When Waldorf Production UK Plc returned to court with its second restructuring plan in a year, the primary opposition it faced was from HMRC who voted against the plan. Mr Justice Green ultimately sanctioned the plan, cramming down the liabilities owed to HMRC but the judgment provides some helpful insight into the position taken by HMRC and is helpful more generally in framing the approach and considerations for other plan proponents when dealing with HMRC as a creditor.
Why Was a Restructuring Plan Proposed?
Waldorf’s liquidity issues were largely driven by Energy Profits Levy (EPL) liabilities which exceeded £69 million. Following Waldorf’s failed restructuring plan in 2025, this second plan, and the success of it, relied on an offer by Harbour Energy to buy most of the group for US$205 million. However, the offer to buy was premised on the the EPL liabilities being compromised.
Waldorf represented that if the plan was not approved a formal insolvency was likely (the Relevant Alternative) in which unsecured creditors—including HMRC—would receive around 0.1% of their claims. Under the plan, HMRC would however receive 14% of its claim.
HMRC voted against the plan, but with other creditors supporting it, the Court had to consider at the sanction hearing, whether to exercise its discretionary power to cram down the plan on HMRC in the face of its opposition. Why did HMRC oppose the plan?
HMRC’s grounds of objections
HMRC’s objections largely revolved around three themes:
“You can’t cram us down”
HMRC argued that because it is a public body with a constitutional duty to collect tax, the court should not override its vote where it had made a rational decision not to vote in favour. The court rejected this outright: Parliament did not intend to give HMRC a veto over restructuring plans. It did not help HMRC’s case that previously where it had faced cram down, such as in the case of Prezzo, that it had not taken this point.
But that does not mean HMRC’s voice goes unheard entirely and can be ignored.
It is clear from the Waldorf judgment, and other cases before it (namely Great Annual Savings) that the views of HMRC should be given “considerable weight” and that there when deciding whether to exercise its discretion to cram down, the court must be satisfied that there is “good reason” to do so. Although that does not translate to a right of veto preventing cram down when HMRC has made a rational decision to vote against the plan, HMRC’s view still goes to the question of fairness and will be considered by the court before exercising the cram down power.
“We’re worse off overall because Harbour will use the tax losses”
This was HMRC’s main argument and brought into consideration the findings in Petrofac about what the court will take into account when considering whether the opposing creditor is “no worse off” – the test that the court has to consider when deciding whether to cram down the plan.
As a consequence of the proposed plan, Harbour would acquire significant and valuable tax losses, which it could then offset against its future tax liabilities, whilst at the same time insisting the EFL Liabilities were written off. HMRC said this meant the Exchequer would be worse off under the Waldorf plan and that the tax losses should be taken into account when assessing whether HMRC was “worse off” under the plan – not simply by reference to the EFL Liabilities. The “no worse off” test should include the wider fiscal impact of those losses being used.
The court disagreed. Following Petrofac, the wider rights, interests and liabilities are outside the scope of considerations when determining whether the opposing creditor is “worse off”.
As such, the tax losses, which were an asset of Waldorf and not something being compromised by the plan, were not taken into account when considering whether HMRC were worse off under the plan.
But again, HMRC’s position and the overall impact on HMRC’s position is not something that can be entirely ignored – the treatment of HMRC is something that goes to the court’s wider discretion on fairness. In Waldorf the court determined that the plan was fair notwithstanding that Harbour would gain a significant advantage by being able to utilise the losses if (as it was) the plan was sanctioned.
“This is an abuse—Harbour can afford to pay the tax”
HMRC also sought to argue that the plan was being used to wipe out EPL liabilities while Harbour was in a position to pay tax liabilities and walked away with a tax windfall. The court disagreed. Harbour had made an offer to purchase, and it was understandable that the terms of that required the EFL Liabilities to be written off. There were also other routes HMRC could pursue to challenge the position if it considered there was abuse.
Concluding Thoughts
We have seen HMRC take different stances in relation to previous restructuring plans. Voting against plans, voting for them. In some cases, succeeding with opposition but in others not, with the court cramming the down the liabilities owed to HMRC.
The approach HMRC has taken will, to a degree, be driven by the specifics of a particular plan although its guidance does help in managing the approach and expectations of the parties. However, Waldorf highlights that HMRC may still oppose a plan to protect its role as collector of tax and it cannot be assumed that it will readily agree to compromise its claim.
There is no doubt that HMRC is a key creditor, and it’s view is taken into account by the court when deciding whether to sanction a plan, potentially having a louder voice than other creditors but as Waldorf demonstrates there are some parameters to that. No doubt we can expect HMRC to continue to test the parameters of what is “fair” in a restructuring plan when it comes to dealing with tax debt.
Postscript
HMRC sought permission to appeal the judgment, largely on the basis of fairness, how the judge had applied the no worse off test, and arguing that the judge should have taken into account the use of future tax losses as a benefit generated by the plan.
Mr Justice Green was not convinced and refused HMRC permission to appeal.
The santion judgment therefore stands as a helpful example of how a restruturing plan could deal with tax debts, and the factors that a plan company will need to take into consideration when seeking to compromise HMRC debt.
