HMRC Can Be “Crammed Down” Under Part 26A and the “No Worse Off” Test Focuses on the Creditor’s Rights Against the Plan Company

Introduction

Petition of Waldorf CNS (I) LTD for sanction of a compromise or arrangement under Part 26A of the Companies Act 2006 ([2026] CSOH 57, Outer House, Court of Session, Lord Lake, 5 May 2026) concerned a petition to sanction a restructuring plan under Part 26A of the Companies Act 2006. The petitioner, part of an oil and gas group operating on the UK Continental Shelf, sought court sanction for a plan compromising liabilities owed to three principal constituencies:

  • WEF Bondholders (creditors under guaranteed secured bonds issued by Waldorf Energy Finance plc);
  • Super Senior Bondholders (two super senior bond issues in July and November 2024); and
  • HM Revenue and Customs (HMRC) (Energy Profits Levy liabilities under the Energy (Oil and Gas) Profits Levy Act 2022, estimated to exceed US$85.25m).

The plan was closely connected to a wider sale transaction under a share purchase agreement with a Harbour Energy plc subsidiary (via Chrysaor Holdings Limited), conditional on (among other matters) court sanction of restructuring plans affecting group companies. The key legal issues arose because HMRC voted against the plan, requiring consideration of the statutory “cross-class cram down” in section 901G.

Summary of the Judgment

Lord Lake sanctioned the plan under section 901F, applying section 901G to override HMRC’s dissent. The court held, in substance, that:

  • Part 26A does permit HMRC to be “crammed down”; there is no categorical exclusion for tax authorities.
  • The “no worse off” test in section 901G(3) is assessed by comparing HMRC’s recovery on its rights against the plan company under the plan versus the relevant alternative (here, insolvent liquidation), not by asking whether the Exchequer’s overall receipts might reduce because tax losses transfer to a purchaser.
  • Even if wider fiscal consequences can be considered, they fall more naturally within the court’s discretionary fairness assessment, not the statutory “no worse off” gateway.
  • The statutory conditions in section 901G (Conditions A and B) were satisfied, formalities were complied with, and the plan was fair in the circumstances—particularly given it was the only available deal delivering value relative to liquidation.

Analysis

1) Statutory Framework and What the Court Had to Decide

Part 26A provides a mechanism for court-sanctioned restructuring plans binding creditors once voting thresholds are met (section 901F), with a cross-class cram down where one or more classes dissent (section 901G). Where a class rejects the plan (here, HMRC), the court may still sanction if:

  • Condition A (section 901G(3)): no member of the dissenting class is worse off than in the “relevant alternative” (section 901G(4)); and
  • Condition B (section 901G(5)): at least one in-the-money class (with a genuine economic interest in the relevant alternative) approves by the 75% in value threshold.

Beyond these gateways, sanction remains discretionary: the court assesses whether the plan is one it should approve, including questions of fairness and proper constitution of classes and process.

2) Precedents Cited and Their Influence

Re Nasmyth Group Limited [2023] EWHC 988 (Ch)

Lord Lake adopted the approach endorsed by Michael Green J (in related English proceedings) drawing on Re Nasmyth Group Limited [2023] EWHC 988 (Ch): the court should not refuse sanction “as a matter of principle” merely because HMRC is crammed down. However, because HMRC is an “involuntary creditor”, the plan should be scrutinised carefully and cramming down HMRC requires good reasons. This framing provided the Scottish court with a structured way to combine (i) jurisdictional competence to cram down HMRC with (ii) heightened practical scrutiny.

Petrofac Facilities Management Limited [2026] CSOH 29

The judgment referenced the Scottish decision in Petrofac Facilities Management Limited [2026] CSOH 29 by way of analogy: HMRC can be bound by insolvency/rescue tools (there, a CVA) even where it does not consent. This supported the broader interpretive point that nothing in the statutory landscape suggests HMRC enjoys a structural veto over court-approved restructurings.

Re Houst Limited [2022] EWHC 1941 (Ch) and Re Prezzo Investco Limited [2023] EWHC 1679 (Ch)

Lord Lake noted (again via the English court’s analysis) that sanction had previously been granted to Part 26A plans where HMRC did not vote in favour, including Re Houst Limited [2022] EWHC 1941 (Ch) and Re Prezzo Investco Limited [2023] EWHC 1679 (Ch). These authorities were used to demonstrate that HMRC cram down is not anomalous in practice and is consistent with the statute’s functioning.

Saipem SPA v Petrofac Limited [2025] EWCA Civ 821

This Court of Appeal authority did the heaviest doctrinal work on the “no worse off” test. Lord Lake accepted that the relevant comparison begins (and often ends) with the value of the creditor’s rights against the plan company:

“the starting point for application of the 'no worse off' test is a comparison between the value of the existing rights which a creditor has against the plan company in the relevant alternative, and the value of the new or modified rights given under the plan…”

“Where a plan compromises or releases only creditors' rights against the plan company, that is also the end point…”

HMRC’s argument in both jurisdictions sought to widen the Condition A inquiry to include overall Exchequer impact (because a purchaser could use transferred tax losses to reduce future tax payable). The court treated Saipem SPA v Petrofac Limited [2025] EWCA Civ 821 as foreclosing that approach where the plan compromises only the plan company debt and does not interfere with third-party rights. Lord Lake therefore confined Condition A to HMRC’s recovery on its EPL claim as a creditor of the petitioner, compared with liquidation.

[2025] EWHC 2181 (Ch) and the Related English Sanction Judgment

The background included an earlier refusal to sanction a previous scheme by Hildyard J ([2025] EWHC 2181 (Ch)). More directly relevant was the contemporaneous English sanction decision of Michael Green J (in proceedings concerning a related group company), which addressed the same HMRC objections after hearing evidence. HMRC ultimately withdrew opposition in Scotland in light of that detailed analysis, but Lord Lake still set out independent reasons, expressly adopting the English reasoning where appropriate.

3) Legal Reasoning

(a) Competence to Cram Down HMRC

The court held that debts owed to HMRC can competently be crammed down under Part 26A. The reasoning was interpretive and purposive:

  • Text and structure: Part 26A contains no exemption for HMRC; section 901G applies to “a class of creditors” without carve-out.
  • Policy (“rescue culture”): excluding HMRC would cut across the legislative aim of enabling restructurings that preserve value and avoid insolvency outcomes.
  • Comparative practice: HMRC can be bound by other statutory compromise mechanisms (e.g., CVAs), reinforcing that Parliament did not intend an HMRC veto.

(b) Condition A (“No Worse Off”) and the Meaning of “Relevant Alternative”

The parties agreed that the “relevant alternative” under section 901G(4) was an insolvent liquidation of the petitioner. The key dispute was the scope of the comparison for Condition A:

  • HMRC’s position: the court should consider the net fiscal outcome to the Exchequer, including reduced future tax from transferred losses.
  • The court’s approach: following Saipem SPA v Petrofac Limited [2025] EWCA Civ 821, Condition A compares the value of HMRC’s rights against the plan company under the plan versus liquidation. Broader fiscal consequences do not form part of the Condition A valuation exercise where the plan compromises only the company debt.

On that proper comparison, HMRC was plainly not worse off under the plan than in liquidation; thus Condition A was satisfied.

(c) Condition B (Support from an In-the-Money Class)

Condition B was met because the plan was approved by the requisite 75% in value by creditor classes (bondholder classes) who had a genuine economic interest in the relevant alternative. The Super Senior Bondholders approved unanimously; the WEF Bondholders approved by 98.3%.

(d) Discretion and Fairness (Including Wider Tax Consequences)

The court recognised that even if wider prejudice is excluded from Condition A, it can still be weighed in the sanction discretion. Lord Lake accepted the approach (highlighted in the English proceedings) that:

  • Alleged system-level tax concerns do not negate jurisdiction; if abusive tax avoidance were suspected, HMRC has other statutory tools.
  • Fairness is informed by commercial reality: the plan reflected the only available deal “hammered out” among stakeholders over time and delivered better outcomes than liquidation for affected classes.
  • Although HMRC’s position deserved significant respect, fairness did not require that HMRC receive a greater sale share or that EPL liabilities remain unextinguished, given the liquidation comparator and the deal dynamics.

4) Impact

  • Scottish authority aligning with leading English guidance: The decision confirms in the Court of Session that HMRC is not immune from Part 26A cram down and that the “no worse off” test is typically creditor-rights focused, tracking Saipem SPA v Petrofac Limited [2025] EWCA Civ 821.
  • Tax-authority objections reframed: HMRC arguments about broader fiscal impacts (e.g., tax-loss utilisation by purchasers) are more likely to be debated under the discretionary fairness stage, rather than as a Condition A blocker—unless the plan also interferes with third-party rights.
  • Practical consequence for complex restructurings tied to M&A: Plans forming conditions precedent to sales can proceed despite HMRC dissent where liquidation is the likely alternative and in-the-money classes support the plan.
  • Energy-sector relevance: The case illustrates how EPL liabilities interact with distressed capital structures and how Part 26A may facilitate transactions that would otherwise stall due to holdout risk.

Complex Concepts Simplified

  • Restructuring plan (Part 26A): a court-approved deal that changes creditor rights and binds all creditors in affected classes once sanctioned.
  • Creditor classes: groups of creditors whose rights are sufficiently similar that they can consult together; each class votes separately.
  • “Cram down” (section 901G): the court can approve the plan even if one class votes against, provided Conditions A and B are met.
  • “Relevant alternative”: what the court considers most likely if the plan is not sanctioned (here, insolvent liquidation).
  • “No worse off” test: whether the dissenting class would receive at least as much value under the plan as in the relevant alternative, assessed primarily by reference to the creditor’s rights against the plan company.

Conclusion

[2026] CSOH 57 confirms, as a matter of Scots company restructuring practice, that HMRC can be bound by a Part 26A plan via cross-class cram down. It also clarifies that Condition A is ordinarily a focused comparator exercise—plan recovery versus liquidation recovery on the creditor’s rights against the plan company— while broader consequences (including alleged Exchequer-wide impacts) may be considered, if at all, under the court’s discretion and fairness assessment. The decision strengthens the predictability of Part 26A in Scotland for multi-creditor, transaction-linked restructurings where HMRC is a material dissentient creditor.