“Commercial landlords in the sector have already had to deal with significantly falling rents during the past five years, and if the High Court sanctions these two restructuring plans, there is a genuine concern that, as we’ve seen in the leisure sector, other retailers could follow”
– Brad Trerise – Reed Smith
ollowing several years of financial troubles, both Poundland and River Island have this year announced their intention to enter into (separate) restructuring plans under Part 26A of the Companies Act 2006, which will significantly impact their creditors, and perhaps most dramatically, their various landlords on the UK High Street. Both restructuring plans are expected to be put before creditors in August, and will require the approval of the High Court before they become binding upon creditors.
The general sense among commercial landlords is that restructuring plans, and even CVAs, to a lesser degree, are vastly unfair to them. Tenants are able to ride roughshod over the agreed lease terms and even over further agreed concessions in the form of side letters (even where parties have expressly agreed no further concessions will be made) per the High Court’s approval of last year’s Cineworld restructuring plan.
Whilst restructuring plans are based on the CVA model, they are considerably more onerous due to the ‘cross-class cram down’ mechanism, which allows the court to approve a plan even where entire creditor classes may have voted against the plan, essentially for the ‘greater good’, as long as at least one creditor class has approved a plan by a 75% threshold. This presents the obvious issue of creditors lacking a real ‘say’ in the plan and, in particular, landlords lacking control over their properties.
Beyond leisure
The High Court has been keen to support the rescue of companies at whatever cost since the Covid pandemic, and the first three restructuring plans of this nature, in respect of Virgin Active, Fitness First and Cineworld, were approved by the Court in 2021, 2023 and 2024, respectively. These companies are all in the leisure sector and were heavily distressed as a result of the pandemic-related lockdowns.
A distinction may be drawn between these three plans and the plans put forward by Poundland and River Island, being the first in the retail sector, and it will be interesting to see if the court approaches them differently.
Effect on the high street
To further distinguish previous restructuring plans with those of Poundland and River Island, as it stands, Poundland and River Island have publicly stated they are seeking to surrender at least 68 leases and 33 leases respectively, which equates to approximately 10% and 15% (again, respectively) of the companies’ entire portfolios. Cineworld, on the other hand, only sought to surrender six leases (5% of its portfolio at the time of the plan). This represents a more significant culling already, without knowing the details of the proposed concessions under the remaining leases.
Given that UK retail is still below 2019 levels in terms of footfall, and recovery has been slower than expected, the loss of many more household name stores, such as Poundland and River Island, is a concern. In recent years, the High Street has lost Debenhams, Topshop, Dorothy Perkins and Paperchase, to name a few.
Commercial landlords in the sector have already had to deal with significantly falling rents during the past five years, and if the High Court sanctions these two restructuring plans, there is a genuine concern that, as we’ve seen in the leisure sector, other retailers could follow.
This will likely place added pressure on the Government to act quickly, given the lack of impact the Levelling-Up and Regeneration Act 2023 has had on the High Street so far particularly because the cost of inaction may well be a further decline of the High Street, which could that see more shops boarded up across the UK – hardly a desirably outcome. Of course, solving the problem will be easier said than done, but the stark reality is that a solution is needed and soon.
