded dissent (notably the Saipem and Samsung opposing creditors).

Nature of the application: sanction of an integrated restructuring Plan that depends on cross-class cram-down under section 901G; relief sought was judicial sanction to bind dissenting classes.

Issues framed:

• Whether the composition of the senior secured funded creditor classes should have been fractured (the court declined to fracture).
• Identification of the "relevant alternative" for Condition A (Liquidation vs a revised consensual alternative "Plan B" offered by the dissenters).
• Construction of the statutory "no worse off" test in section 901G(3): whether it includes indirect economic benefits such as competitive advantage flowing from the debtor leaving the market.
• Exercise of the court's discretion and fairness as to the allocation of preserved value, treatment of new-money providers and fees (the Work Fee).

Court's reasoning (concise):

• Class composition: the court adopted its earlier view refusing to fracture the senior funded creditor classes; meetings as convened were valid and the court placed significant weight on the judgment of assenting creditor meetings.
• Relevant alternative: on the evidence the court concluded the realistic and most likely alternative to sanction was a group-wide liquidation rather than the revised plan offered by the dissenters, because key providers of new money and major secured creditors would not accept the asymmetric reallocation of value that Plan B required and such re-opening would likely cause the Plan to fail.
• Condition A "no worse off" test: the statutory test requires a comparison of outcomes under the Plan and the relevant alternative. The court held that direct, immediate financial consequences must be the core of that comparison for the jurisdictional test; indirect economic benefits to dissenting creditors from the debtor ceasing to trade (for example competitive gains) are real but too remote and speculative to be decisive at the jurisdictional stage, and are better addressed within the discretionary/fairness inquiry.
• Discretion/fairness: the court examined the allocation of preserved value (using expert material), distinguished parties who only become investors by reason of the Plan (new-money providers) from existing creditors, and concluded that departures from a pari passu allocation were justified by commercial reasons (risk, necessity of new-money, contractual bargains). The Work Fee and other remuneration arrangements did not render the Plan unfair.
• Outcome: having found Conditions A and B satisfied and exercised its discretion in favour of sanction, the court ordered that the Plan be sanctioned.

The court sanctioned the Plan. It held that (i) the Relevant Alternative under section 901G was group-wide liquidation, not the revised alternative proposed by the dissenting creditors; (ii) Condition B was satisfied and Condition A was satisfied when assessed by reference to direct financial consequences because the indirect economic benefits claimed by the dissenters were too remote for the jurisdictional test; and (iii) in the exercise of the court's discretion the allocation of preserved value (including returns to new-money providers and the Work Fee) was not unfair. Accordingly the Plan was sanctioned.

The judgment records the prior Convening Judgment under Neutral Citation [2025] EWHC 859 (Ch) and the Convening Order. The court had earlier refused the Saipem and Samsung Opposing Creditors permission to appeal; the Court of Appeal subsequently granted permission to appeal, but that appeal remained undetermined at the time of this sanction hearing.