UK Court of Appeal rejects Petrofac's restructuring plans, deeming new financial terms as unjustifiably favorable
The UK Court of Appeal's recent decision in the case of Saipem and others -v- Petrofac[2025] EWCA Civ 821 has significant implications for future restructuring cases in the UK. The ruling, which overturned Petrofac's restructuring plans that compromised its $4 billion in debts, introduces a more rigorous fairness test in UK restructurings.
## Key Takeaways
The Court of Appeal's decision introduces a more stringent focus on fairness in restructuring plans. Courts will now closely scrutinize how benefits are allocated among different creditor classes, ensuring that restructuring plans are fair to all parties involved.
One of the key concerns raised was the allocation of benefits in Petrofac's case. The court found that new money providers received a disproportionate share of equity, while compromised creditors received less despite contributing significantly to the value uplift. This marks a shift from a system where senior creditors could dominate restructuring plans to one where all creditors are treated more equitably.
## Implications for Future Restructuring Cases
The decision sets new standards for fairness and evidence in restructuring cases. Companies will need to provide robust evidence to support their restructuring plans and ensure that all creditor classes are treated fairly.
The ruling fundamentally recalibrates how UK restructuring law operates. It emphasizes the importance of fairness and equitable treatment of creditors, which will influence future restructuring cases and potentially lead to more balanced outcomes.
The increased focus on fairness may encourage companies to approach restructuring with a more nuanced understanding of creditor rights and the need for equitable distribution of benefits. This could lead to more collaborative and balanced restructuring processes.
The ruling requires companies to justify terms for new investors by demonstrating they reflect genuine market costs. This may add to the costs of a restructuring process, making it even more expensive. However, the potential benefits of fairer restructuring outcomes could outweigh these costs.
## Background
The restructuring plans were appealed by major creditors Saipem and Samsung on two grounds. The first ground of appeal was the "No Worse Off" condition, arguing that they would be worse off under the plans due to indirect benefits from Petrofac's liquidation. The Court of Appeal rejected this ground of appeal, focusing on the "no worse off" test and creditors' rights.
The second ground of appeal was fairness and discretion, stating that the restructuring benefits were not fairly shared between creditors. The Court allowed this ground, finding that the restructuring benefits were not fairly shared and criticizing Petrofac for lack of expert evidence and improper market testing.
This article discusses issues related to Restructuring and Insolvency. Readers can contact the Restructuring and Insolvency team for more detailed information. As of now, there is no mention of any immediate appeal being sought to the Supreme Court.
In light of the UK Court of Appeal's decision on Saipem and others -v- Petrofac [2025] EWCA Civ 821, the energy, finance, and business industries should be aware of the stringent focus on fairness in future restructuring cases. Companies will need to provide robust evidence to demonstrate fair distribution of benefits among different creditor classes, as courts will closely scrutinize this allocation to ensure fairness in restructurings. This shift could lead to more collaborative restructuring processes, albeit potentially at a higher cost due to the need to justify terms for new investors.
