Five things we now know about landlord restructuring plans

In the last few months the Court has sanctioned restructuring plans for Las Iguanas, for Poundstretcher, and for two related TG Jones companies. Each plan was designed primarily to compromise property-related liabilities. 

However, sanction was certainly not a just formality. In the case of TG Jones in particular, the judge needed two further days from the date of the hearing to decide whether to make the order sought.

We believe that those decisions already offer some very useful guidance for other companies contemplating using a restructuring plan to compromise similar liabilities.

1. It is possible, albeit aggressive, to compromise not just property-related liabilities but liabilities to suppliers more generally 

It has become standard practice for restructuring plans which compromise a company’s liabilities to its landlords also to compromise other property related liabilities such as business rates. 

However, TG Jones, which involved interconnected plans of the trading company, TG Jones High Street Limited (HSL) and the property holding company, TG Jones Retail Holdings Limited (RHL), went further. 

HSL’s restructuring plan proposed also to compromise its liabilities to a variety of non-property-related suppliers. It divided these other suppliers into two categories:

•  “core supply creditors”, who had been identified as core to the business and who would be paid in full (in 12 equal monthly instalments); and

• non-core suppliers, who had been identified as non-core, either because the supply or service was optional or because they could be replaced with minimal disruption, and who would only be paid 50% of what was due to them (in 36 equal monthly instalments).

As it transpired, both the core and the non-core supplier classes voted in favour of the plan, albeit the turnout of the latter class was very low, consisting of only six suppliers representing just 12% of HSL’s non-core suppliers by value. 

The judge was satisfied that the position of even the non-core suppliers would be better under the plan than it would have been under the relevant alternative, which was a “value destructive” administration involving accelerated sale of stock on a distressed basis. 

We do not know for certain how a judge would have approached a cross-class cram-down had the non-core supply creditors chosen not to approve the plan. However, we suspect that the TG Jones plans will not be the last to propose this wider form of compromise.

2. For an aggressive plan, arrangements to allow plan creditors to share excess EBITDA post-restructuring will need to be generous

In each of the recent plans referred to above, the existing shareholders retained an interest in the plan company’s shares under the plan. In TG Jones, the judge noted that this was a feature which required “close scrutiny”. 

In each case, the shareholder(s) acknowledged that, in order to satisfy the enhanced fairness test that the Court would apply when exercising its discretion as to whether to make an order for cross-class cram down (the need for which was explained by the Court of Appeal in Strategic Value Capital Solutions Master Fund LP and others v AGPS Bondco Plc [2024] EWCA Civ 24 at paras [155] to [161]), they would need to make a significant contribution to the benefits of the restructuring. 

These contributions included both:

• an injection of new money, some of which was used to ensure that the compromised creditors received a better return on their claims than they would have received in the relevant alternative; and 

• an arrangement whereby, if the post-restructuring EBITDA exceeded a stipulated threshold for a given financial year, a percentage of the excess would be made available as an upside payment to the plan creditors.

Such profit-sharing arrangements are not a new approach. For example, Poundland’s restructuring plan last year contained a mechanism whereby, if the cumulative EBITDA for the three financial years following sanction exceeded £75m, the compromised creditors would share a proportion of the excess. The larger the excess, the larger the percentage share. If the cumulative EBITDA rose to £126m (which was the plan company’s target), they would receive 25% of the excess.

As regards the three more recent plans below. 

• In Poundstretcher, if the cumulative EBITDA for the three financial years following sanction exceeded £24.75m, the compromised creditors would receive 12.5% of the excess. If it rose to £33m (which was the target), they would receive 25% of the excess.

• In Las Iguanas, if the cumulative EBITDA for the three financial years following sanction exceeded £8m, the compromised creditors would receive 12.5% of the excess.  If it rose to £10m (the forecasted target), they would receive 25% of the excess.

• In TG Jones, after further negotiations with a group of the landlords, the plan companies ultimately agreed that if the cumulative EBITDA for the three financial years following sanction exceeded £40m, the compromised creditors would receive 50% of the excess. The plan companies also gave certain undertakings to protect the creditors’ share of future EBITDA, including an undertaking to reinvest certain savings under the plans into the business. The judge noted that this was more generous than in previous plans and, as already noted, it appears to have been a significant factor in his eventual decision to sanction the plan.

3. The level of support from compromised creditors will still be important

A common concern facing the judges in all of these cases was the fairness of exercising cross-class cramdown powers to impose the plans on dissenting creditors in circumstances where the interests of the assenting creditors differed so significantly from those of the dissenting creditors. 

In Poundstretcher, the judge took comfort from the fact that, in addition to the Class A landlords (who would not suffer any reduction in rent or other material adverse effect), the Class C landlords had also voted in favour. Although those landlords faced a 100% reduction of rent, they had nevertheless approved the Plan by a solid majority of 81% in value and 69% in number (on a turnout of 13 out of 43).

In TG Jones, the position was even more marked. RHL’s plan treated the Class A and B1-B4 landlords more favourably than the other landlord classes. Despite this, only one class of landlords approved the plan by the required 75% majority. This was unsurprisingly Class A1, which was the least affected of all. 

In addition to the factors already described previously, in TG Jones the judge drew some further (albeit more limited) comfort from the fact that there was still support for the respective plans among certain dissenting classes who were most affected by the plans:

• in respect of the HSL plan, 72% of the business rate creditors voted in favour; and

• in respect of the RHL plan, 63% of Class B5 and 65% of Class C1 voted in favour. 

It remains important for plan companies to continue to canvass support from as many creditors as possible.

4. The plan company needs to provide sufficient detail of its overall turnaround strategy 

The plan company does not need to satisfy the Court that the plan will achieve its purpose, but it does still need to show that it has a real prospect of doing so.

In Poundstretcher, the judge was mindful of the fact that the same company had undertaken a CVA in 2020 which, as it transpired, has only provided temporary relief. He therefore had concerns as to whether the failure of the CVA, and the fact that the market difficulties which contributed to that failure were still continuing, were reasons to doubt the real prospect of the plan succeeding. 

He noted that the description in the evidence of what the company’s wider turnaround plan would involve lacked the detail and particularity that he would expect. He complained that he was, in effect, being invited to rely on the fact that financially experienced and successful entities like the Fortress Funds (Poundstretcher’s shareholders) do not spend the considerable amount of time and money on a plan of this nature as a “false feast”, nor do they forego interest and extend loans to failing businesses unless they see some realistic prospect of profit from successful recovery. He laid down a marker that he would expect future restructuring plans to be more specific as to how the relevant plan's objectives are to be achieved.

The failure of the earlier CVA in Poundstretcher does seem to have been a particular factor. In TG Jones the same judge suggested that a sceptic might regard at least some of what the relevant experts had described as “turnaround initiatives” as more in the nature of generic aspirations than concrete grounds for a successful outcome and noted that those companies’ future business plans plainly had a high level of execution risk. However, in that case he thought he was entitled to assume that Modella (TG Jones’ shareholder) and management must have had sufficient faith to hazard further money, time and effort on those companies’ turnaround plans.

Nevertheless, at the very least it is clear from the decision in Poundstretcher that, where a previous turnaround strategy has failed, the plan company will need to make it clear why is not simply repeating a similar strategy and hoping for a different result.

5. Negotiations remain important even if they occur late in the process

In Saipem SpA v Petrofac Ltd [2025] EWCA Civ 821, the Court of Appeal described the purpose of cross-class cramdown as enabling a plan to be sanctioned despite the opposition of those unreasonably holding out for a better deal, where there has been a genuine attempt to formulate and negotiate a reasonable compromise between all stakeholders. 

A landlord restructuring plan will inevitably involve a larger and more diverse group of creditors than many other restructuring plans. It will not be practical to conduct an individual negotiation with every one of those creditors prior to the launch of the plan. Nevertheless, plan companies will attempt still to engage with creditors more generally prior to launch of the plan. In some cases a group of landlords will emerge and play a lead role in negotiations. 

This was the situation in TG Jones, where the negotiations had continued even after the convening hearing. The modified plans only reached their final form the day before the first meetings of creditors were due to take place.

The judge needed carefully to consider the propriety and fairness of approving modified plans where the creditors had had so little time to consider their revised forms. Nevertheless, he was persuaded to accept the modified plans on the basis that, although the changes negotiated adversely affected Modella, they did not adversely affect any plan creditor. He noted that the modifications constituted a significant improvement for creditors and demonstrated the value of constructive negotiation, even if late in the day.

Macfarlanes LLP has a market leading Restructuring and Insolvency practice in London, having advised on various restructuring plans with unique elements. To understand our experience with restructuring plans further, read our article “Restructuring plans post-Petrofac – How do you make a Waldorf salad? ”. If you would like to discuss any of the themes raised in more detail, please do not hesitate to get in touch.