Kington SARL & Ors v Thames Water Utilities Holdings Ltd & Anor

Factual and Procedural Background

This is an appeal against the decision of Judge Leech dated 18 February 2025, approving a restructuring plan ("the Plan") under Part 26A of the Companies Act 2006 in respect of Company A (the "Plan Company"). The Plan Company is a subsidiary of Company B and holds no material assets itself but is the holding company for the Group, whose principal operating company is Company C, a licensed water and sewerage undertaker. The Group has significant infrastructure assets and employs approximately 8,000 people.

The Group faces serious financial difficulties caused by operational and regulatory factors, including a high debt burden and regulatory price constraints imposed by the regulator. The Plan Company’s debt is governed by multiple loan agreements, with debt divided into liquidity facilities, hedging agreements, Class A Debt, Class B Debt, and Subordinated Debt, each with different maturities and priorities.

The Plan aims to provide an interim restructuring platform ("bridge") to enable a further restructuring plan based on an equity raise ("RP2") within approximately six months. It extends maturity dates on all Class A, Class B, and Subordinated Debt and provides for new Super Senior Funding ("SSF") with priority over existing debt except certain hedging liabilities. The appeal challenges aspects of the Plan including the cost and control rights associated with the SSF, fairness of the Plan’s terms, and the scope of releases granted to directors and advisers.

The appeal arises from the court’s sanction of the Plan, with appellants including an ad hoc group of Class B creditors, Company B, and an intervener representing public interest concerns. The Court of Appeal dismissed the appeal subject to an amendment to the Plan concerning releases.

Legal Issues Presented

1. Whether the court was correct to sanction the Plan under Part 26A of the Companies Act 2006, including the exercise of discretion to impose the Plan on dissenting creditors.
2. Whether the Plan’s terms, including the Class A Control Terms and the cost and priority of the Super Senior Funding, were fair and justified.
3. The proper approach to the treatment of creditors who are "out of the money" in the relevant alternative, particularly in assessing fairness and the allocation of benefits under the Plan.
4. Whether the wide releases granted to directors and advisers under the Plan were necessary and appropriate.
5. Whether public interest considerations, including the cost of the Plan compared to a special administration, should influence the sanction decision.

Arguments of the Parties

Appellants' Arguments

• The Class B ad hoc group argued that the Plan was unfair because the Class A Creditors obtained beneficial non-financial rights (the Class A Control Terms) not afforded to Class B Creditors, including a veto right over future restructuring funding (the June Release Condition) and enhanced information rights, which distorted the distribution of benefits.
• They contended that the Plan improperly extended maturity dates on all debt rather than only that maturing within the interim period, and that the releases granted were unnecessary and unfair given the Plan’s interim nature.
• Company B argued that the judge failed to properly consider horizontal fairness and the cost implications of the Plan, including the likelihood that better financing terms could have been obtained.
• The intervener argued the court should prioritize the public interest and customers’ interests over private creditor interests, contending the Plan imposed excessive costs compared to a special administration and that the releases deprived the company of valuable claims against directors and advisers.

Respondents' Arguments

• The Plan Company and Class A Creditors submitted that the Plan was an interim measure that did not generate a restructuring surplus but preserved value by avoiding immediate insolvency and buying time for RP2.
• They argued the Class A Control Terms did not confer materially different rights than those already held and were justified by the existing security and control arrangements.
• They maintained that the Class B Creditors were out of the money in the relevant alternative (special administration), so their objections carried little weight in assessing fairness.
• The Plan Company contended that the releases were necessary to prevent "ricochet" claims that would undermine the Plan and that the directors and advisers required protection to implement the restructuring.
• They argued that the costs of the Plan were justified and likely comparable to or less than the costs and negative consequences of a special administration, and that the regulatory authorities did not oppose the Plan.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re AGPS Bondco Plc [2024] EWCA Civ 24 ("Adler")	Guidance on restructuring plans, cross-class cram-down power, fairness assessment including horizontal and vertical comparisons, and treatment of out of the money creditors.	Formed the foundation of the court’s approach to sanctioning the Plan, including the assessment of fairness, discretion, and the no worse off test.
Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch)	Out of the money creditors’ objections carry little weight in sanctioning schemes; limits on court’s interference with commercial decisions.	Supported the view that out of the money creditors have limited ability to challenge a restructuring plan, but the court rejected a rigid rule excluding any consideration of their position.
Re Noble Group (No.2) Ltd [2019] 2 BCLC 548	Stages for court consideration in sanctioning schemes: statutory compliance, fair representation, fairness of scheme, and absence of blots.	Used to structure the court’s analysis of whether the Plan complied with legal requirements and was fair.
Re Matalan [2019] EWHC 2282 (Ch)	Justification for releases of claims against directors and advisers in restructuring plans.	Supported the judge’s conclusion that releases of directors and officers may be necessary to give effect to the Plan.
Re Lehman Brothers International Europe (No.2) [2010] Bus LR 489	Releases to prevent ricochet claims against directors and advisers are permissible if necessary to give effect to restructuring arrangements.	Justified the inclusion of releases in the Plan for third parties involved in its preparation and implementation.
Re Cine-UK Ltd [2024] EWHC 2475 (Ch)	Consideration of creditor views and fairness where creditors are out of the money.	Followed in supporting the approach to limited weight to out of the money creditors’ objections.
Re Project Lietzenburger Strasse Holdco SARL [2024] EWHC 468 (Ch)	Similar principles on creditor treatment and fairness in restructuring plans.	Applied in assessing the Plan’s fairness and creditor rights.
Re Halcrow Holdings Ltd [2011] EWHC 3662 (Ch)	Consideration of third party interests and blots in sanctioning schemes.	Supported the view that blots may include impacts on third parties and that the court may consider such interests.
Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385	Concept of a "blot" on a scheme as a technical or legal defect.	Provided historical basis for assessing whether defects warrant refusal to sanction.
Re MB Group plc (1989) 5 BCC 684	Refusal to sanction where scheme breaches rights of certain warrant holders.	Illustrated circumstances where a blot may exist justifying refusal to sanction.

Court's Reasoning and Analysis

The court began by affirming the statutory framework under Part 26A of the Companies Act 2006, which permits sanction of restructuring plans if threshold conditions are met and the court is satisfied the plan is fair and complies with statutory requirements. The relevant alternative was agreed to be a special administration of the principal operating company and administration of the Plan Company and its finance subsidiary.

The court accepted the Plan Company's valuation evidence over that of the appellants, concluding that the Class B Creditors were out of the money in the relevant alternative and would receive no payment in a special administration, whereas under the Plan they would continue to receive interest payments. This supported the no worse off test under s.901G.

The court carefully considered the Class A Control Terms, including the June Release Condition (JRC) which requires a lock-up agreement by two-thirds of Class A Creditors and SSF lenders for funding advances after 30 June 2025. The court found the JRC did not confer materially different rights than those already held by Class A Creditors under existing finance documents, which already gave them significant control over restructuring proposals. The court rejected allegations of unfair value diversion or conspiracy.

Regarding enhanced information rights, the court accepted the Plan Company's evidence that it intended to communicate fairly and equally with all Plan Creditors, and required amendments to the Plan to ensure equal information rights for Class A and Class B Creditors and equivalent rights for Company B.

On fairness, the court acknowledged that the Plan was an interim measure without a quantifiable restructuring surplus but provided a valuable benefit by preserving the company as a going concern to enable RP2. The court rejected the appellants’ arguments that the out of the money status of Class B Creditors excluded consideration of fairness issues, holding that the court must consider the allocation of benefits among all affected creditors, though less weight may be given to out of the money creditors’ views.

The court rejected challenges to the cost and terms of the SSF, concluding that although the costs were high, they were justified by the urgent need to provide liquidity and were likely comparable to or less than the costs and negative consequences of a special administration. The court noted that better market terms were not demonstrated and that the regulatory cap on charges meant customers would not bear the finance costs, which would ultimately be borne by creditors.

On public interest, the court held that the decision whether a special administration would better serve the public interest is for the regulatory authorities, not the court, which must focus on fairness between creditors under the statutory framework.

Regarding the releases granted under clause 16.1, the court accepted established authority that releases of directors and advisers are permissible where necessary to give effect to the Plan and to prevent ricochet claims that could undermine restructuring. However, the court distinguished releases by creditors from those by the Plan Company or its subsidiaries against their own directors and advisers. The court concluded that releasing claims by the Plan Company and Company C against their own officers and advisers was not necessary to implement the Plan and could deprive future insolvency office-holders of valuable claims. Consequently, the court required an amendment to carve out such claims from the releases.

Holding and Implications

The court DISMISSED the appeal, thereby affirming the sanction of the restructuring Plan subject to a modification concerning the release provisions.

The court ordered that the Plan be amended to include an express carve-out from the releases for any claims that might be brought by a special administrator of Company C or an insolvency office-holder of the Plan Company, preserving potential future claims against directors and advisers in the event RP2 fails.

This decision upholds the use of Part 26A restructuring plans as interim measures to avoid insolvency, confirms the court’s approach to assessing fairness including the treatment of out of the money creditors, and clarifies the limits on releases of claims by the company itself against its officers and advisers. The court emphasized the role of regulatory authorities in protecting the public interest and declined to substitute its judgment on public policy matters for theirs. No new precedent was established beyond these clarifications, and the decision primarily affects the parties by allowing the Plan to proceed with the specified amendment.