Aspiring commercial barrister and BPC graduate Radha Shivam deep-dives into the headline grabbing case
Over the last few months, legal and non-legal headlines have been littered with news of Britain’s biggest water company, Thames Water. The company provides water and additional services to nearly a quarter of the UK population in London and South-east England. Thames Water has been on the verge of collapse and temporary nationalisation for several months, weighed down by significant debt.
But what’s the big deal? Well, it marks one of the most significant corporate restructurings in UK history. What is at stake? Only £19 billion of debt. It is a significant development in the legal world as this case brings unprecedented complexity and sets new standards for future restructurings.
Thames Water applied for a Part 26A restructuring plan (“the plan”) at a hearing in December 2024 and a sanction hearing scheduled for February 2025. It is hoping to secure £3 billion in debt funding to give it long enough to secure new equity investment worth £3.25 billion or more.
So, what’s the plan? It involves a £3 billion loan facility from the company’s secured creditors at a hefty 9.75% annual interest rate, as well as further fees to lenders. This is to avoid potential special administration and opposition from lower ranking creditors with an alternative, lower rate. Alongside the £3 billion, it also seeks access to cash reserves and debt extensions.
Thames Water’s CFO denied that the additional costs of the new loan would be borne by Thames Water’s customers, saying that any costs above those that the water regulator Ofwat allowed would be borne by its creditors or new equity investors.
This is hugely important for the company, as Thames Water has said that it will collapse by the end of March if it does not receive court backing for a deal with the holders of “class A” debt. That group includes US hedge funds, as well as British investors.
“We believe it is the only implementable solution to enable the equity investment required to provide stability and certainty in the longer term and will not impact customer bills”, Julian Gething, chief restructuring officer.
However, 84.5% of the lower-ranked “class B” creditors voted against the plan. They filed an objection and proposed an alternative restructuring plan, claiming it would provide Thames significantly more committed funding on cheaper and more flexible terms. The class B plan was filed in the name of a Cayman Islands-registered fund controlled by another company, who are specialists in investing in companies that are in financial distress.
What is a Part 26A plan?
The recent case of Re AGPS Bondco plc [2024] EWCA Civ 24, was a complex and important case regarding restructuring plans, particularly in relation to Part 26A of the Companies Act 2006.
The Court of Appeal, for the first time, considered the test that the court should apply when exercising its discretion to ‘cram down’ a dissenting class of creditor under a Part 26A restructuring plan, known as a “cross-class cramdown”, which was introduced by the Corporate Insolvency and Governance Act 2020.
On a basic level, Part 26A enables a company experiencing financial difficulty to agree a compromise or arrangement with its creditors in the form of a restructuring plan. A “cross-class cramdown” is permitted where Conditions A and B are met.
The first being that if the plan were to be sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative. The “no worse off” test, (Condition A).
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Find out moreThe second is that the compromise or arrangement has been approved at a class meeting by a class who would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative. The “relevant alternative” is whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned (Condition B).
At first instance, the judge concluded that the conditions were met and exercised his discretion to approve the plan and “cramdown” the dissenting class. The dissenting creditors appealed on eight grounds.
The appeal focused on the way in which the court should exercise its discretion when considering whether to exercise it to sanction a plan when there is a dissenting class. The court held that both a “vertical” and “horizontal” comparison should be considered, and where this includes unequal treatment of different classes, a departure from the principle of pari passu distribution must be where there is “a good reason or proper basis for that departure”. The principle of pari passu distribution is a fundamental principle of corporate insolvency law, and it is important in the exercise of a cross-class cram down power under Part 26A for the court to consider.
One of the most critical issues for a cross-class cram down is the distribution of post-restructuring value where not every stakeholder class approves the restructuring plan. At the heart of the debate lies the delicate balance of “fairness” when stakeholders must necessarily compromise, or else have compromise thrust upon them.
It is evidently a complex area of law which can have many significant ramifications depending on which way it goes, so it’s no surprise that Thames Water is stacking up quite the bill. According to the FT, the company is reportedly spending £15 million a month on lawyers and other advisers. The eventual bill for a restructuring could top £20 million, the company’s CFO has told the High Court.
The role of government, stakeholders and a potential SAR
Thames Water’s restructuring holds the potential for unique dynamics. There is a diverse group of stakeholders involved, including government officials from Defra and others, regulatory bodies, and environmental groups representing 16 million bill payers. The current Plan also takes an unusual approach by splitting the restructuring into two distinct phases, which could lead to one of three outcomes, but one of which could see the implementation of a special administration regime (SAR), which although was designed specifically for water companies, has never been implemented before.
A SAR is a modified insolvency procedure that gives an administrator special objectives. SARs often exist where the industry provides a statutory or public service or supply function, such as water or energy, and the continuity of the critical service is important to the stability of the economy. This process would allow services to keep running while the debt is frozen ahead of a restructuring and sale of the business, or a full nationalisation.
Loan approval and next steps
As of February 2025, in a dramatic turn of events, the company was given a lifeline after a £3 billion loan was approved by the High Court. The loan gives Thames Water time to sort out its finances and could ward off nationalisation. It will now receive an initial tranche of £1.5bn to fund it until September 2025. That is being provided by class A creditors who hold around £11 billion in debt racked up by Thames Water.
The funding will be released on a monthly, or interim basis as needed, subject to Thames Water satisfying loan requirements including that it has taken on new shareholder investment. Potential funders had submitted bids to invest in Thames Water and the company said it is now conducting a detailed assessment of each bid.
Loan terms dictate it must be repaid first in the event of administration and existing creditors have their repayment dates set back two years. The timeline for accessing loan funds depends on the impact of a potential appeal process by class B creditors, who hold around £750,000 of subordinate debt. They had objected to the loan as they face being wiped out completely in a restructuring. The company said it is considering when to draw down the money.
What’s next for Thames Water?
The government has been on standby to put Thames Water into special administration, whilst some campaigners have called for nationalisation — though the government currently opposes this.
Thames Water wants a full restructuring, taking in new shareholder investment and swapping debt for a portion of the company for existing creditors. It is seeking higher bills to pay for its future investments and continued existence. It is asking for bills to rise 53% from this year to 2030, challenging Ofwat’s allowed 35% increase.
Is there an alternative to nationalisation? Companies like the UK’s biggest energy supplier Octopus Energy have expressed interest in its technology arm, managing Thames’s business functions, alongside Infrastructure CK Infrastructure Holding and water provider Castle Water, also understood to have submitted proposals to invest in Thames Water.
What does this mean going forward?
This historic restructuring demonstrates the evolution of corporate financial management, particularly in relation to regulated utilities. The outcome will influence how English law approaches troubled utility restructurings, whilst balancing financial stability with public interest considerations, in ways which have never been seen before.
It will be interesting to see how things unfold as time progresses, especially with new updates coming out almost every day at the time of writing, alongside awaiting the outcome of appeal. No doubt this restructuring will be referenced in future cases and will be a point of discussion in the legal landscape when it comes to high-stakes corporate restructurings.
Radha Shivam is an aspiring commercial barrister, currently an unregistered barrister and mentor. She is a University of Law LLB and BPC graduate.
The Legal Cheek Journal is sponsored by LPC Law.
