English Court refuses to sanction Waldorf Production's restructuring plan

Quick read

The High Court has refused to exercise its discretion to cram down dissenting unsecured creditors and approve Waldorf Production UK Plc's (Waldorf) restructuring plan finding it unfair to unsecured creditors.

Background

Waldorf, an oil and gas enterprise, faced serious financial difficulties partly due to paying an enormous dividend in October 2022. The parties to the plan were secured bondholders and unsecured creditors, Capricorn Energy and HMRC (UK tax authority). The company proposed giving unsecured creditors only 5% of what they were owed, while bondholders would just extend the maturity of the bonds for two years.

Decision

The court held that the company failed to prove the restructuring plan was fair and appropriate. The judge considered the trilogy of Court of Appeal restructuring plan judgments (see our alerts on Adler, Thames Water and Petrofac) on how the courts should use their power to cram down dissenting creditors. The court noted these cases reject the approach in Re Virgin Active that the views of "out of the money" can be disregarded.

The judge found the company had not attempted proper negotiations and had wrongly assumed it could offer minimal payments to unsecured creditors rather than what they might fairly and reasonably have negotiated.

Key takeaways

"Out of the money" creditors cannot be ignored and given only tiny payments.
There is no "precondition of negotiation" but it will be more difficult to prove the restructuring plan is fair where negotiations have not taken place.
The judge encouraged further negotiations between all parties to reach an agreed solution, suggesting a revised plan could proceed quickly with court support.
The company has requested permission to make a 'leapfrog' application to appeal this decision directly to the UK Supreme Court.