Waldorf Production (UK) - Case Update

The High Court has refused to sanction a Part 26A restructuring plan for Waldorf Production (UK), relying on the Court of Appeal’s recent decision in Petrofac to conclude that the current iteration of the plan was not fair to a dissenting class of unsecured creditors which voted against the plan.

Waldorf Production (UK), an oil and gas producer on the UK Continental Shelf, and various related entities encountered financial difficulties in 2024, resulting in various members of the group entering administration and Waldorf working towards developing a restructuring plan. The plan aimed to let Waldorf trade while pursuing a solvent sale. The key terms of the plan included:

• a 5% cash payment to unsecured creditors (with a contingent upside sharing, capped at the principal of their claims); and

• an amendment to the bond terms to extend their maturity to 31 May 2027, add a sale‑protocol covenant, and impose mandatory early redemptions (sweeps) of cash above specified allowances.

Two creditors’ meetings were held, one of the bondholders and the other of unsecured plan creditors, including in particular Capricorn Energy Plc and Capricorn Energy UK Limited (collectively referred to as “Capricorn”) and HMRC. Capricorn and HMRC each voted against the plan and opposed its sanction. Waldorf asked the Court to sanction the plan and cram down the dissenting unsecured class.

The Court accepted that the relevant alternative was a formal insolvency and that the no-worse off test was satisfied. However, the Court exercised its discretion to refuse sanction due to the ruling in Petrofac, which the Court characterised as “unequivocally mark[ing] the demise of the theory propounded in Virgin Active…that the views of “out of the money creditors can in effect be ignored”, or that they “can fairly be given a minimal form of consideration (such as a small cash payment) in return for the discharge of their claims”.

The Court agreed with HMRC and Capricorn that the plan was conceived on the false assumption of the application of the de minimis test in Virgin Active. Directly contrary to the guidance given in Petrofac, a sufficient attempt had not bee made to consider the fair allocation to all stakeholders, including HMRC and Capricorn, of the benefits expected to be generated by the restructuring. In particular, sufficient consideration had not been given to what a fair allocation of the benefit should be where the contribution to be made by the dissenting unsecured plan creditors (if the purposes of the plan are achieved) is to enable a solvent sale of the company which could not otherwise be achieved.

The result was that the 5% figure had been put forward on a false premise and by reference to a flawed comparison. Further, the failure to engage or negotiate with the dissenting unsecured plan creditors denied the Court an important basis for assessing the fairness of that figure. This elevated the burden on Waldorf, making even more difficult any argument that 5% was no less than what might reasonably be agreed in a fair negotiation.

The Court also regarded Waldorf’s deliberate decision not to pay its 2023 Energy Profits Levy, to trade on without even exploring a Time to Pay with HMRC while preparing a cram‑down plan, as “the antithesis of the fair dealing” expected when seeking the Court’s assistance to impose on a dissenting creditor.

Accordingly, while expressing hope that negotiations or further evidence on affordability might yield a revised, fairer proposal, the Court refused to sanction the plan.

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