On 1 July 2025 the Court of Appeal set aside the sanction of Petrofac’s twin restructuring plans. This is the third time that a restructuring plan has been heard by the Court of Appeal, after Adler in 2024 and Thames Water in 2025. It is the second time (including Adler) that an appeal has been successful.
The judgment contains guidance on the importance of establishing a fair allocation of value generated by a restructuring. Does this mean an increase in complexity and cost of future restructuring plans, or will the market adapt so companies can continue to benefit from the flexibility that a restructuring plan can offer?
* At the time of writing, Petrofac has applied to the Supreme Court for leave to appeal the reversal of its plan
In May 2025 the High Court sanctioned twin restructuring plans for Petrofac Limited and Petrofac International (UAE) LLC, despite dissenting creditors, led by Saipem and Samsung. Petrofac, a UK-based energy equipment and services company, proposed the restructuring plans to equitise nearly USD 772 million of secured bond debt and provide USD 350 million in new money – predominately from an ad hoc group of bondholders.
The dissenting creditors were granted permission to appeal this decision on two grounds:
The Court of Appeal dismissed the appeal on this first ground, clarifying that there is a distinction between a creditor’s ‘rights’ and their broader interests.
The court allowed this appeal, finding that the plans allocated over two-thirds of the value preserved or generated by the restructuring to the providers of new money, leading to returns of over 200% on their investment. Crucially, the plan companies didn’t provide evidence – either by market testing or expert evidence – that the returns generated by the restructuring fairly reflected the cost at which funding could have been obtained in the market.
Previously, the opposition of out-of-the-money creditors were deemed to ‘carry no weight’ – a position that had been set out in the Virgin Active judgment (2021). This is now emphatically no longer the case. The Court of Appeal noted that even if creditors were due to receive nothing in the relevant alternative, they were still contributing to the restructuring by giving up claims. They therefore deserve to receive some value in return.
Assessing the entitlement of out-of-the-money creditors to ensure a fair allocation of value is now a key issue that must be addressed in any future restructuring plans:
In reality, a market testing exercise can be costly, take up management time and be a disruptive process – and there will be concerns about confidentiality or leaks. Lenders who are approached may not be willing to be used for such purposes, and existing lenders may have concerns about being primed by new debt or losing control of the situation if new creditors receive a portion of the equity. However, parties may need to build time into processes to allow for, at least, some market testing.
The use of expert evidence as to the market price of any debt or equity, and the distribution of the benefits generated by a restructuring plan is likely to be an integral to the success of future restructuring plans.
It will also be interesting to see how parties continue to use valuation evidence. It will remain critical. The decision in Petrofac may see a shift from focusing on the current value of the company or group to the post re-organisation value in order to help assess the now crucial question of the allocation of the benefits.
The company or an expert will still need to set out the outcome to creditors in the relevant alternative, as compared to the plan, to ensure the ‘no worse off’ test is satisfied. The valuation methodology used for this purpose will depend on the scenario identified as the relevant alternative.
The addition of post re-organisation valuation evidence may not add considerably to costs. In our experience, it’s common for a valuation to be performed on the company or group already – adapting that to reflect the post-restructuring position needn’t be too complicated. Both valuations are likely to use the same cash flows and forecasts as their starting points. The difference is likely to be more around the enterprise value to equity value bridge. This will need to account for the post-restructuring capital structure, pricing of the future debt and working capital assumptions.
As has been demonstrated now in a number of cases, the experts producing evidence need to be prepared to be cross-examined and challenged on their expert opinions.
We prepared this expert evidence – a ‘plan benefits report’ – for a restructuring plan proposed by IBMG, a building merchants’ supplier. This was the first restructuring plan to be heard after the Petrofac Court of Appeal judgment and is the first time such a report has been used in restructuring plan proceedings. The plan was sanctioned by the High Court in July 2025.
In light of the Petrofac judgment, Andy Charters, a restructuring partner, sought to show that the benefits from IBMG’s proposed restructuring were being fairly shared among secured and unsecured creditors. In this case, the plan benefits report showed that unsecured creditors were due to receive 14.4% of the plan benefits compared with only contributing 4.1% in value to the plan.
Submissions to court noted that this type of report is “likely to become common place in the future (in light of the increased focus on the need for a fair distribution of the benefit of the restructuring following [Thames Water] and [Petrofac]”.
A restructuring plan isn’t a cheap process. And advisers continue to look at how costs can be controlled and reduced, especially in the mid-market. Market expectations are thatt the cost and complexity of restructuring plans may increase – due the growing number of contested restructuring plans, together with a new onus on the plan company to provide evidence to court. – However, as mentioned, the additional valuation evidence doesn’t necessarily need to add considerable extra cost.
Market participants have questioned whether the use of pre-pack administrations will increase as they can potentially achieve the same outcome with less time and expense. Pre-packs are an effective tool and continue to be used, especially in the mid-market. At the larger end of the market, there has been a slight shift away from them since the restructuring plan was introduced in 2020. Parties may re-consider that approach in light of Petrofac, but we think the restructuring plan remains an powerful option and that pre-packs are not always the answer.
For example, in the case of IBMG, the result achieved by its restructuring plans could have been achieved via a pre-pack. However, the complex structure involved meant the company saved an estimated GBP 12.8 million via the plans compared to undertaking a prepack administration.
The restructuring plan remains a useful and relevant tool not only due to the cross-class cram down provision. The ability to retain the corporate shell is valuable, meaning change of control clauses may not be triggered, and enabling the continuity of contracts or regulatory permissions, etc. This isn’t the case in a pre-pack administration.
Restructuring plans have been popular for international groups. While those groups might be able to use a pre-pack, a share pledge enforcement or other overseas restructuring tools – for example, Chapter 11 in the US, WHOA in the Netherlands or StaRUG in Germany – we think the restructuring plan will remain attractive.
As a consequence of the Petrofac Court of Appeal judgment, as well as other contested restructuring plans, we expect to see a greater focus on creditor negotiations taking place before a plan goes before the court. Courts will want to see evidence that such engagement has taken place.
While the relevant alternative report will always be essential to establish compliance with the ‘no worse off’ test, there may be a shift in emphasis for experts to provide evidence as to the value of a company on the day after the restructuring, once current debts have been released or amended.
Recent restructuring plans in the market – River Island, Poundland and Madagascar Oil were all sanctioned in August 2025 – illustrate the willingness of the court to sanction plans (and use the cross-class cram down provision) post-Petrofac. Notably however, the court declined to sanction a restructuring plan proposed by Waldorf Production UK, holding that the plan company had failed to establish that the plan was fair to its out-of-the-money creditors.
Ultimately, we’ve had 150 years of case law for the scheme of arrangement, 40 years for the pre-pack administration, but only five years of case law for the restructuring plan. There may be a brief hiatus in the use of restructuring plans as the market digests the implications of Petrofac’s Court of Appeal judgment. This was also the case after Adler’s restructuring plan was overturned in 2024.
But the restructuring plan is here to stay and remains a powerful tool in the right circumstances.
We’re experienced advisers in restructuring plans, having been involved in 64% of the restructuring plans in the market so far in 2025. For further insight and guidance, contact Kevin Coates.
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