On 1 July 2025 the Court of Appeal of England and Wales set aside the sanction of the Petrofac restructuring plan, allowing an appeal by Saipem and Samsung E&A against the High Court's decision to impose the plans on them through cross-class cram down. The judgment, Saipem SpA and others v Petrofac Ltd and another [2025] EWCA Civ 821, was given by Lord Justice Snowden, Lord Justice Zacaroli and Sir Christopher Floyd.
Petrofac Limited and Petrofac International (UAE) LLC proposed two linked plans under Part 26A of the Companies Act 2006 to write off their existing liabilities. According to the court's press summary, secured liabilities stood at about US$909 million and unsecured claims could reach about US$3 billion, including disputed joint venture liabilities of up to about US$1.67 billion linked to a project in Thailand. Marcus Smith J sanctioned the plans on 20 May 2025 although the class containing the appellants voted against them.
What the court decided
The court rejected the first ground of appeal, on the "no worse off" test. It held that the test compares the value of a creditor's existing rights in the relevant alternative with the value of the rights offered under the plan, so commercial advantages a competitor might gain from the plan companies going into liquidation fall outside that comparison.
The appeal succeeded on the second ground. Following its recent decisions in Adler and Thames Water, the court said the cram down power should only be used where a plan fairly allocates the benefits preserved or generated by the restructuring. Where new money is provided on terms more expensive than the open market would offer, the excess is itself a benefit of the restructuring, and the plan company must show that its allocation is fair. About US$1 billion of post-restructuring equity was to go to the providers of US$350 million of new money, and the press summary notes that participating secured creditors were likely to see a return of more than 266% on day one. No expert evidence on the market price of new money had been adduced.
What it means for restructuring plans
The judgment confirms that creditors who would be "out of the money" in a liquidation cannot, for that reason alone, be confined to a de minimis share of the benefits of a plan. Companies relying on cram down will need evidence that new money terms and fees have been tested against the market, and that allocations were reassessed once independent valuations were available. The court declined to exercise the sanction discretion afresh because it did not have the evidence to do so, so the plans as sanctioned cannot take effect.
