The High Court has sanctioned Waldorf Production UK Plc’s second attempt at a Part 26A restructuring plan, in the face of heavy opposition by HMRC.  The decision is significant: this was the first Part 26A restructuring plan to consider whether as a matter of jurisdiction, the Court can override HMRC’s dissent to a plan given its status and duties as a public body. It also considered the fairness of the plan in light of potential wider losses to the Exchequer if the plan was sanctioned. 

In rejecting all of HMRC’s arguments in opposition to the plan, Mr. Justice Michael Green in his judgment confirms that HMRC will not be accorded special status as an unsecured creditor because of its status as a public body.  As with all plan creditors, the key issues for the Court when determining whether to exercise its cross-class cram down power in respect of HMRC will be determining, on a case-by-case basis, whether the jurisdictional requirements for cross-class cram down are met, and that the plan is fair for all plan creditors.

The plan, sanctioned on 5 May 2025, compromises bondholder claims, HMRC’s Energy Profit Levy liabilities (“EPL Liabilities”) claims,  and unsecured claims owed to Capricorn Energy plc (“Capricorn”) under a settlement agreement relating to amounts owing under the sale and purchase agreement for the share capital of Capricorn North Sea Limited.   HMRC and Capricorn will each receive payment in cash of 14% of the value of their claims in return.  The plan, supported by all plan creditors other than HMRC, clears the way for the sale of the Waldorf Group to the Harbour Energy Group (“Harbour”).  Harbour made its offer to acquire the Waldorf Group following the Court’s refusal to sanction Waldorf’s first restructuring plan proposal.

At the heart of HMRC’s opposition was the extent to which the extensive tax losses within the Waldorf Group (the “Tax Losses”), an asset which Harbour wished to acquire and use to shield its profits from tax, should be taken into account for the purposes of satisfying the “no worse off” test in s.901(G)(3) CA 2006 and its impact on the exercise of the Court’s discretion.  

HMRC argued that it was unfair and an abuse that Harbour, which in its view could pay the EPL Liabilities, should be able to acquire the Tax Losses which could potentially reduce Harbour’s future tax liabilities by around USD900m, whilst insisting that the EPL Liabilities be extinguished for a 14% return. HMRC argued that, this being a “rescue case” and HMRC therefore having a continuing relationship with the Waldorf Group and Harbour, it had contributed to the restructuring by preserving, and continued to be on the hook for, the Tax Losses: the EPL Liabilities should resultantly be paid in full over time under a Contingent Payment Proposal.

Key Takeaways from the Judgment

1. There is no jurisdictional bar to the Court exercising its cross-class cram down power against HMRC, even where HMRC has rationally decided to oppose a plan.  It could not have been the legislative intent behind the introduction of Part 26A to give HMRC an effective veto against restructuring plans, and such an approach was inconsistent with the rescue culture.

2. The Tax Losses and the wider effect on the Exchequer were not relevant to the no worse off test in s.901(G)(3) CA 2006, which requires a comparison to be made between what the creditor would receive under the plan and what it would receive in the relevant alternative.  Following the Court of Appeal in Petrofac, the test is confined to the creditor’s existing rights as a creditor that are being compromised by the plan, including associated rights such as in relation to enforcement of any security or third party guarantee also being compromised by the plan. Wider rights, interests or liabilities that are not being compromised by the plan are outside the scope of the test.  In this case, only the EPL Liabilities were the rights being compromised under the plan and to be considered under s.901(G)(3).

3. Whether HMRC was in fact worse off under the plan because of Harbour’s acquisition and utilisation of the Tax Losses was, however, relevant to whether the plan was fair and whether the Court should exercise its discretion to sanction.  In this case, based on the factual and expert evidence, the Exchequer was found to be no worse off under the plan than under the relevant alternative. 

4. The plan was not an abuse of process by Harbour to avoid paying tax, and, as HMRC has the tools to challenge Harbour’s use of the Tax Losses by other means, the sanction hearing was not an appropriate forum to raise such issues.  HMRC was sufficiently protected by the jurisdictional requirements of Part 26A including the cross-class cram down power and the requirement for the plan company to persuade the Court that the plan is fair in all the circumstances.

5. In considering the fairness of the plan, the Judge found it would have been unrealistic and unfair not to consider the impact of the use of the Tax Losses on HMRC and the Exchequer, and the Tax Losses should be considered a benefit preserved or generated by the restructuring.  However, even taking this into account, HMRC remained better off under the plan and therefore wasn’t entitled to either a greater share of the distributions under the plan or for the EPL Liabilities to be kept whole.

6. Even if HMRC/the Exchequer had been found to be worse off under the plan by the utilisation of the Tax Losses, it would still have been a difficult question as to how that should be reflected in the plan as there was no real correlation between the compromised EPL Liabilities and the net loss suffered by the Exchequer. 

7. HMRC’s status and its views on the fairness of the plan should be afforded the greatest of respect and weight, but its views and beliefs must be subject to scrutiny and tested to see if they are well founded.  In determining fairness, the Judge was required to look at the position in the round taking into account how the plan company and its creditors were affected by the plan and whether there had been a fair allocation of the benefits of the restructuring. 

8. The plan was fair and had come about because of the best and only deal available to the Waldorf Group to realise value for creditors, and provided for the distribution of consideration from Harbour pursuant to the heavily negotiated agreement between the plan company and its commercial creditors.   There was no logical reason for HMRC to be treated differently to the other unsecured creditor.

HMRC has applied for permission to appeal.

Please get in touch with your usual Weil contact if you wish to discuss any aspect of the decision.