In April 2025, the Court of Appeal delivered its eagerly awaited judgement in Kington S.A.R.L & Ors v Thames Water Utilities Holdings Limited & Anor [2025] EWCA Civ 475 – only the second time the Court has considered a Part 26A restructuring plan. While it provides some welcome clarity, it also reinforces the fact-specific nature of the process and continued scope for future litigation.

This is the second significant ruling in this space, following Re AGPS Bondco Plc [2024] EWCA Civ 24 (commonly known as Adler). Since Alder, a flurry of first-instance challenges to restructuring plans has highlighted both the utility of the regime and its legal ambiguities. Many had hoped that the Thomas Water appeal would offer definitive guidance and bring greater certainty.

This case is important for insolvency practitioners because it reinforces the flexible, fact-specific nature of restructuring plan approvals. It gives insolvency practitioners clearer guidance on procedural expectations and fairness assessments while also highlighting that uncertainty and potential for legal challenge remain high.

Restructuring can therefore be expensive and somewhat uncertain. Not all restructuring will lead to disputes, but in some cases the potential value of bringing a claim could be the main source of cash. In these scenarios a claim for money could be viewed as a contingent asset, and some of that value could be realised in the short term by using litigation funding. Having a funder release cash in to a business – in exchange for a share of future litigation recoveries – might be an effective way to utilise the assets at hand.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

The Background: Part 26A Restructuring Plans

Introduced through the Corporate Insolvency and Governance Act 2020, Part 26A of the Companies Act 2006 enables financially distressed companies to bind dissenting creditors to a restructuring under the companies list – often referred to as a “cross-class cram down”. While offering clear strategic advantages, these plans are often complex, contentious, and procedurally intense.

Courts have been called upon to scrutinise valuation evidence, assess fairness between creditor groups, and do so often under compressed timelines due to the precarious state of the applicant companies. These tight timetables have increased the cost and complexity of these proceedings, sometimes undermining their value for companies outside the upper echelons of the market.

Judgement Summary: Flexibility Over Finality

Although the Court of Appeal affirmed the decision to approve the Thames Water restructuring plan and dismiss the challenges, it was clear in its refusal to offer wide-reaching doctrinal rules. The Court acknowledged the appeal as an opportunity to provide further guidance, but also noted the limits of its role, cautioning that:

“It is not for the Court to assume the legislator’s role and lay down principles of broader application. Development on a case-by-case basis is an inevitably slower process, but has the advantage that the principles that emerge are moulded by real-life examples.”

The result is a judgment that, while instructive, arguably broadens the field for future dispute rather than narrowing it.

Key takeaways from the case

Ongoing procedural concerns – The Court criticised compressed timelines, stressing that parties must engage early and constructively. Courts are urged to actively manage proceedings to avoid last-minute pressure, though such cases remain common.

Fairness in restructuring plans – In Thames Water, the Court clarified that passing the “no worse off” test isn’t enough for cross-class cram down. A broader fairness assessment across creditor groups (“horizontal comparison”) is essential, including future benefits to the company.

Role of “out of money” creditors – The Court rejected the idea that objections from out-of-the-money creditors can be disregarded. Their treatment still matters to fairness of the plan overall.

Defining a “blot” – A “blot” refers to a fundamental flaw in a plan. The Court held that high costs alone don’t qualify, though illegal or ultra vires elements could. Cost-efficiency remains relevant but not determinative.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting restructuring professionals in meeting their obligations, and managing scarce resources effectively. The following methods are regularly used by insolvency practitioners when facing disputes:

After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award.

The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. Such funding can also be used to drawdown cash immediately to be used for the purposes of restructuring the business, rather than just to finance litigation costs. Utilising contingent assets in this way can be an innovative and useful way to raise funds, when other options are unavailable.

Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and restructuring matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.