Fairness and Benefit Allocation in Interim Restructuring Plans under Part 26A: Kington SARL v Thames Water

Introduction

In Kington SARL & Ors v Thames Water Utilities Holdings Ltd & Anor ([2025] EWCA Civ 475) the Court of Appeal reviewed Leech J’s sanction of an interim “bridge” restructuring plan under Part 26A of the Companies Act 2006 for the Thames Water group. Thames Water Utilities Holdings Ltd (“Plan Company”), which holds all shares in the regulated operating subsidiary Thames Water Utilities Ltd (“TWUL”), was trapped between looming debt maturities totalling over £18 billion and regulatory price caps set by Ofwat. The interim plan (“Plan”) extended maturities, provided £1.5 billion of super-senior bridge finance and preserved a six-month runway to implement a longer-term equity-led recapitalisation (“RP2”). Class B creditors, Thames Water Limited (parent), and Charles Maynard MP (intervenor) challenged the Plan on grounds of unfair preference, excessive cost, public interest, and over-broad releases. On 17 March 2025 the Court of Appeal dismissed the appeal, subject to a narrow carve-out to the Plan’s release clause preserving any future claims by insolvency office-holders.

Summary of the Judgment

The Court of Appeal upheld sanction of the interim restructuring plan, with two principal tweaks:

Amend the Plan’s release provision to preserve any claims that a special administrator of TWUL or insolvency office-holder of the Plan Company might bring.
Require equality of certain information rights so that Class A and Class B creditors—along with the regulated parent—receive identical entitlements to updates and data in preparation for RP2.

Key holdings:

An interim bridge plan need not generate a quantifiable “surplus”—its benefit lies in preserving going‐concern value to enable a further restructuring.
Even “out of the money” creditors may require some horizontal fairness analysis; however, their objections carry little weight where they contribute no cash and would recover nothing in the relevant alternative (a special administration).
Conditions giving Class A creditors a veto (“June Release Condition”) over future funding drawdowns merely preserved rights under the existing security and did not render the Plan unfair.
The bridge financing cost—though high—was not excessive relative to the negative financial impact and higher likely costs of a special administration.
Wide releases of officers and advisers were justified to prevent distraction, but must carve-out any claims by future insolvency practitioners.

Analysis

4.1 Precedents Cited

Re AGPS Bondco Plc [2024] EWCA Civ 24 (“Adler”) – detailed guidance on case-management, timely disclosure of valuation material, and principles for cross-class cram-down under Part 26A.
Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch) – out-of-the-money creditors’ objections carry little weight; floating of “beneficial non-financial rights” requires justification.
Re Noble Group (No 2) Ltd [2019] 2 BCLC 548 – scheme-of-arrangement sanction stages (statutory compliance; fair representation; rationality; no blot).
Tea Corp Ltd [1904] 1 Ch 12 – origins of scheme practice allowing insolvent shell to be left behind, but preserving creditors’ rights.
Re Lehman Brothers International Europe (No 2) [2010] Bus LR 489 – well-established releases to avoid “ricochet” claims by creditors undermining a scheme or plan.
Re BAT Industries Plc (1998) – Court may, in exceptional cases, consider third-party objections (“blots”) even if objectors are not scheme members.
Re Halcrow Holdings Ltd [2011] EWHC 3662 (Ch) – “blot” can extend to broader commercial or legal defects, including impact on pension scheme beneficiaries.

4.2 Legal Reasoning

The Court’s reasoning unfolded in four interlinked strands:

Statutory Framework and Thresholds: Part 26A requires “Condition A” (financial difficulties affecting going-concern status) and “Condition B” (proposed compromise to address those difficulties), both met here. Where 75% in value of each voting class approve, the court may sanction (§901F). Where a class dissents, cross-class cram-down (§901G) requires that dissenters be no worse off than in the “relevant alternative” (a special administration).
Relevant Alternative—Special Administration of TWUL: All agreed that, absent the Plan, TWUL’s imminent liquidity shortfall on 24 March 2025 would compel Ofwat/SoS to apply for special administration. In that process, all secured debt (Class A and B) would rank equally and receive no distribution, and no interest would run.
Horizontal Fairness and Benefit Allocation: Per Adler §160, when imposing a Plan on dissenting classes the court must ask how the benefits preserved or generated by the Plan are shared among creditor groups. Although Class B creditors are out of the money, horizontal comparison remains relevant—albeit their objections carry little weight where they contribute no incremental value. The Plan’s sole tangible benefit is a bridge preserving going-concern value; both Class A and Class B lenders release equivalent maturity rights to create that benefit.
Fairness of Specific Plan Terms:
- June Release Condition: Requiring a two-thirds lock-up by Class A lenders (in addition to SSF lenders) on RP2 was no different in substance from existing STID rights to withhold waivers and put TWUL into “Standstill.”
- Information Rights: The Plan was amended so that Class A and Class B creditors (and TWL) receive matching access to data rooms, management meetings, regulatory interfaces and monthly updates.
- Cost of Super-Senior Funding: Although headline fees, discounts and backstop payments totalled c.£443 million, those costs were proportionate to securing £3 billion of liquidity and releasing £400 million of trapped cash—facilities unobtainable without creditor support—and comparable to the negative value impact and funding costs in special administration.
- Releases: Wide releases of officers, directors and advisers were necessary to prevent distraction and “ricochet” litigation. The Court required a carve-out preserving any claims by a future special administrator or insolvency office-holder.

4.3 Impact

Kington SARL v Thames Water supplies critical guidance for future interim restructuring plans under Part 26A:

Interim “bridge” plans may be sanctioned without producing an immediate quantifiable surplus; their benefit lies in preserving going-concern value pending a full restructure.
“Out of the money” creditors may lose veto rights but remain entitled to minimal horizontal fairness—courts must ask how the plan’s preserved value is shared, though objections from such classes carry little weight where they provide no incremental value.
Conditions vesting additional control rights in one class (e.g. vote thresholds on future transactions) will not render a plan unfair if they merely preserve existing security-based entitlements.
Information and engagement rights should be equally conferred on all secured creditor classes and relevant stakeholders where the plan’s success depends on collective support for a follow-on restructuring.
Courts will permit broad releases of third parties to protect implementation, but must carve-out claims by insolvency office-holders in any subsequent formal insolvency.

Complex Concepts Simplified

Part 26A Restructuring Plan: A binding court-approved arrangement enabling a struggling company to compromise debts and liabilities by class, avoiding immediate insolvency.
Relevant Alternative: The outcome most likely if the plan is not sanctioned—in this case, TWUL entering special administration and secured creditors receiving nothing on their loans.
Cross-Class Cram-Down (§901G): The power to impose a plan on a dissenting creditor class provided (i) they are no worse off than in the relevant alternative, and (ii) a 75% majority of another class (in value) approves.
No Worse Off Test: Ensures dissenters recover at least as much under the plan as they would via insolvency. Here Class B lenders keep running interest and eventual payment, whereas in a special administration they would get zero.
Horizontal Fairness: An examination of how the benefits preserved or generated by the plan are allocated across creditor classes—courts must ask whether differences in treatment are justified by value contributions or commercial necessity.
“Blot” on a Plan: A legal or factual defect external to statutory sanction thresholds—e.g. illegality, ultra vires steps, or failure of core Plan mechanisms—that would justify refusing approval.
Special Administration (Water Undertaker): A bespoke insolvency regime under the Water Industry Act 1991 ensuring continuity of regulated water/sewerage services; creditors’ claims are subordinated to consumer and resilience objectives.
Releases and “Ricochet” Claims: Creditors’ waiver of claims against directors/advisers to avoid undermining the Plan through secondary litigation; courts permit these but must preserve critical future claims by insolvency practitioners.

Conclusion

Kington SARL v Thames Water reaffirms that courts will sanction interim restructuring plans under Part 26A when they preserve going-concern value and bridge the gap to a full recapitalisation, even absent a quantifiable surplus. Dissenting creditor classes that contribute no incremental value are treated with deference but not total disregard—horizontal fairness inquiries remain essential. Conditions granting one class control over future steps are permissible if they merely conserve pre-existing security rights. Information and engagement provisions must be equitably distributed among secured creditors. High bridge financing costs can be justified against the negative financial disturbance of formal insolvency. Finally, broad releases of officers and advisers will be allowed to protect implementation, provided carve-outs safeguard any claims by future special administrators or insolvency office-holders. This decision will guide insolvency practitioners, advisers and judges in designing and approving “bridge” solutions that respect statutory thresholds, fairness principles, and the primacy of consumer and public-service continuity in regulated sectors.