HM Revenue & Customs (HMRC) has lost a High Court battle challenging the takeover of Aberdeen-based oil and gas firm Waldorf Production UK by a subsidiary of Harbour Energy. The tax authority had labelled the restructuring plan, which facilitates the acquisition, as “abusive” tax avoidance.
The High Court’s decision paves the way for Harbour Energy to acquire a significant portion of the Waldorf group in a deal valued at approximately £125 million (or $170 million as per Harbour Energy’s agreement). This transaction is set to enable Harbour Energy to reduce its future tax liabilities by an estimated £660 million, primarily through the utilisation of Waldorf’s accumulated tax losses.
The case centred on Waldorf Production UK, which holds interests in several North Sea fields, including Catcher and Kraken. The company has been under considerable financial pressure due to declining production and substantial losses over several years. Its latest accounts for the end of 2023 showed net liabilities exceeding £400 million and accumulated losses approaching £1.5 billion.
The wider Waldorf group had previously seen its parent companies enter administration, leading to a court-led restructuring process for its UK production arm. The approved restructuring plan addressed around £70 million in unpaid windfall tax (Energy Profits Levy, EPL) owed by Waldorf, with HMRC expected to receive approximately 14% of this liability under the plan, compared to a negligible amount in a liquidation scenario.
HMRC vehemently opposed the plan, arguing that it constituted “abusive tax avoidance” because it allowed Harbour Energy to acquire substantial tax losses while compromising Waldorf’s outstanding EPL liabilities. The tax authority’s counsel, Mark Phillips KC, warned that the ruling could “open the floodgates” to other companies using court-approved restructuring plans to shed tax liabilities and make distressed assets more appealing to buyers like Harbour.
However, Mr Justice Michael Green, presiding over the case, approved the restructuring plan. He exercised the court’s “cross-class cram down” powers under Part 26A of the Companies Act 2006, a mechanism designed to bind dissenting creditor classes to a restructuring if certain conditions are met. A key aspect of his ruling was the finding that HMRC would be “no worse off” under the restructuring plan than in the likely alternative of insolvency proceedings, where its recovery would be minimal.
Mr Justice Green also stated that the use and transfer of tax losses is “commonplace” in the oil and gas sector and contained “nothing inherently abusive”. He noted the unpredictable nature of the oil and gas industry, where financial results can fluctuate “fluctuating widely”.
While sanctioning the plan, the judge did criticise aspects of Waldorf’s financial history, specifically pointing to a “cavalier approach” to its windfall tax liabilities, citing a £56 million dividend payment made despite impending tax obligations.
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Despite the concerns raised by HMRC’s counsel, the judge dismissed the “open the floodgates” argument, asserting that the court would continue to scrutinise such plans meticulously. This High Court decision follows a previous failed restructuring attempt for Waldorf in 2025.
A spokesperson for Harbour Energy welcomed the judgment, stating: “We welcome the ruling and remain confident the transaction will complete in the coming months.”
The acquisition is expected to finalise during the second quarter of 2026.
