This is only the second time that the Court of Appeal has considered restructuring plans.
The previous occasion was in Re AGPS Bondco Plc [2024] EWCA Civ 24 (referred to commonly as "Adler"). However, the flurry of further first instance decisions on challenges to such plans showed that there remains a great deal of uncertainty in this area (see our previous article on some of the issues raised in these challenges here).
So, although the outcome of the appeal in Kington S.A.R.L. & Ors v Thames Water Utilities Holdings Limited & Anor [2025] EWCA Civ 475 (i.e. approval of the plan and dismissal of the challenges), was announced immediately at the end of the hearing, the Court of Appeal's reasoning in approving the Thames Water Part 26A Restructuring Plan has been eagerly anticipated.
The judgment does provide some very welcome further guidance on the law and procedure regarding restructuring plans. However, the court emphasized that because plans can be used and structured in so many different ways and in many different commercial contexts, the courts will continue to adopt a flexible approach. Court guidance applicable in one scenario may not be directly applicable in another.
The upshot is that by emphasising the fact specific nature of the sanction process, the practical effect of the judgment may be to have expanded the areas of uncertainty and potentially invited a wider range of challenges to future plans.
Restructuring plans
The Restructuring Plan regime (set out in Part 26A of the Insolvency Act 1986) has become a popular route for businesses looking to manage challenging financial situations.
In particular, the ability, in certain circumstances, to impose a settlement on unwilling creditors has an obvious appeal. On the other hand, this has also meant that such plans are often highly contentious. As a result, the courts have had to deal with a number of challenges to proposed plans. These challenges have required the judges hearing them to undertake complicated analyses of detailed expert evidence. They often have to do so on a very compressed timetable due to the precarious financial circumstances of the companies applying for approval of their restructuring plans. This has also led to ballooning costs for restructuring plan processes, which has risked undermining their value as a tool for all but the largest of corporate groups.
It was hoped that the Thames Water appeal would give the Court of Appeal the opportunity to set down some more high-level principles, both in relation to the application of the Restructuring Plan regime and the way challenges to such plans should be handled. However, it appears that the Court of Appeal has, for the most part, declined to do so. It commented that:
"it is not for the Court to assume the legislator's role and lay down principles of broader application. Development on a case by case basis is an inevitably slower process, but has the advantage that the principles that emerge are moulded by real-life examples."
As such, the Thames Water decision largely focuses on the facts of this particular plan.
There are, however, some wider points to be drawn from the decision.
Procedural criticism
The Court of Appeal does start by putting down something of a marker on the approach being taken to the court-sanction of such plans. After noting the difficult position that the first instance judge was put in, the Court commented that:
"it is unacceptable that the judge was put under enormous pressure to hear the case and hand down judgment in such a compressed fashion."
The Court repeated its comments in Adler that:
"to prevent undue delay and expense, a plan company must (subject to the giving of any necessary confidentiality undertakings) make available in a timely manner the relevant material that underlies the valuations upon which it relies. The parties and their advisers and experts must also co-operate to focus and narrow the issues for decision so that sanction hearings are confined to manageable proportions. If sensible agreement is not forthcoming, the court should exercise its power to order specific disclosure of key information and its other case management powers robustly."
The courts appear to be growing increasingly frustrated by the compressed timetables imposed by companies seeking approval of restructuring plans. In particular, they have objected to parties leaving the process until the point where, if the plan is not approved, the result will be catastrophic for the company and its creditors. In an extreme example, the directors of the company were said to have sought to "hold a gun to the head of the Court" by threatening to put the company into administration if the plan was not sanctioned (see Re Nasmyth Group Limited [2023] EWHC 988 (Ch)).
However, despite the courts repeatedly expressing dissatisfaction with this approach, as yet there does not seem to have been a change in approach by the applicants for restructuring plans. The fact that the Court of Appeal's comments in Thames Water expressly reiterate those it made in Adler shows that little has changed, and suggests that it is unlikely that attitudes will change unless the lower courts take a more robust approach to such behaviour.
Sharing the "benefits"
The Court of Appeal also commented on how the courts should assess the 'fairness' of a plan. It emphasised that, as set out in Adler, demonstrating that the creditors would be "no worse off" under the "relevant alternative" (i.e. the most likely outcome if the plan is not sanctioned) is a minimum threshold that must be met to allow a cross-class cramdown, and does not itself demonstrate that the plan is 'fair'. It is relevant to compare how the different classes of creditors are being treated under the plan as well, a so-called 'horizontal comparison'.
In this regard, the Court of Appeal held that the judge had been wrong to say that there was no "restructuring surplus" under this plan. The Court held that a better term would be "the benefits preserved or generated by the restructuring", as the positive effects of the restructuring may not be quantifiable. In this case, the benefit of the plan was to give Thames Water sufficient "runway" to allow it to enter into a further form of restructuring which would put the company and its creditors in a better financial position in the long term. The Court held that:
"We see no reason why, in considering the fairness of the terms of the Plan, this should not be regarded as a relevant benefit of the restructuring for the purpose of considering a horizontal comparison between the rights conferred under the Plan on different groups of creditors."
This suggests that in the future the courts should adopt a more flexible approach in identifying and assessing the benefits offered by the terms of a restructuring plan, and how they will affect the different creditor groups.
Out of the money creditors
The Court of Appeal also clarified the approach to be taken to creditor groups that would be 'out of the money' (i.e. would not recover any of the debt owed to them) under the Relevant Alternative. This issue had been addressed previously in Adler, but here the Court of Appeal clarified what had been meant by its approach in that decision.
Thames Water had argued that the effect of the decision in Adler was that so long as, out of the money creditors received de minimis consideration for their interests under the plan, the court should give no further consideration to their interests in the horizontal comparison. The Court of Appeal rejected this interpretation of Adler. It held that:
"In so far as [Adler] was saying that the fact of opposition to a plan by creditors with no genuine economic interest in the company had little or no weight, we agree…
[however] if it is taken to mean that the Court cannot take account of the treatment of out of the money creditors in considering the fair distribution of the benefits preserved or generated by a plan, simply because they would be out of the money in the relevant alternative then… we disagree."
Again, the Court of Appeal has emphasised a flexibility of approach to considering whether a plan should be approved. It has emphasised the fact-specific nature of the exercise, and given the judges hearing such applications, the power to look at the interests of the creditors and the share of the benefits of the plan as a whole.
What is a "blot"?
Finally, the judgment considered what constitutes "a 'blot'" on a plan.
It was accepted by the Court that the principle (derived originally from consideration of schemes of arrangement) that a court might refuse to sanction a restructuring on the grounds that there is some "blot" or defect that renders it inappropriate to do so applies to restructuring plans under Part 26A.
In terms of what might constitute such a blot, the Court of Appeal again proved reluctant to draw any clear lines, preferring to grant the courts latitude to consider the issue on a case-by-case basis. The Court of Appeal did, however, comment that:
"In some limited instances the interests of third parties may be taken into account in deciding whether there was any blot on the scheme or plan."
And that:
"without purporting to define its limits… the concept of "blot" is undoubtedly capable of covering a case where the scheme or plan contains a technical defect so that it is unworkable or incapable of achieving what was intended. It is equally capable of covering a case where the scheme or plan requires the company to take, or contemplates it taking, a step which is illegal, ultra vires, or in breach of some other obligation."
The Court was reluctant to draw any firm boundaries beyond this. However, it did hold that, in this case, the high costs incurred in relation to the plan did not constitute a blot that prevented its sanction.
Conclusions
The Court of Appeal decision does give some guidance for future restructuring plans. However, it is perhaps not the guidance hoped for by some: rather than narrowing the issues, for the most part this guidance amounts to granting the judges a wider discretion as to what to take into account when deciding whether to sanction a plan.
As such, it seems unlikely that this decision will stem the tide of challenges to such plans. Meanwhile, it remains to be seen whether the Courts' criticisms of the procedures adopted by those seeking such plans will lead to any practical enforcement of more reasonable timetables.
In the meantime, creditors that face being "crammed down" under such plans can look to this judgment to justify challenging them on both substance and process.