Waldorf: second time’s the charm?

This case concerned a second restructuring plan (RP2) proposed by a company where the court had refused sanction for the first plan (RP1). The first plan was opposed by two unsecured creditors, a company called Capricorn and HMRC for certain non-preferential energy profit levy (EPL) liabilities. 

Applying the decisions of the Court of Appeal RP trilogy of Adler, Thames Water and Petrofac, at the sanction hearing for RP1 the judge refused to sanction the plan.

The main difference between RP1 and RP2 was that RP1 was concerned with preparing the plan company and the wider group for a potential future sale of the group, whereas for RP2 there was a buyer for the group (Harbour, buying the shares from the TopCo shareholders, being companies in administration) and the plan was about the distribution of the proceeds of sale. 

It was a condition of the share sale agreement that RP2 be sanctioned and RP2 entailed the plan company’s liabilities to Capricorn and HMRC being compromised, both for 14p in the pound. It was also a condition of the SPA that certain other liabilities of other group companies be compromised. [Importantly it would appear the sale proceeds were being distributed among group creditors of companies below the entities selling the shares - this would not appear to be a case therefore where the entities selling the group were being paid any of the consideration for the sale, ie, it was not one in which creditors were being compelled to take a haircut while the shareholder companies (now acting by their administrators) retained any of their equity.]

Prior to the launching of RP2 a period of extensive negotiations took place with the group creditors. That involved a two-day mediation to which all the target group creditors were invited but which HMRC declined to attend.

RP2 was supported by Capricorn and the plan company’s other creditors but was opposed by HMRC.

The question at the heart of HMRC’s opposition was the extent to which the tax losses within the group, which were an asset that Harbour wished to acquire and use to shield its profits from tax, should be taken into account for the purpose of satisfying the jurisdictional hurdle that HMRC was "no worse off" than in the relevant alternative and also its impact on the exercise of the court's discretion. HMRC submitted that it was unfair that Harbour should be able to acquire those valuable tax losses, while insisting that the plan company's debt to HMRC was extinguished for 14p in the pound.

HMRC’s first argument was that its status and constitutional mandate to recover the payment of taxes, where it had rationally resolved to vote against a plan, meant the court was unable to impose a cross-class cram down on it. The judge held here that there was no jurisdictional bar to the court exercising its cross-class cram down power against HMRC. If it were otherwise, HMRC would have an effective veto against restructuring plans and that could not possibly have been the legislative intent. 

As regards the no worse off jurisdictional hurdle, the judge held that it was clear that if one was simply looking at the EPL liabilities HMRC would be no worse off under the plan than in the relevant alternative. HMRC's argument was dependent on the comparison not being limited to the EPL liabilities, but rather the overall net recoveries to the Exchequer from the availability of the group's tax losses to Harbour.

The judge held that the position was relatively clear and was confirmed by the Court of Appeal in Petrofac. As this was a jurisdictional condition, the test was confined to the creditor's existing rights as a creditor that were being compromised by the plan, including associated rights such as in relation to enforcement of any security or of any third-party guarantee. Any wider rights, that were not being compromised by the plan were outside the scope of the no worse off condition.

In any event it was not a reasonable assumption in the circumstances to make that Harbour would be able to utilise 100% all tax losses of the group. In that event, the agreed figures showed that the Exchequer would not be worse off under the plan even after taking into account Harbour’s use of the tax losses. This point was also relevant to the issue of discretion. 

As regards the issue of the fairness of the plan, which went to the issue of the court’s discretion, the judge stated that HMRC’s position seemed to be that it should be treated differently to the other unsecured creditor because this was a "rescue" case where there would be an ongoing relationship with the group and Harbour, and where HMRC had contributed to the restructuring by preserving the tax losses.

As regards this issue the judge stated that:

• The administrators and the other commercial stakeholders including Capricorn all believed that Harbour's offer was the best price available in the market for the group.
• He was sympathetic to HMRC's broad argument that the availability of valuable tax losses was something that could be taken into account in considering the fairness of the plan and that he was not attracted to the plan company’s argument that the tax losses, being an asset of the plan company and the other companies in the group being sold, were irrelevant to discretion but that to a certain extent that issue fell away given that it would appear that HMRC and the Exchequer were not worse off under the plan even after taking into account Harbour’s potential use of such losses.

Accordingly, the judge sanctioned the plan.

In re Waldorf Production UK Plc [2026] EWHC 1014 (Ch)

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