HMRC, Tax Losses and the Limits of Dissent: What the Waldorf Judgment Means for Restructuring Plans

Waldorf Production UK Plc is a North Sea oil and gas producer with accumulated unpaid Energy Profits Levy (“EPL”) liabilities of approximately US$94 million across financial years 2022 to 2024. This was the company’s second restructuring plan within twelve months: the first was refused sanction by Hildyard J in August 2025, principally for failure to engage meaningfully with out-of-the-money unsecured creditors.

The second plan facilitated a US$205 million sale of most of the Group to Harbour Energy plc, a FTSE-250 oil and gas company. Harbour’s interest was substantially driven by the Group’s accumulated ring-fence tax losses of approximately US$4.5 billion, publicly valued by Harbour at around US$900 million of future tax shielding. Extinguishment of the EPL liabilities was a non-negotiable condition of Harbour’s offer. HMRC voted against the plan; the remaining three creditor classes approved it unanimously, requiring the court to exercise the cross-class cram down power under section 901G of the Companies Act 2006.

On the same day, the Scottish court approved a parallel inter-conditional restructuring plan for Waldorf CNS (I) Limited, a Scottish group company, with a reasoned judgment to follow.

Plan creditor outcomes, at a glance:

Seven issues the judgment resolves

1. No jurisdictional bar to cramming down HMRC

For the first time, HMRC argued in absolute terms that its constitutional mandate to collect taxes meant the court could not override its rational dissent. Green J rejected this firmly, stating Parliament did not carve HMRC out of Part 26A, and an effective veto would be inconsistent with the rescue culture underpinning the legislation. The court will give HMRC’s views considerable weight and scrutinise plans affecting HMRC with care but that does not translate into a jurisdictional bar.

2. The “no worse off” test is confined to rights compromised by the plan

HMRC argued the Condition A test in section 901G(3) required the court to assess overall net Exchequer returns, including future tax revenues foregone through Harbour’s use of the Group’s tax losses. Green J, following the Court of Appeal in Petrofac, rejected this. The test is confined to the financial value of existing rights being compromised by the plan; tax losses are a product of the tax code, not rights being compromised. Broader fiscal consequences fall to discretion, not jurisdiction.

3. Tax losses are nonetheless relevant to the court’s discretion

Green J accepted that the tax losses were intimately bound up with the restructuring. The consideration from Harbour could only have been achieved because the plan preserved the Group’s ability to trade and deliver those losses. They constituted “benefits preserved or generated by the restructuring” and were relevant to fairness. However, the expert evidence showed, and HMRC’s own witnesses accepted in cross-examination, that 100% utilisation of both the existing ring-fence losses and future decommissioning losses was not simultaneously achievable. On virtually every realistic scenario, the Exchequer was no worse off, and likely better off, under the plan than in the relevant alternative.

On the fairness question more broadly, Green J found it significant that the M&A creditor, Capricorn Energy which had opposed the first restructuring plan alongside HMRC, supported this plan following the mediation and accepted the same 14p in the pound as HMRC. There was no logical reason to treat HMRC differently to another unsecured creditor that had agreed to the plan after genuine engagement. The M&A Creditor’s support, having previously opposed the first restructuring plan, was treated by the court as a meaningful indicator that the allocation of restructuring benefits was fair.

4. Genuine engagement is now a two-way obligation - and the court is watching  

The first restructuring plan failed for want of engagement with unsecured creditors. The plan company responded by organising a two-day mediation (the first in any restructuring plan) and offering a true-up mechanism on the EPL quantum.

HMRC declined to attend the mediation, citing internal decision-making constraints and resource concerns. Green J found those reasons unpersuasive and noted pointedly that it was “inappropriate” for HMRC to complain about a lack of engagement when it had itself refused to participate in the structured process designed to address that very issue.

The obligation of genuine engagement, confirmed as essential by Petrofac, now plainly runs in both directions. A creditor that declines structured engagement and then argues it was not properly consulted will find that position significantly weakened at the sanction hearing. There is also a real cost and management time dimension: creditors need to resource engagement earlier than has sometimes been the case.

5. No abuse of process - and the “floodgates” concern was dismissed

HMRC argued the plan was an abuse of process because Harbour, which could afford to pay the EPL liabilities, was using Part 26A to extinguish them.  A case of “won’t pay” rather than “can’t pay”. Green J rejected this. The only credible deal available was Harbour’s, and it was not surprising that Harbour required a clean balance sheet. Simply seeking to cram down a tax liability cannot of itself constitute an abuse. That would render any plan compromising a tax liability an abuse, by definition. HMRC retains other routes to challenge the use of tax losses, including under Part 14 CTA10 and the GAAR. The related “floodgates” warning, that this judgment would open the door to routine extinguishment of tax liabilities to sweeten M&A deals, was similarly dismissed.  Every future plan must still satisfy the statutory jurisdictional conditions and demonstrate fairness to the court’s satisfaction. That bar remains high.

6. The court will not rewrite a negotiated plan at the sanction hearing

HMRC asked the court to sanction the plan on condition that the EPL liabilities not be extinguished, effectively imposing its own “contingent payment proposal” as a modification. Green J firmly declined: once a plan has been agreed by the other creditor classes, the court will not impose a fundamentally different commercial arrangement as the price of sanction. The time to negotiate is before the plan is locked up, not at the hearing.

7. The terminal versus rescue distinction remains unresolved  

HMRC argued the fairness analysis should be more demanding for a rescue plan (where the company continues to trade) than a terminal distributing plan. Green J was sympathetic. The Court of Appeal noted in Thames Water that guidance from distributing plans “may not read across directly” to rescue or interim plans. The point did not affect the outcome here because the factual evidence resolved the tax losses question against HMRC, but it was not dismissed. In future rescue plans where HMRC holds material liabilities and the company continues to trade, the fairness bar may be higher, and the allocation of restructuring benefits will need to reflect HMRC’s ongoing relationship with the restructured entity.

What this means for restructuring plans

The judgment advances the law in several respects. The key implications for practitioners are as follows:

• Watch for an appeal: HMRC may seek permission to appeal direct to the Supreme Court on the constitutional jurisdiction point. If granted, the position could shift materially.
• The no worse off test remains narrow: Following Petrofac and Waldorf, attempts to broaden section 901G(3) to capture wider economic consequences will face a high hurdle.
• Tax losses as deal driver require expert analysis: Where an acquirer’s interest is materially driven by acquired tax losses, plan companies should anticipate the point being raised on discretion. Credible, independent evidence on realistic utilisation rates, accounting for ring-fence mechanics, Part 14 CTA10, anti-avoidance rules and the relevant alternative will be essential.
• Mediation is now expected - and non-participation carries real risk: Lenders, institutional creditors and other sophisticated parties should treat participation in structured engagement as non-optional if they wish to preserve their strongest grounds of opposition.
• Antecedent conduct remains relevant: The court’s criticism of the October 2022 dividend is a reminder that the circumstances giving rise to financial difficulties will always be part of the fairness assessment.
• Extinguishing a tax liability is not of itself an abuse: Green J’s rejection of the “won’t pay” abuse argument and the floodgates concern confirms that Part 26A can legitimately be used to compromise tax liabilities, provided the plan satisfies the jurisdictional conditions and is fair. HMRC retains its own tools: Part 14 CTA10, TAARs, the GAAR to challenge the use of acquired tax losses separately.
• Negotiate before lockup, not at the hearing: Green J’s refusal to modify the plan confirms the sanction hearing is not a second bite at the negotiating cherry.

HMRC’s evolving posture: Waldorf in context

The Waldorf confrontation sits against a more nuanced recent backdrop. In Re Enzen Global Limited [2025] EWHC 852 (Ch) and Re OutsideClinic Limited [2025] EWHC 875 (Ch), both sanctioned in March 2025, HMRC not only voted in favour of the plans but appeared in court to actively support them - the first time it had done so.

In Enzen, HMRC was owed approximately £5.3 million and £4.3 million by the two plan companies respectively as secondary preferential debt. After negotiation it agreed to accept £350,000 per company (up from an initially proposed £250,000), representing around 4-6p in the pound against nil in the relevant alternative. The judge expressly welcomed its “increased engagement”. In OutsideClinic, HMRC secured an improved 15p in the pound after initially objecting to a 5p dividend, attending the sanction hearing to confirm its support.

These cases signalled a genuine policy shift, with HMRC moving from reflexive opposition towards pragmatic engagement. That approach to engage early, negotiate on quantum, support if the outcome is fair is exactly what Waldorf demanded and exactly what HMRC declined to do.

The lesson is that HMRC’s behaviour is not monolithic. Where plan companies engage genuinely and reflect HMRC’s involuntary creditor status in the distribution, HMRC will deal. Where it perceives the plan as extinguishing a tax liability for the benefit of a well-resourced acquirer at a marginal return to HMRC, it will fight hard, and as Waldorf shows, deploy increasingly sophisticated legal arguments. The negotiated path remains available in most cases, but only with early engagement, credible analysis and a genuine willingness to share the restructuring benefits fairly.

Our view

This is a carefully reasoned judgment that advances the law while remaining close to the principles established in the Court of Appeal trilogy. The handling of the tax losses point, accepting the argument in principle on discretion, but resolving it against HMRC on the evidence, shows the flexibility and rigour the court brings to these cases. Part 26A remains a powerful restructuring tool, but it demands careful preparation, expert evidence and genuine engagement from all sides. Get those right, and the court will follow the commercial logic of the deal.