Appeals in Restructuring Plans: The Return of the General Costs Rule

Commentary on Kington SARL & Ors v Thames Water Utilities Holdings Ltd & Anor ([2025] EWCA Civ 1003)

1. Introduction

Thames Water Utilities Holdings Ltd (“the Plan Company”) obtained court sanction of a Part 26A Companies Act 2006 restructuring plan designed to stabilise the heavily indebted water-utility group. Three objecting creditors – Kington SARL (“Kington”), TWL and Mr Maynard – appealed Leech J’s sanction order, attacking both the legal approach to “out of the money” creditors and factual valuation findings. On 15 April 2025 the Court of Appeal (Lewison, Asplin and Newey LJJ) dismissed the substantive appeal, granting only a limited variation to release provisions. The present judgment, dated 29 July 2025, deals exclusively with costs. Given total legal spend of roughly £5 million on a three-day appeal, the decision establishes an important precedent: at the appellate stage of restructuring-plan litigation the ordinary “costs follow the event” principle under CPR 44.2 applies; objecting creditors enjoy no special shield from adverse costs merely because the subject-matter is a scheme or plan. The court nonetheless exercised its discretion to award only 60 % of the Plan Company’s costs, payable severally by Kington and TWL.

2. Summary of the Judgment

• The Plan Company was the successful party: the appeal against sanction failed.
• Although first-instance courts often decline to award costs against bona fide objectors to schemes or plans, that approach does not carry over to appeals.
• Applying the general rule, the Court awarded the Plan Company 60 % of its reasonable costs to reflect (i) no order sought against Mr Maynard, (ii) partial loss on release provisions, and (iii) appellants’ victory on certain legal issues.
• Costs were made several, not joint, liabilities: each of Kington and TWL must pay 30 % of the Plan Company’s costs.
• The court ordered a 35 % payment on account (≈ £475,500), split equally (£237,750 each).
• Obiter, the Court stressed that excessive hourly rates and overlapping professional effort face significant scrutiny on detailed assessment.

3. Analysis

3.1 Precedents Cited

The Court’s reasoning drew on a line of authorities addressing both schemes/plan costs and general costs practice:

• Re Virgin Active Holdings Ltd [2021] EWHC 911 (Ch) – Snowden J’s six-point summary of first-instance costs approach in schemes. Cited as the high-water mark of objector-friendly practice.
• Royal & Sun Alliance v British Engine [2006] EWHC 2947 (Ch) – emphasised that objector participation aids the court’s scrutiny.
• Kazakhstan Kagazy plc v Zhunu [2015] EWHC 404 (Comm) – Leggatt J on “objective” reasonableness and proportionality when awarding costs.
• Samsung Electronics v LG Display [2022] EWCA Civ 466 – requirement of “clear and compelling justification” for hourly rates above guideline levels.
• Athena Capital Fund v Secretariat of State for the Holy See [2022] EWCA Civ 1061 – reasonableness of counsel’s fees.
• CPR 44.2 – statutory footing for the general costs rule and discretion factors.

While Virgin Active demonstrates generosity to objectors at first instance, the Court of Appeal held that its rationale (assisting the court’s scrutiny before sanction) evaporates once sanction is granted. By contrast, the CPR authorities formed a bedrock for re-asserting the ordinary approach on appeal.

3.2 The Court’s Legal Reasoning

1. Different Objectives at Different Stages
   Before sanction, the plan company needs the court’s affirmative exercise of discretion. Opposition can illuminate weaknesses. Post-sanction, the company needs nothing further; the appellants are seeking to unpick a concluded order. Hence adversarial balance reverts to ordinary litigation posture.
2. Discouraging Unmeritorious Appeals
   A blanket indemnity for objectors would risk encouraging speculative appeals, undermining finality and imposing unjust expense on the company and supportive creditors.
3. Exercise of Discretion
   The court accepted the Plan Company’s proposed 20 % deduction (Maynard/release points) and added a further 20 % reduction for appellants’ success on legal principles, landing at 60 % recovery.
4. Several Liability
   Equity dictated that each appellant pay only the costs their presence generated; joint and several liability would unfairly saddle one with the other’s expenditure.
5. Payment on Account
   Applying proportionality dicta in Kazakhstan Kagazy, the Court trimmed the requested payment from 40 % to 35 % because: (a) headline rates exceeded guidelines; (b) overlap of work between eight professionals; (c) issues largely legal and recently aired below.

3.3 Impact on Future Cases

• Costs Risk Elevated for Objecting Creditors – Prospective appellants in restructuring contexts must weigh materially higher downside exposure, potentially reducing frivolous or tactical challenges.
• Uniformity with General Civil Appeals – The decision harmonises scheme/plan appeals with mainstream cost jurisprudence, simplifying predictions for litigants and advisers.
• Fee Discipline – Emphasis on guideline rates and proportionality, plus a reduced interim payment, signals tighter scrutiny of megafirm billing in insolvency mandates.
• Guidance for Future Restructurings – Although the appellants “won” the legal debate on out-of-the-money creditors and restructuring surplus, that victory is tempered by an adverse costs order, underscoring that success on abstract points without practical consequence may carry a price tag.

4. Complex Concepts Simplified

• Restructuring Plan (Part 26A)
  A court-approved compromise allowing a company to bind dissenting creditors, including through “cross-class cram-down” (overriding entire classes if conditions met).
• Scheme of Arrangement (Part 26)
  Pre-existing mechanism for consensual restructuring but lacks cram-down power.
• Out-of-the-Money Creditor
  A creditor who, on valuation of the company in the relevant alternative (e.g., insolvency), would recover nothing; their economic stake is zero.
• Restructuring Surplus
  The additional value created by the restructuring above the relevant alternative. Debate centred on how (or whether) to share that surplus with junior stakeholders.
• CPR 44.2 General Rule
  The default position in English litigation that the unsuccessful party pays the successful party’s costs, subject to the court’s discretion.
• Payment on Account
  An interim sum paid toward the eventual costs award, designed to compensate the winner before detailed assessment.
• Several vs Joint & Several Liability
  “Several” means each debtor is liable only for its allocated share; “joint & several” means each can be forced to pay the whole. The Court opted for the former.

5. Conclusion

Kington SARL & Ors v Thames Water Utilities Holdings Ltd reshapes the costs landscape for restructuring-plan appeals. By re-instating the orthodox CPR 44.2 regime, the Court of Appeal rejected the notion of a costs haven for dissenting creditors beyond first instance. Future appellants must proceed with genuine prospects – and realistic budgets – or risk substantial cost exposure. At the same time, the judgment preserves judicial flexibility: discounts recognised partial success and educative value of legal arguments. Ultimately, the decision balances the utility of robust challenge with the need to curb spiralling litigation costs, signalling a maturing jurisprudence for England’s most powerful corporate-restructuring tool.