UK Restructuring Plans at
the Start of 2026: All’s Fair in
(Love And) Restructuring Law?
February 2026
Following on from the Court of Appeal’s momentous decision in Adler in 2024, the English Courts’ approach to UK Restructuring Plans has continued to evolve at pace throughout 2025. This is evident in the Court of Appeal decisions in Thames Water and Petrofac and then the subsequent first instance decision in Waldorf.
The Thames Water, Petrofac and Waldorf judgments place a clear focus on the relative treatment of creditor classes and whether the allocation of the benefits of the restructuring between the creditor classes is fair. This article reviews the key principles coming out of these judgments.
Following on from the Court of Appeal’s momentous decision in Adler in 2024, the English Courts’ approach to UK Restructuring Plans has continued to evolve at pace throughout 2025. This is evident in the Court of Appeal decisions in Thames Water and Petrofac and then the subsequent first instance decision in Waldorf.
The Thames Water, Petrofac and Waldorf judgments place a clear focus on the relative treatment of creditor classes and whether the allocation of the benefits of the restructuring between the creditor classes is fair. This article reviews the key principles coming out of these judgments.
The Statutory Framework for Cross-Class Cram Down
The key feature that distinguishes Plans from the UK’s other main restructuring tool, the Scheme of Arrangement, is the power to cram down a dissenting class (i.e., cross-class cram down). There are two statutory conditions set out in the UK Companies Act 2006 which must be satisfied for a Court to approve cross-class cram down:
Condition A – no worse off:
None of the members of the dissenting class of creditors would be worse off under the Plan than they would be in the ‘relevant alternative’ (i.e., the most likely outcome if the restructuring is not implemented).
Condition B – approval from an in-the-money class:
At least one creditor class that would receive a payment or has a genuine economic interest in the debtor in the relevant alternative has approved the Plan (i.e., creditors representing 75% by value of those in the class that are present and voting at a creditors’ meeting have voted in favour of the Plan).
The Court of Appeal made clear in Adler that, even where both of these statutory conditions have been satisfied, the Court must also decide whether to exercise its discretion to approve cross-class cram down and the fairness of the relative treatment and allocation of value between creditor classes will go to the heart of that discretion.
Fairness and Cross-Class Cram Down
Treatment of Dissenting Creditor Classes That Are Out-Of-The-Money:
Prior to 2025, the generally accepted position was that set out in the Virgin Active Plan in 2021: it is fair to cram down dissenting creditor classes that are out-of-the-money in the relevant alternative in exchange for only a de minimis payment (because even a de minimis payment was better than the zero recovery that the creditor class stood to receive in the relevant alternative).
The Court of Appeal has now visibly moved away from this approach. Instead, the Court must be satisfied that the Plan would achieve a fair and reasonable allocation of the value and benefits of the restructuring. Through this lens, it is not necessarily the case that a nil return to creditors in a dissenting class that is out-of-the-money in the relevant alternative is fair and reasonable, because that creditor class may be giving up valuable rights to enable the Plan to proceed.
This is particularly clear on the facts of the first instance decision in Waldorf (a Plan that was originally prepared before the Court of Appeal’s decisions in both Thames Water and Petrofac were published but was only decided after their publication): The debtor sought to use a Plan to implement a restructuring that would facilitate a solvent sale of the company’s business.
The terms of the restructuring were that:
- bondholders (an in-the-money class) would agree to a maturity extension and certain covenant amendments; and
- the claims of unsecured creditors (including HM Revenue and Customs (HMRC), the UK government department responsible for collecting taxes) (an out-of-the-money class) would be released in exchange for a cash payment of 5% of the value of their claims and a contingent upside-sharing instrument.
It was not possible for bondholders to enforce security to effect a sale of the debtor’s business, and, as a result, a solvent sale of the business was not possible, without releasing the unsecured creditors’ claims.
Therefore, even though the unsecured creditor class was out-of-the-money in the relevant alternative, they were making what the Court described as “the vital contribution” to the restructuring because only by giving up their claims would a solvent sale of the debtor’s business be possible.
Accordingly, the proposed 5% payment to the unsecured creditors (which was arbitrarily determined by the debtor and the supporting bondholders rather than being the product of any negotiations between the debtor and the unsecured creditors) was inadequate and the Court declined to sanction the Plan. In finding that the 5% payment was inadequate it was key to the Court that the debtor had elected not to engage with the unsecured creditors (including HMRC).
It is clear from the Court’s judgments in Thames Water, Petrofac and Waldorf that its focus on a fair allocation of value is based on a fundamentally different concept of what cross-class cram down in Plans is intended to achieve than was previously the case in earlier judgments like Virgin Active – debtors must engage with all stakeholders and attempt to negotiate reasonably to seek to achieve a consensual solution and cross-class cram down is a last resort to deal with unreasonable hold outs. Cross-class cram down is no longer a ‘first resort’ that allows debtors to avoid engaging with out-of-the-money stakeholders.
As stated by the Court in Petrofac: “the proper use of the cross-class cram down power is to enable a plan to be sanctioned against the opposition of those unreasonably holding out for a better deal where there has been a genuine attempt to formulate and negotiate a reasonable compromise between all stakeholders”.
The inevitable question that follows from this is how will the Court assess what constitutes a fair and reasonable allocation of value between creditor classes and what should be allocated to an out-of-the-money class? The judgments in Thames Water, Petrofac and Waldorf suggest that this assessment should consider:
- What is the source of the benefits under the Plan – for example, what is being given up or provided by each creditor class?
- What can the debtor afford to allocate to each creditor class?
- What value are in-the-money creditor classes prepared to give up to ensure an out-of-the-money class receives their fair allocation?
- What is the correct comparator for assessing a fair allocation of value and benefits? In Waldorf, the Court held that the proper comparator was not the relevant alternative (which was a formal insolvency where the unsecured creditor class would receive nothing) but instead was what the unsecured creditors might have fairly and reasonably negotiated for their support (creating a seemingly subjective test of fairness). It is important to reiterate that, in Waldorf, it was not possible for bondholders to effect an asset sale through a security enforcement without the unsecured creditors’ consent. It is not clear whether, if a security enforcement was possible, the Court would have taken the same position.
Treatment of creditors that are new money providers:
Thames Water and Petrofac also considered the treatment of creditors that provide new money that is conditional upon the sanction of a Plan and put forward the following key principles:
- The cost of any new money should be assessed by reference to the financial position of the debtor following implementation of the restructuring pursuant to the Plan (because assessing the cost of new money by reference to the debtor’s position pre-restructuring would artificially overstate its value).
- The debtor must provide evidence (whether by an expert or through market testing) to explain why the allocation of value in the restructuring to new money providers was a fair reflection of the cost at which such new money financing could be obtained in the market.
The inevitable question that follows from this is how will the Court assess what constitutes a fair and reasonable allocation of value between creditor classes and what should be allocated to an out-of-the-money class? The judgments in Thames Water, Petrofac and Waldorf suggest that this assessment should consider:
- What is the source of the benefits under the Plan – for example, what is being given up or provided by each creditor class?
- What can the debtor afford to allocate to each creditor class?
- What value are in-the-money creditor classes prepared to give up to ensure an out-of-the-money class receives their fair allocation?
- What is the correct comparator for assessing a fair allocation of value and benefits? In Waldorf, the Court held that the proper comparator was not the relevant alternative (which was a formal insolvency where the unsecured creditor class would receive nothing) but instead was what the unsecured creditors might have fairly and reasonably negotiated for their support (creating a seemingly subjective test of fairness). It is important to reiterate that, in Waldorf, it was not possible for bondholders to effect an asset sale through a security enforcement without the unsecured creditors’ consent. It is not clear whether, if a security enforcement was possible, the Court would have taken the same position.
Treatment of creditors that are new money providers:
Thames Water and Petrofac also considered the treatment of creditors that provide new money that is conditional upon the sanction of a Plan and put forward the following key principles:
- The cost of any new money should be assessed by reference to the financial position of the debtor following implementation of the restructuring pursuant to the Plan (because assessing the cost of new money by reference to the debtor’s position pre-restructuring would artificially overstate its value).
- The debtor must provide evidence (whether by an expert or through market testing) to explain why the allocation of value in the restructuring to new money providers was a fair reflection of the cost at which such new money financing could be obtained in the market.
Evidencing Fairness
The Court’s focus on what constitutes a fair allocation of a restructuring’s value and benefits means that evidencing fairness will become a key point for debtors when preparing a Plan. Evidence is likely to fall into two broad categories:
Negotiations: Providing evidence of negotiations between the debtor and various creditor classes will be crucial to demonstrate both (i) whether a dissenting creditor class proposed to be subject to cross-class cram down negotiated fairly and reasonably and (ii) setting the upper limits to the expectations of the dissenting creditor class (by reference to asks made by the dissenting creditors). To the extent that the debtor does not negotiate with certain creditor classes, this denies the Court an important basis for assessing fairness and therefore the debtor must demonstrate that doing so is reasonable in the circumstances and justify it by reference to specific facts.
For example, in the Fossil Group Plan, it was not practical to negotiate with approximately 1,500 retail holders of Fossil’s unsecured notes so negotiations were conducted through a single appointed retail advocate.
There is also an increasing push for debtors to look to alternative dispute resolution mechanisms such as mediation in order to negotiate with creditors. It is logical that dispute resolution tools like mediation will become more prominent going forward because the Court’s shift in what cross-class cram down is intended to achieve (i.e. it is a last resort to deal with unreasonable hold outs only) gives debtors and in-the-money creditors a real incentive to engage with out-of-the-money creditors where previously debtors could just rely on the approach in Virgin Active to push through a Plan with cross-class cram down without engaging with out-of-the-money creditors.
At the time of writing this article, Waldorf itself has proposed a second Plan, the terms of which are the result of a mediation process between Waldorf and certain of its creditors. Notably, HMRC did not agree to participate in negotiations (seemingly on policy grounds) and has made clear that it will oppose Waldorf’s second Plan at its sanction hearing currently scheduled for April 2026.
Expert evidence: debtors can adduce expert evidence to demonstrate that the allocation of value and benefits is fair. In a number of Plans since Thames Water and Petrofac (such as River Island and Poundland) this has taken the form of a “Plan Benefits Report” prepared by an accountancy firm which outlines (i) the estimated returns for each creditor class by reference to what they would receive in the relevant alternative, (ii) an analysis of the value that each creditor class is contributing to the restructuring and (iii) a comparison of these returns and contributions across the different creditor classes. It however remains to be seen how much weight the Court will give to reports like this going forward given that they represent little more than an indicative estimate of future value.
The Court’s focus on evidence is also clear from the fact that it has published a new practice Statement (essentially a set of procedural rules for how to run plan proceedings) that came into effect on January 1, 2026. The new practice statement requires the debtor to disclose the nature and extent of any engagement with creditors and members before a convening hearing, and to explain any differences in engagement.
Conclusion
Looking forward into 2026, it is clear that the Court’s approach to cross-class cram down in plans has fundamentally shifted and it should be seen only as a tool of last resort to deal with unreasonable hold outs. The Court’s objective with this approach is to steer debtors looking to restructure their debts through a Plan to actively negotiate with all of the creditor classes (including those that are out-of-the-money) rather than use the support of an in-the-money creditor class to unilaterally impose a deal on out-of-the-money creditor classes.
If cross-class cram down achieves this objective it can hopefully streamline plans going forward, improving certainty and reducing costs for all – but the proof of this will be in the Plan proceedings and judgments to come in 2026.
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