When Part 26A of the Companies Act 2006 was introduced by the Corporate Insolvency and Governance Act 2020, it gave English courts the power to bind dissenting creditor classes to a corporate valuation and restructuring process without their consent. That change moved financial restructuring valuations from a background advisory exercise to the central battleground of every contested plan. For CFOs, turnaround directors, PE sponsors, and lender advisory teams, understanding why the numbers are now front-line legal issues is a practical commercial requirement.
Summary
- The Relevant Alternative: Foundation of Every Valuation Dispute
- Why Valuations Matter More Than Ever
- Valuation Methodologies in a Restructuring Context
- Aligning Financial Data with the Plan Entity
- How Courts Scrutinise Valuation Evidence
- When Plans Fail
- What Dissenting Creditors Should Know
- Key Takeaways for Practitioners
The Relevant Alternative: Foundation of Every Valuation Dispute
The relevant alternative is defined by section 901G(4) of the Companies Act 2006 as whatever the court considers most likely to occur if the restructuring plan is not sanctioned. In most cases, it is either administration or liquidation, but depending on the company's circumstances, it can also be a distressed disposal, a solvent wind-down, or continued trading. The court identifies the most likely alternative, not the most favourable outcome for either party.
Getting it wrong is one of the most reliable ways to lose a plan. In Re Hurricane Energy plc [2021] EWHC 1750 (Ch), the court refused a sanction partly because the company's analysis excluded the realistic possibility of continued profitable trading. The court reached its own independent conclusion, differing materially from the company's presented position. That judicial willingness to look behind the numbers has been confirmed in Re GAS (Great Annual Savings Company) [2023] EWHC 1894 (Ch) and Re Amigo Loans Ltd [2021] EWHC 1501 (Ch). A relevant alternative constructed to make the plan look better than it is will not survive judicial scrutiny.
Why Valuations Matter More Than Ever
Valuation is load-bearing at every stage of a Part 26A plan. Which creditors have a genuine economic interest in the relevant alternative, and therefore which classes vote, is a valuation question decided at the convening stage. Whether Condition A of section 901G is met, and how the restructuring surplus is allocated between classes, turns on valuation at sanction.
Post-Re AGPS Bondco plc [2024] EWCA Civ 24, the fairness analysis acquired a further dimension. The Court of Appeal's "horizontal comparator" test requires the court to examine whether the restructuring surplus is fairly allocated between classes relative to their rankings among themselves, rather than simply asking whether each class does better than in the relevant alternative. Where creditors rank equally in the relevant alternative, and the plan treats them differently, a clear justification is required.
Re Adler also sent a direct message to the deal teams. The Court of Appeal held that sequential payments from a potentially inadequate fund are not equivalent to rateable distribution, and that a 4.6% differential in expected recovery between creditor classes was insufficient justification for departing from pari passu treatment. Commercial terms agreed between creditor groups in bilateral negotiation must now be tested against the horizontal comparator framework before a plan is filed. A structure that seemed acceptable across the negotiating table may not survive court scrutiny.
Valuation Methodologies in a Restructuring Context
The courts do not prescribe a methodology. Comparable trading multiples, discounted cash flow analysis, market testing, and net asset valuations have all appeared in Part 26A proceedings. The choice depends on the nature of the business, the proposed relevant alternative, and the purpose the valuation serves. Restructuring financial advisers routinely use more than one approach, treating the different outputs as a cross-check rather than a single answer.
The courts are alert to the limitations of forward-looking restructuring valuations. In Re GAS [2023] EWHC 1894 (Ch), the court criticised the company's use of a single-point recovery estimate rather than a range with stated assumptions and sensitivity analysis. A single figure implies a precision that distressed business financials rarely support, and it invites the inference that the number was constructed to produce a favourable result. Presenting a range is both more credible and more defensible under challenge. The restructuring financing decisions that flow from a plan depend on those assumptions being honestly stated; an overstated plan value or an understated relevant alternative recovery distorts the distribution analysis in ways the court will probe.
Aligning Financial Data with the Plan Entity
An underappreciated difficulty in restructuring finance is the disconnect between where borrowing sits in a group structure and where financial data is available. Debt typically sits at a holding or intermediate entity. Financial data is generated at the operating business level. Mapping one to the other requires a reasonable allocation exercise, but it is genuinely vulnerable to challenge.
In complex group structures with shared services, intercompany licences, and layered holding entities, this problem can be acute. A plan proposed at the holding company level must present valuation evidence that convincingly maps the operating business's financials to the plan entity. Where that mapping is imprecise or contested, it gives dissenting creditors a material line of attack.
Valuation experts should be engaged before the plan structure is finalised. Advisers brought in after the legal entity perimeter has been drawn sometimes find that the available financial data does not map well to the proposed plan entity. Correcting that mismatch mid-process creates delay and cost. The choice of which entities to include in a plan is partly a valuation question.
How Courts Scrutinise Valuation Evidence
In Re Chaptre Finance plc [2024] EWHC 2908 (Ch), Mr Justice Miles confirmed that all expert evidence in Part 26A proceedings must comply fully with CPR Part 35. The report must identify its author, state their qualifications, and include an explicit declaration of the expert's overriding duty to the court. A report falling short of those standards may be given limited or no weight. In a cramdown case, that finding can be fatal to the plan.
The courts have shown a willingness to disagree with the company's presented analysis. In both Re Hurricane Energy [2021] and Re GAS [2023], the court formed its own view on the relevant alternative without a competing expert report from the dissenting parties. Inadequate or one-sided evidence does not simply go unchallenged: the court fills the gap with its own assessment.
Cross-examination of experts must be available in contested proceedings. In Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch) and Re Amigo Loans Ltd [2021] EWHC 1501 (Ch), the courts noted the expectation that dissenting parties file CPR-compliant expert evidence if they wish to mount a substantive valuation challenge. Written submissions alone are not sufficient.
When Plans Fail
The refused and challenged plans are as instructive as the sanctioned ones. Each of the four cases below failed for a different reason, and the reasons are not obscure: they are mistakes that well-resourced plan teams made in full view of the court.
Relevant Alternative Defined Too Narrowly
Re Hurricane Energy plc [2021] EWHC 1750 (Ch): the relevant alternative excluded the realistic possibility of continued profitable trading, giving shareholders a genuine prospect of better outcomes than the plan offered. A relevant alternative constructed to make the plan look more attractive than it was will not survive the court's independent assessment.
Valuation Evidence That Failed the Standard
Re GAS [2023] EWHC 1894 (Ch): the plan company failed to demonstrate that HMRC would be no worse off in administration because the expert evidence was inadequate. The court reached its own conclusions independently, confirming that judicial scrutiny is not conditional on the dissenting party filing a competing report.
Unfair Distribution of the Restructuring Surplus
Re AGPS Bondco plc [2024] EWCA Civ 24: sanction set aside because earlier-maturing noteholders received a materially better expected outcome than the 2029 noteholders in the dissenting class, despite ranking equally in the relevant alternative. The plan passed the vertical test but failed the horizontal one.
New Money Returns Without Adequate Evidential Justification
Re Petrofac Limited [2025] EWCA Civ 821: over two-thirds of the restructuring value was allocated to new money providers at returns exceeding 200%, without evidence that those terms reflected genuine market pricing. New money arrangements are not beyond scrutiny, and the burden of demonstrating their fairness sits with the plan company.
What Dissenting Creditors Should Know
Most Part 26A commentary is written from the plan company's perspective. Creditors on the receiving end of a proposed cramdown rarely receive a guide.
Engaging early to negotiate a better allocation of the restructuring surplus is often more effective than opposing at the sanction hearing. By the time a plan reaches court, the company has usually developed evidence-led valuation materials. A creditor arriving at a sanction hearing with written submissions but no expert report is unlikely to prevail against a well-prepared plan team.
If opposition is the chosen course, independent expert analysis should address three questions: is the relevant alternative correctly identified, or has it been defined to favour the plan; is the chosen valuation methodology appropriate to the circumstances; and does the surplus distribution respect pari passu or depart from it without justification? The disclosure documents should also be examined for internal consistency. Discrepancies between the business plan and the relevant alternative report can indicate that one or both documents was prepared to support a predetermined conclusion rather than to inform the court.
Key Takeaways for Practitioners
- Engage valuation experts before the plan structure is finalised. Class composition, entity perimeter, and distribution mechanics all carry valuation consequences that are harder to correct once the structure is locked in.
- Present a range of outcomes with stated assumptions. A sensitivity analysis is more credible and more defensible under challenge than a single-point estimate.
- Ensure expert evidence complies with CPR Part 35, reflects independent professional judgment, and can withstand cross-examination. A report prepared to support a conclusion is a liability.
- Test the horizontal comparator before filing. The commercial terms agreed between creditor groups in negotiation must be assessed against the Re Adler framework before a plan is filed.
- Allow adequate time for disclosure and contested hearings. Timetables built around the company's convenience draw judicial criticism and can affect the exercise of the court's discretion in imposing sanctions.
- For dissenting creditors: commission independent expert evidence early, scrutinise the disclosure documents rigorously, and consider negotiation before a plan is filed rather than opposition after it.
Seek Legal Advice
Valuation disputes in financial restructuring proceedings are live legal issues that determine whether a plan is sanctioned, appealed, or refused. Whether you are directing a restructuring, advising a creditor class, or assessing your exposure as a shareholder in a distressed company, the legal analysis and the valuation work need to be aligned from the outset. A corporate valuation and restructuring process that is not legally stress-tested before it reaches court carries a real risk of challenge.
Witan Solicitors' insolvency and bankruptcy solicitors advise directors, creditors, and shareholders on Part 26A restructuring plans and the full range of restructuring options, including how to assess and challenge valuation evidence in contested proceedings. We also advise on shareholder disputes arising in the context of distressed companies. Contact us on 0300 303 2071 or complete our enquiry form.
FAQs
What is the relevant alternative in a Part 26A restructuring plan?
The relevant alternative is defined by section 901G(4) of the Companies Act 2006 as whatever the court considers most likely to occur if the restructuring plan is not sanctioned. It is the counterfactual against which each creditor class's position under the plan is measured. In most cases, it is administration or liquidation. The court determines it on the facts and will not accept the company's characterisation if it appears too narrow.
Why do valuation disputes matter in financial restructuring proceedings?
Cross-class cramdown requires the court to be satisfied that no dissenting creditor would be worse off under the plan than under the relevant alternative. That comparison requires valuing both outcomes for each creditor class. The fairness of the restructuring surplus distribution also turns on detailed valuation analysis. Errors in that analysis can cause a plan to fail the statutory test or be set aside on appeal.
What expert evidence is required in a contested Part 26A plan?
All expert evidence must comply with CPR Part 35. The report must identify its author, state their qualifications, and include an explicit declaration of the expert's overriding duty to the court. A non-compliant report may be given limited or no weight. Both plan companies and challenging creditors are subject to the same requirements.
Can a creditor challenge a Part 26A plan on valuation grounds?
Yes. Dissenting creditors should commission their own CPR-compliant expert evidence to challenge the relevant alternative valuation or the distribution of the restructuring surplus. Written submissions without independent expert analysis are unlikely to succeed against a well-prepared plan team. Engaging before the plan is filed to negotiate improved terms is almost always more cost-effective than opposition at the sanction hearing.
What are the main reasons Part 26A plans have been refused?
Plans have been refused or set aside on four main grounds: the relevant alternative was defined too narrowly, giving dissenting parties a better realistic outcome than the plan offered (Hurricane Energy); expert evidence failed to demonstrate the no-worse-off test (Re GAS); the restructuring surplus was distributed unequally without adequate justification (Adler, Court of Appeal); and new money returns were not evidenced as genuine market pricing (Petrofac, Court of Appeal).
