Waldorf Production (UK) - Case Update

Last month, we wrote about how the High Court refused to sanction Waldorf Production UK’s Part 26A restructuring plan. While the “no worse off” test was satisfied, the Court concluded that sanction should be refused on fairness grounds. The plan offered unsecured creditors a 5% cash payment (with capped upside), but the Court found the payment arbitrary, inadequately supported by evidence, and put forward without meaningful engagement with dissenting creditors. Relying on the Court of Appeal’s recent trilogy—AGPS Bondco, Thames Water, and Petrofac—the judge held that out-of-the-money creditors cannot simply be bought off with de minimis payments if the plan fails to show a fair allocation of value across classes.

Latest development
Hildyard J has now granted Waldorf a “leapfrog” certificate under s.12 Administration of Justice Act 1969, enabling it to make an application for permission to appeal to the UK Supreme Court in respect of his decision to decline to sanction the Plan. The court accepted there is a point of law of general public importance: how fairness should be assessed at the discretionary stage when cramming down out-of-the-money creditors. The question is whether the Virgin Active approach—measuring fairness solely against the relevant alternative—is sufficient, or whether, as the Court of Appeal has emphasised, a broader inquiry into fair allocation and informed negotiation is required.

Reasoning
Although Hildyard J was clear that he remains persuaded by the trilogy and its rejection of the “bright-line” Virgin Active test, he acknowledged that the contrary view remains arguable and important enough to merit Supreme Court consideration. He was fortified in his decision by the fact that Petrofac is itself the subject of a pending Supreme Court application, raising similar issues.

Significance
If permission is granted, Waldorf—potentially alongside Petrofac—will give the Supreme Court its first opportunity to address the fairness test under Part 26A, a development that could materially reshape the treatment of out-of-the-money creditors in future plans.

Read the decision HERE.

Professionals involved:

• Daniel Bayfield KC and Charlotte Cooke of South Square (instructed by White and Case) for Waldorf

• Matthew Abraham and Annabelle Wang of South Square (instructed by Milbank) for the SteerCo

• Jon Colclough of South Square (instructed by Mayer Brown) for the Capricorn Companies

• Stefan Ramel of Guildhall Chambers (instructed by HMRC) for HMRC