Enzen Plans Get Green Light

On 25 March 2025, Mr Justice Norris handed down judgment sanctioning the restructuring plans (the Plans) of Enzen Global Limited and Enzen Limited (the Plan Companies).

Although the Plans were not formally opposed, the judgment touches on several interesting points:

1. HMRC: its active participation in the formulation of the Plans was welcomed by the judge (HMRC ultimately supported them);
2. Pari passu principle: the judge considered a departure from the pari passu principle in respect of distributions to unsecured creditors acceptable on the facts;
3. Retention of equity by the existing shareholders: the judge deemed this an acceptable allocation of the restructuring surplus on the basis that the existing shareholders had in practice generated the restructuring surplus through provision of funding to the Plan Companies; and
4. Recognition: the judge accepted that there was a reasonable prospect of recognition of the Plans in Spain.

These points are explained in greater detail below. 

Background

The Plan Companies are part of the Enzen Group which provides advisory, transformation, and information delivery services primarily to the energy and water industries. Headquartered in England, the Plan Companies hold contracts with utilities in the energy and water sector and operate in Australia, Portugal, Spain, Turkey and Wales. 

The business, which has been expanding into multiple jurisdictions, was undercapitalized and relied heavily on the UK business which strained liquidity. This pressure on liquidity was further exacerbated by project delays caused by COVID-19 and problems with a payments service provider. This led to HMRC presenting a winding up petition for debts owed to them. Additionally, a lender to the Spanish subsidiary filed a winding up petition against one of the Plan Companies, under a guarantee.

To address their financial distress, the Plan Companies secured funding primarily from existing secured lenders. Their capital structure comprised:

• a £45 million revolving credit facility;
• a £55 million term loan; and;
• a £22 million emergency facility, later increased to £37.5 million.

All facilities were governed by English law and secured over most Group assets. The secured creditors later entered into a restructuring support agreement with the Plan Companies and provided an additional £4 million in bridge funding. By the time of the Part 26A applications, total debt to these creditors was approximately £122 million.

The Plans provided:

1. amendments to the existing emergency facility and RCF, converting interest to PIK and extending maturities, along with a £5 million new money injection; in exchange for a payment of £5,000 per Plan Company;
2. full release of the existing term loan, with the creditor receiving synthetic equity potentially yielding £52.9 million by April 2033;
3. HMRC’s £9.6 million claims to be released in return for £350,000 from each Plan Company (increased from £250,000); 
4. one landlord to be paid £1,000 plus its full estimated administration return;
5.  other unsecured creditors to receive the higher of £1,000 or 150% of their estimated administration recovery; and
6. exclusion of critical liabilities — such as amounts owed to essential IT providers, contractors, suppliers, plan advisers, HMRC (current liabilities), and loans from seven key employees — to maintain operational continuity.

The Plans were not formally opposed (though certain creditors entered notices of opposition); in the absence of formal opposition, the judge set out to “conduct a high-level review of the plan to see if there is any manifest unfairness in the allocation of the benefit” and “consider whether other matters referred to in the notices of opposition raise some unanswered challenge sufficient to prevent the applicant companies discharging the burden upon them of persuading the Court that it is right to exercise its discretion to sanction the plans”. 

HMRC support

Following an initial challenge from HMRC at the convening hearing in February in respect of class composition issues, HMRC ultimately supported the Plans. The judge highlighted the significance of HMRC’s proactive support which represents a notable departure from its traditionally cautious or oppositional stance in restructurings. HMRC ultimately agreed to accept £350,000 per company (an increase from an initial £250,000) after negotiations. This is the first known instance of HMRC actively participating in the formulation of a restructuring plan it could support, marking a strategic shift in its approach. This support lent credibility to the fairness of the plan and reinforced the commercial rationale behind the differential treatment of creditor classes.

Pari passu principle

The judgment also featured a notable departure from the pari passu principle. Instead of distributing recoveries to unsecured creditors (who were all out of the money in the relevant alternative) pro rata, the plan provided a flat payment of £1,000 per creditor, regardless of their claim size. Objections were raised, particularly by a creditor with a £771,000 claim, who argued that this approach resulted in intra-class discrimination. However, the court held that because all unsecured creditors would receive nil recovery in an administration, treating them equally with a flat sum did not amount to unfairness. The judge emphasized that the flat payments represented “real (not illusory) consideration)” and that the money was made available by the secured creditors and avoided the disproportionate cost of a pro rata distribution.

The court also highlighted that flat payments were consistent with other compromises under the plan, and that the distribution method, while a departure from strict pari passu treatment, was justified on grounds of practicality, fairness, and proportionality. This judgment confirms that courts will permit flexible treatment of out-of-the-money creditors in restructuring plans, provided the “no worse off” test is met and the value distribution is not manifestly unfair.

Shareholder equity retention

The retention of equity by the existing shareholders was a potentially contentious feature of the restructuring plans, particularly given that unsecured and subordinated creditors were being significantly compromised. Allowing equity holders to retain an interest while senior creditors take losses and junior creditors are largely wiped out could be seen as inconsistent with the ordinary rules of distribution in an insolvency, which dictates equity should be fully extinguished before compromised creditors receive less than full value. However, Part 26A does not dictate compliance with an absolute priority rule and indeed, the judge did not find the equity retention objectionable.

He emphasised that the equity in the restructured group was effectively being retained by the secured creditors themselves, as they had already taken control of the group through enforcement of share security and a debt-for-equity swap. These secured creditors were also providing the restructuring surplus by amending their facilities and injecting new money. In this context, the retention of equity was not a windfall for passive shareholders, but rather a commercial decision by the secured creditors as new owners to preserve value and control. The court viewed this as a fair allocation of the benefits generated by the restructuring, particularly given that the "out-of-the-money" unsecured creditors were receiving real, if modest, consideration funded by the same secured creditors. 

Recognition in Spain

In the final paragraphs of his judgment, the judge briefly addressed the question of whether the sanction order approving the plans would be recognised and effective in Spain. This issue falls under the court's obligation to ensure there is no "blot" or defect in the plan that would render it ineffective or unenforceable in key jurisdictions where the group has assets or liabilities.

The court considered expert evidence from a Spanish legal expert on the likelihood of recognition. The court concluded that there was “at the least a reasonable prospect” that the plans, once sanctioned by the English court would be recognised in Spain. This standard is consistent with the approach in cross-border restructurings where certainty of foreign recognition may not be absolute, but must be credible and supportable based on expert opinion. 

Conclusions

For future restructuring plans, the judgment offers valuable guidance on the application of the pari passu principle, confirming that equal, flat payments to unsecured creditors can be fair, even if they depart from strict pro rata distribution. The Court recognised that where all unsecured creditors are out of the money in the relevant alternative, a uniform distribution, particularly when funded by secured creditors, can avoid disproportionate cost and complexity while still delivering meaningful value. The judgment also highlights the significance of HMRC’s active participation and eventual support, signalling a constructive shift in its approach to corporate restructurings.

The issue of whether existing shareholders should be permitted to retain some or all of their equity stake (and the rationale for them doing so) in a restructuring plan where creditors’ interests are compromised has been hotly debated before the courts and – in particular – in academic literature. As we noted in our Sino-Ocean blog, there has been a focus on two justifications for existing shareholders retaining an equity stake: the “gifting” justification (in the money creditors are to be seen as the economic owners of the business and are entitled to determine how the restructuring surplus is distributed); and the “new money” justification (where shareholders are providing new money they are entitled to something in return). The court has also been willing to consider other reasoning (including in Sino-Ocean itself). In this case, the argument for the existing shareholders retaining the equity was an easier one to make: the existing shareholders were the group’s existing financial creditors, having taken ownership in a previous debt-for-equity swap. Given that these parties had (albeit in their capacity as lenders) contributed to the restructuring surplus by injecting new money and accepting a compromise of some of their existing debt, arguably both of the common justifications for retention of equity were applicable in this case. The judge’s concise reasoning on this point provides a helpful template for restructuring plans following a previous equitisation of external financial debt.