Making a splash in UK restructuring plans

Thames Water's restructuring plan was not a "landlord and tenant" plan of the type many commercial property owners will be only too familiar with — it did not seek to terminate leases or compromise rental liabilities. The case will, however, be of great interest to property owners dealing with restructuring plans in future.

Cramming down dissent

Any restructuring plan should be approved by at least 75% by value of each class of creditor affected by the plan and entitled to vote. If not, the company can invoke the "cross-class cram down" under section 901G of the 2006 Act, asking the court to sanction the plan regardless.

Two conditions must be met for this. First, none of the dissenting class can be worse off under the plan than in the "relevant alternative", which is whatever is most likely to occur if the plan is not sanctioned (usually administration or liquidation). Second, the plan must be approved by at least one class of "in the money" creditors who would receive a payment in the relevant alternative.

It has become common for property owners to be crammed down in this way, but the practice remains controversial. The lack of any real need for property owners' support is seen by some as a discouragement for companies to engage or negotiate before launching a plan.

Restructuring surplus

Even where the conditions are met, the court retains a discretion whether to sanction a plan. The factors laid down by the Court of Appeal in Re AGPS Bondco Plc [2024] EWCA Civ 24 include that there should be a "horizontal comparison" to examine whether the differential treatment of creditors is justified. It is not sufficient to rely solely on the fact that a dissenting creditor would be worse off in the relevant alternative: the so-called "vertical comparator".

Of particular importance is the question whether the "restructuring surplus", meaning the benefits or value preserved or generated by the plan, has been fairly allocated between different creditors and whether a different allocation would be possible.

Since Re Virgin Active Holdings Ltd 12021] EWHC 1246 (Ch), the position has been that the views of dissenting out of the money creditors who would not receive a payment in the relevant alternative carry little or no weight. The result has been the absence of any upside mechanism for property owners in plans, such as the profit share funds that were once common in company voluntary arrangements.

The logic is that out of the money creditors who, under section 901C of the 2006 Act, did not need to be given a vote in the first place could hardly complain if they were crammed down.

The court in Thames Water did not agree it followed that out of the money creditors were never entitled to any share of the restructuring surplus. Where they are required to give up existing rights in order to turn around the tenant's business, then that should be taken into account in the fair distribution of the benefits.

For property owners, who are usually out of the money, it can appear that the company's salvation is funded by substantial rent cuts, but the shareholders and secured creditors, who are barely impacted by the plan, get all the benefit. Thames Water provides a basis for negotiating a better rate of return for property owners than what they usually get: a marginal improvement on liquidation.

How the courts will apply the decision to property owner creditors remains to be seen but hopefully the most immediate effect will be an improved level of engagement by tenant companies.

A warning shot

The Court of Appeal criticised Thames Water for not having made the application earlier, forcing the court to deal with proceedings in a highly compressed fashion. The group's financial problems were real but "they hardly came as a surprise".

This may resonate with property owners who see restructuring plans go from launch to sanction in a matter of weeks before they have time to analyse and consider them properly. If so, they would be interested to note that the Chancellor of the High Court has recently issued a consultation on the Practice Statement for schemes of arrangement and restructuring plans, which closed on 13 June 2025. We shall look out for and monitor the outcome.

The draft replacement Practice Statement being consulted on contains much that will appeal to property owners, including proposals that companies engage with creditors and provide them with enough information, and in sufficient time, to be able to decide whether a plan is in their interests.

An earlier version of this article appeared in Estates Gazette on 9 June 2025. 

Authored by Mathew Ditchburn.