Waldorf Production UK Plc, Re

Under Part 26A of the Companies Act 2006, satisfaction of the cross-class cram-down conditions gives the court jurisdiction but creates no presumption that sanction will follow. The relevant alternative must be sufficiently clear, certain and defined to perform its statutory functions. At the discretion stage, the court must assess whether the plan fairly allocates the benefits preserved or generated by the restructuring among all creditor classes, including creditors out of the money in the relevant alternative. A plan company bears the burden of establishing fairness. The absence of meaningful engagement or negotiation with dissenting creditors may materially hinder that assessment, although prior negotiation is not a jurisdictional precondition. The court refused sanction where the plan had been formulated on the disapproved assumption that out-of-the-money creditors required only a de minimis return.

Waldorf Production UK Plc applied under sections 901F and 901G of the Companies Act 2006 for sanction of a restructuring plan enabling it to continue trading while pursuing a solvent sale. The plan proposed a 5% payment and contingent upside-sharing to unsecured creditors, while extending and amending secured bond debt.

Bondholders approved the plan unanimously. The unsecured creditors, comprising Capricorn Energy Plc and HMRC, voted unanimously against it. The issue was whether the statutory conditions for cross-class cram down were met and, if so, whether the court should exercise its discretion to sanction the plan.

1. Jurisdiction. The court confirmed that the statutory conditions for Part 26A applied. Condition B was satisfied because the Bondholders were an assenting class with a genuine economic interest. The Relevant Alternative under section 901G was a formal insolvency process, rather than the proposed alternative restructurings, because those alternatives were insufficiently clear, certain and defined. The unsecured creditors would be worse off in that alternative, so Condition A was satisfied.
2. No presumption of sanction. Satisfaction of Conditions A and B did not create a presumption in favour of sanction. The court retained a substantive discretion to determine whether the plan was fair.
3. Fair allocation of restructuring benefits. The plan sought to preserve or generate value by continuing the company as a going concern and facilitating a solvent sale. Fairness therefore could not be assessed predominantly by reference to insolvency recoveries. The court had to consider the contributions made by every creditor class and the fair allocation of the benefits generated by the restructuring. Creditors out of the money in the Relevant Alternative could not automatically be confined to a de minimis payment.
4. Engagement and burden of proof. The Court of Appeal’s guidance in Re Petrofac applied across Part 26A plans. It did not establish a jurisdictional requirement of prior negotiations. However, the absence of meaningful engagement with Capricorn and HMRC, and the absence of evidence explaining or substantiating the 5% allocation, made it substantially harder for the Plan Company to discharge its burden of proving fairness. The plan had been conceived on the false premise that the unsecured creditors required only a de minimis return.
5. Additional factors. The company’s failure to address its EPL liabilities or seek further time-to-pay arrangements, its failure to negotiate with the dissenting creditors, and concerns surrounding the dividend and intra-group loan were further factors against sanction. The principal reason for refusal was the failure to establish a fair allocation of the restructuring benefits.
6. Disposition. Sanction was refused. Consequential matters, including any application relating to an appeal or a revised plan, were adjourned.