Waldorf Production on the way to the Supreme Court

Waldorf Production UK Plc has been granted permission to ‘leapfrog’ the Court of Appeal and apply directly to the Supreme Court for permission to appeal the High Court’s refusal to sanction its restructuring plan.¹Re Waldorf Production UK Plc [2025] EWHC 2297 (Ch) If the appeal is heard, it would be the first time that the Supreme Court rules on a Part 26A restructuring plan. This is welcome news as the Supreme Court would be expected to provide important guidance in a rapidly changing and increasingly important area of restructuring and insolvency law. Petrofac, which had also intended to appeal to the Supreme Court regarding its restructuring plan, appears to be close to settling its dispute with opposing creditors.

In a judgment handed down on 19 August 2025, the High Court refused to sanction Waldorf Production’s restructuring plan on the back of the Court of Appeal’s “trilogy”²Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §139 of cases on Part 26A restructuring plans: Adler, Thames Water, and Petrofac. The High Court’s decision in Waldorf confirms, at least for now, that the approach to restructuring plans under Part 26A has fundamentally shifted, to be more in favour of out-of-the-money creditors—a theme described in our previous client alert following the Petrofac decision (available here).

In that client alert, we commented on the development in the trilogy of cases of the treatment of out-of-the-money creditors. The Waldorf judgment similarly mapped that trajectory. First came Adler, a “qualified but clear departure” from Virgin Active, Hildyard J stated in Waldorf.³Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §150 Then came Thames Water, a “more definitive departure”⁴Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §151 and finally, Petrofac, a decision that “unequivocally marks the demise of the theory propounded in Virgin Active”.⁵Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §160

A pre-Thames Water restructuring

Waldorf’s plan was formulated in a pre-Thames Water world. In preparing the plan, Waldorf had engaged extensively with the steerco of secured bondholders to negotiate the commercial terms. In contrast, the High Court found that in relation to the opposing unsecured creditors, HMRC and the Capricorn Group, “there was no engagement nor any negotiation at all”,⁶Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §67  neither was there any explanation or justification for the failure to engage with these creditors. In addition, HMRC and Capricorn were offered an “arbitrary” 5% of their claims in cash, plus a contingent “upside” mechanism (seen as illusory by the dissenters).

The judgment raises two important (and familiar) issues: the interpretation of the relevant alternative, and the exercise of discretion on grounds of fairness.

Relevant alternative   

In assessing whether the dissenting creditors were no worse off under the plan, the High Court analysed two competing propositions on the relevant alternative. The plan company argued that the relevant alternative was a value-destructive insolvency, which would have left the unsecured creditors with negligible recoveries. In response, the opposing creditors countered that the plan company’s lack of engagement in negotiations made this an artificial alternative and that a revised plan or settlement was more probable. Hildyard J concluded, “with some reluctance”, that given the secured bondholders’ firm rejection of the out-of-the-money creditors’ alternative proposals, a formal insolvency remained the “most likely” alternative outcome, that being the relevant test (rather than an outcome which is definite, or more probable than not).⁷Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §133 In the High Court’s view, to find that one of the unsecured creditors’ rejected offers would be the relevant alternative would effectively result in a “cramming up” of the out-of-the-money creditors’ proposal against the plan company.⁸Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §122 The High Court recognised the unsecured creditors’ willingness to negotiate, but concluded that their alternative proposal was “inchoate”. As the relevant alternative performs a statutory function, it needs to be sufficiently clear, certain and defined. An “inchoate” alternative, the High Court said, “even though it may be likely to be achieved, has not the characteristics required”.⁹Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §132

The High Court held that the no worse off test was therefore satisfied and the plan company had met the jurisdictional test under Part 26A.

In rejecting the out-of-the-money creditors’ position, Hildyard J’s decision on this point marks another example in a line of cases (including Thames Water, where an alternative plan was formally launched by opposing creditors) in which the courts were not convinced that the opposing creditors’ alternatives were the more likely outcomes if the plans were not sanctioned. Indeed, Waldorf demonstrates that opposing creditors will likely find themselves between a rock and a hard place in this respect: they can make a more definitive, ‘choate’ offer to the plan company that is firmly rejected by the company and supporting creditors,¹⁰An accepted offer, by definition, would not arise because opposing creditors would not then vote against it (or no plan would be necessary). but risk the High Court then finding (as it did in Waldorf) it unrealistic to gainsay that rejection, or make a more vague, ‘inchoate’ offer, which “has not the characteristics required” of a relevant alternative.

Therefore, absent persuasive evidence regarding certainty of implementation of any opposing creditor’s proposal (or any alternative guidance from the Supreme Court in due course), it appears that this argument is not a viable strategy to oppose the sanctioning of a restructuring plan.

(Fairly) allocating value

The High Court then went on to determine whether the plan was fair. As per Petrofac, that meant determining whether there was a fair sharing of the burden of the restructuring plan among those whose rights are compromised, whether the benefits of the restructuring were fairly allocated and whether the plan company had engaged in genuine, good-faith negotiations with all stakeholders. In this part of the judgment, the  High Court first addressed the purpose of the plan. While the purpose was a key point for plan company’s counsel, it was less so for the High Court. Counsel for the plan company argued that there were two “types” of restructuring plans – one that allowed the plan company to continue trading and one that sought to “wind down” a company outside of a formal insolvency process – and that Petrofac was the former, and its principles should be confined to that ‘type’ of restructuring accordingly. ¹¹Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §§ 142-143The High Court held, however, that the principles arising from Petrofac were intended to have “systematic application”, i.e. they apply to all ‘types’ or restructuring plan.¹²Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) § 177

Applying those principles, it was evident that the plan company had taken the pre-Thames Water approach and not engaged with the out-of-the-money creditors, on the basis that they would have no economic interest in the restructured business. That approach seemed justified in a world where the views of out-of-the-money creditors carry little or no weight. However, according to the Court of Appeal guidance, the correct approach does not just involve a comparison between  recoveries under the plan and in the relevant alternative, but also an assessment of what out-of-the-money creditors might fairly and reasonably have negotiated for their support in circumstances where it has been established that the proposed restructuring will fail if their debts are not compromised.

While the High Court said that Petrofac had not made negotiations with dissenting creditors a jurisdictional precondition to sanction, the plan company’s failure to do so created an evidential gap as to whether dissenting out-of-the-money creditors were acting reasonably in demanding a greater return than that which was being offered by the plan company.

The High Court in Waldorf concluded that there had been no attempt to identify a fair allocation of the benefits expected to be generated by the restructuring. Entering into negotiations with the opposing creditors would have provided the High Court with information as to what a fair allocation might look like. Similarly, the plan company had no evidence to support their position that it could not pay more than the consideration offered. In the circumstances, the 5% appeared arbitrary, even though it represented 33 times what the dissenting creditors could expect to receive in the relevant alternative accepted by the Court. As noted in our previous client alert, the burden to show that the plan is fair rests squarely on the plan company. Therefore, outright rejection of any alternative proposals from out-of-the-money creditors may create the conditions necessary to pass through the jurisdictional gateway, but the plan company remains at risk, thereby, of leaving an evidential gap when it comes to the fairness assessment that means the court will likely refuse to exercise its discretion to cram down the dissenting creditors based on that very same set of facts.

In this case, there were further, somewhat unusual, factors militating against sanction: the fact that the plan company had paid an “enormous”, seemingly unjustified interim dividend in October 2022 which had contributed to the company’s financial difficulties, a deliberate decision not to pay a liability due to HMRC, the fact that HMRC were involuntary creditors and that the plan company’s legal costs had exceeded the difference between the unsecured creditors rejected offer and the 5% offered by the plan company.¹³Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §196  Given these circumstances, the High Court concluded that the plan company had not discharged its burden of showing that the plan was fair.¹⁴Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) §197

Key Takeaways

• For now, Waldorf confirms that the approach to the cross-class cram down of dissenting creditors in Virgin Active is well and truly dead. Although Hildyard J was bound to follow the trilogy, we must now turn to the Supreme Court, which will decide whether to consider these questions and provide definitive answers, once-and-for-all. If nothing else, Waldorf highlights acutely the rapid pace of change to the courts’ approach to cross-class cram downs and the difficulties faced by proposed plan companies (and other stakeholders) in ‘keeping up’.
• Waldorf is a pre-Thames Water and Petrofac decision – its facts pre-dated those decisions, as the judge himself recognised. To that extent, the proposed plan was in a sense ‘doomed’ once those decisions were handed down. The decision does not therefore represent a significant ‘correction’ or development, but rather, perhaps, just the end of the pipeline of pre-‘trilogy’ first instance decisions.
• While it is recognised that there are different purposes, and therefore types, of restructuring plans, Waldorf confirms those differences do not matter when it comes to assessing the fairness of the cross-class cram down; the principles derived from the ‘trilogy’ apply to all ‘types’ of restructuring plan.
• As things stand, restructuring plans will come at an increased cost and with greater risk for plan companies: the companies need to engage meaningfully in negotiations with out-of-the-money creditors. What exactly that means in practice may differ from case to case, but seemingly arbitrary, de minimis payments to out-of-the-money creditors in which they have had no say (even if such payments are appreciably better than out-of-the-money creditors would receive in the accepted relevant alternative) are clearly no longer enough.
• Meaningful engagement with out-of-the-money creditors likely means consistent engagement, from an early stage, especially where those creditors show themselves outwardly to be reasonable/willing to engage.
• Plan companies should generally be prepared to justify their actions in navigating restructuring plans – it is a considered process that requires expert advice.
• Questionable past conduct of the plan company that has a bearing on its current financial position or its past treatment of dissenting creditors may also have an impact on the question of the fairness of the proposed plan for those creditors.