Why liability management exercises are booming in the UK

Lawyers interviewed for the upcoming Chambers UK Guide 2027 are increasingly talking about liability management exercises (LMEs). LMEs themselves are nothing new – but changes to supporting legislation and the proliferation of alternative finance entities competing in the creditor market, particularly private credit, have helped to increase their popularity. Practitioners also highlight the burgeoning costs of full restructuring processes as a contributing factor.

The UK restructuring market is active but increasingly divided depending on organisation size as well as sector. Smaller companies continue to make up the bulk of formal insolvency activity, while larger corporates are more often seeking ways to avoid administration or liquidation through lender support, amendments and court-sanctioned restructuring tools. In the US context, it has been argued that “shifts in capital markets, legal precedent, corporate finance norms, and credit documentation jointly catalysed the LME revolution… and evolving market norms, in particular, provide the unifying explanation for LMEs’ changing structure.” This can be evaluated by looking at the growing cross-jurisdictional nature of these disputes, and how the same distress scenario can play out differently based on where it may be adjudicated.

What are liability management exercises?

At the most basic level, a liability management exercise is a pre-emptive attempt to manage or restructure a company’s obligations. These exercises involve discussions with lenders, bondholders, trade creditors, and other stakeholders to change a company’s capital structure. Often this is achieved by using existing contractual flexibilities, such as buybacks, asset transfers, exchange offers, consents and other similar techniques.

Usually, the goal of an LME is to avoid a more severe insolvency process. Sometimes they are also used to create ‘breathing space’ before financial distress becomes unmanageable. Some lawyers highlight how the UK is now a popular destination for these matters, and firms with experience and resources both in the UK and across the pond will fare well. According to one practitioner, “We are seeing more jurisdictional arbitrage where companies are coming to the UK to restructure rather than doing it in the US. We are seeing more of private credit participation, and I think that trend will continue. What we are seeing in the last 24 months is that the LMEs are getting more complex. That is an interesting area to watch.”

Another City lawyer notes that, “The rise of LMEs is really changing and moving things away from court processes to contractual avenues which is really interesting and pushing our finance expertise to its limits.”

However, liability management exercises are not necessarily a single, fixed legal process. In the UK, these have essentially revolved around distressed disposals undertaken as part of inter-creditor agreements (ICAs). For businesses looking at these transactions, they must consider the principles of fairness that are central to UK restructuring related disputes. One interviewee notes that “The themes that are really emerging are an increasing use of tactical liability management transactions. [These are] US-style, pre-filing, pre-formal processes, [with] creditor-on-creditor changes to the capital structure that benefit selective groups over others. As long as something is commercially sensible, people are more comfortable with LME transactions.”

Against that backdrop, liability management exercises are getting a bit of a revamp and beginning to attract more attention in the UK. The same has been noted by practitioners in Europe in recent years. This signals a broader shift in proclivity towards pre-emptive transactions, although market participants are divided on the efficacy of such measures in ultimately thwarting a formal insolvency in the long run.

Hurtigruten: LMEs are being litigated directly

The recent Hurtigruten LME dispute is a key case right now that shows litigation risk is not only confined to formal restructuring plans. The English High Court ordered pre-action disclosure in connection with a proposed challenge by minority lenders to Hurtigruten’s 2025 out-of-court restructuring. The transaction was implemented using distressed disposal provisions in the intercreditor agreement after a failed attempt to obtain near-unanimous consent, and the challengers allege that majority creditor powers were exercised to favour an ad hoc group rather than the creditor class as a whole.

Although the court did not decide the merits of the challenge, Hurtigruten is a significant case that brings the LME debate closer to the fairness questions seen in the restructuring plan jurisprudence. Dissenting creditors are not only objecting to the economic outcome; they are asking whether the contractual machinery was used for a proper purpose, whether value allocation was asymmetric, and whether disclosure is needed to understand who benefited from the transaction. Those are the same commercial worries that sit behind Adler and Petrofac, even as they arise through different legal routes.

Other notable cases include Hunkemöller, where the English High Court recently granted stay while related proceedings in New York are underway. The US proceedings are regarding an up-tiering transaction which elevated majority creditor Redwood's senior secured notes, issued under a New York law-governed indenture, to a priority ranking ahead of the existing notes over the course of 2024. Following this, the security agent was instructed to take enforcement steps under the distressed disposal provisions of the English law-governed intercreditor agreement (ICA) in 2025.

These cases can be indicative of the nature of LMEs which are often presented as faster, more flexible and more private than Part 26A plans, but their practical effect can be peculiarly challenging. If a selective LME leaves dissenting creditors with materially worse economics, those creditors may use disclosure, challenges to majority power or Part 26A objections to force the same issues of fairness, evidence and value allocation into the open. A lawyer interviewed this year opines that "[t]here is a sense that the LME won't work here as it did in the States. I think that every single one of them [in the UK context] is being litigated. After 6-7 years, I don't get that sense of excitement [about LMEs] anymore.”

Restructuring Plans and Cross-Class Cram Down

Under the Part 26A process, companies may apply to the courts for Cross-Class Cram Down (CCCD) while effecting a restructuring plan. This allows courts to approve plans without the usual challenges associated with gaining 100% stakeholder buy-in. Courts will assess and approve plans that can meet three key requirements:

1. Dissenting creditors are ‘no worse off’ than in the relevant insolvency alternative.

2. At least one in-the-money class supports it.

3. The court considers the plan to be fair.

This has been expounded in a string of cases. In Adler (Court of Appeal, 2024), the court ruled that CCCD is more than simply ensuring creditors are “no worse off”. Instead, they ruled courts must actively assess relative fairness between creditor classes. This was followed by Petrofac (Court of Appeal, 2025) where the focus was placed firmly on value allocation and new-money economics. The case evinced that the fairness of a plan must be proven based on specific circumstances and backed by market-tested results.

Weighing up LMEs against Restructuring Plans

Consensual, contractual LMEs often work best when they can be completed outside court, yet the most contentious deals increasingly end up being tested against the fairness principles developed in Part 26A litigation. In that sense, LMEs can operate as a prelude to a restructuring plan: they are first used to create leverage, identify creditor coalitions and test the limits of majority power. If dissent hardens, the dispute then moves towards litigation, disclosure applications or a court-sanctioned plan. Recent cases now provide a basic roadmap for any organisation considering liability management exercises and developing a Part 26A restructuring plan.

Perhaps the key lesson for business considering an LME now is the political and commercial sensitivity of restructuring plans. Courts are not retreating from Part 26a restructuring plans, but they are applying more scrutiny.

Outlook: fairness is key

Effective liability management exercises must ensure fairness sits at the heart of their plans. Adler, Petrofac, Waldorf and Hurtigruten now form part of a developing litigation pattern: courts and dissenting creditors are scrutinising not only whether a deal is technically permitted, but whether the process, evidence and allocation of restructuring benefits are commercially fair. As private credit becomes more important, risks associated with selective lender treatment have naturally impacted the restructuring space as well.

One practitioner mentions, “I think we are going to see some conditions changing. [There are] lots of problems hitting the private credit sector and we will see lots of repeat transactions with more stressed accelerated mergers and acquisitions (A&Es) as opposed to LMEs. [We are] going to see lots of restructuring ‘lites’ that become proper restructuring in the fullness of time.”

Notwithstanding the criticisms of such measures, LMEs are now getting renewed attention in the UK market. However, rather than follow the US-style of LMEs, the UK has been steadily developing its own model.

In the UK, LMEs now operate under a framework in which judicial scrutiny, evidence and fairness remain central. The recent litigation also suggests that an LME should not be viewed as separate from the restructuring plan landscape. Instead, it can be the first phase of the same dispute: a contractual transaction that tests creditor alignment, exposes dissent and, if challenged, becomes the factual foundation for later Part 26A litigation.

Key takeaways  

• Liability management exercises are gaining momentum as UK companies look for pre-emptive ways to avoid formal insolvency.

• Part 26A restructuring plans have made LMEs more powerful by allowing courts to approve deals even without full creditor support.

• Cross-Class Cram Down gives companies flexibility, but courts will only approve plans that are fair, evidenced and commercially justified.

• Hurtigruten shows that dissenting creditors may challenge out-of-court LMEs directly, particularly where majority powers and asymmetric value allocation are in issue.

• Together, the cases suggest that LMEs increasingly operate as a prelude to restructuring plan litigation, rather than a clean alternative to it. Practitioners are weary of the effectiveness of such transactions given the litigious challenges.