UK Court of Appeal overturns Petrofac's restructuring plans due to unfair new money terms

The UK Court of Appeal has overturned the High Court's sanction of Petrofac's restructuring plans which compromised the international oil and gas services company's US$4 billion in debts. This is the third restructuring plan to come before the Court of Appeal (see our alerts on the other two, Adler and Thames Water).

Grounds of appeal

Saipem and Samsung, two major creditors, appealed the High Court's approval of the Petrofac plans on two grounds: 

• "No Worse Off" condition: they would be "worse off" under the plans when considering indirect benefits they would gain from Petrofac's liquidation, such as reduced competition in the market. 
• Fairness and discretion: the restructuring benefits were not fairly shared between creditors. The new investors would receive over two-thirds of the restructured company's equity, representing a 211% return on their investment.

Decision

The Court of Appeal rejected the first ground of appeal, confirming that the "no worse off" test focuses on creditors' rights rather than broader economic consequences. 

The Court allowed the second ground, that the restructuring benefits generated by the plan were not fairly shared between creditors. The Court criticised Petrofac for failing to provide expert evidence on market rates for funding a restructured company and for not properly testing the market. It found that the original judge had focused on the wrong question - assessing pre-restructuring risks rather than what funding would cost for the debt-free restructured company.

Key takeaways

This landmark judgment is the first to consider the fair share of post-restructuring benefits between creditors (including those who are "out of the money" in the relevant alternative) and establishes that:

• Companies must justify terms offered to new investors by demonstrating they reflect genuine market costs. 
• Courts will scrutinise whether "new money" providers are receiving disproportionate returns compared to the value they contribute to the restructuring. 
• Companies cannot simply rely on pre-restructuring financial distress to justify generous terms to new investors. 

This ruling will likely require greater market testing and expert evidence in future restructuring cases, adding to the costs of a process which is prohibitively expensive for all but the largest companies.

We await to see whether permission is sought to appeal this judgment to the Supreme Court.

Find out more 

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.

Saipem and others -v- Petrofac[2025] EWCA Civ 821