The judge in the TGJones restructuring case has expressed frustration with the rushed timeline of the process after formally sanctioning the rescue plan.
WHSmith’s high street stores were rebranded as TGJones
One month on from approving the plan on 1 July, Mr Justice Hildyard has published an expanded explanation of his decision to greenlight the restructuring.
With a multi-million-pound funding shortfall looming for TGJones, the plan was fundamentally approved as administration would only have realised values of around £64.9m – far short of the creditor claims of £143.7m.
In the event of administration, landlords would have recovered 5.3p to 6.3p in the pound, depending on class. Restructuring offered a more viable path to paying back creditors, the judge ruled.
However, Hildyard – who initially delayed his decision by several days – also took aim at the rushed process and signalled that a practice statement “may be required” going forward, in what would be a significant shift in court practice.
“Whatever may be the commercial pressures, the court must have time responsibly to discharge its function and properly exercise its discretion,” Hildyard said.
“An expectation of an immediate decision is inconsistent with that in cases of complexity, and I consider in most cases involving cross-class cram-down. If some sudden business failure for want of adequate time-planning is to be avoided, plan companies and their advisers must factor in an appropriate period for the court’s consideration, though that will, wherever possible, be undertaken with great urgency.”
TGJones owner Modella Capital won court approval for the sweeping restructuring plan in July. It will see 150 store closures, rent holidays of up to three years at 120 stores and rent cuts of 15% to 75% on hundreds of other properties.
Hossein Dabiri, head of court reporting EMEA at Debtwire, said: “Justice Hildyard’s judgment, handed down today, recognises the fine line UK courts must walk with restructuring plans involving cross-class cram-downs, scrutinising them carefully to avoid them becoming an ‘engine of abuse’ or ‘private equity power play’, while weighing the very real danger of an imminent collapse from one of the few remaining national high street businesses.”
Under the approved plan, TGJones’ high street business will operate from a reduced footprint of 302 stores. Several have already closed since the ruling.
British Land, which had led a consortium of landlords opposed to the plan before withdrawing its opposition following several 11th-hour concessions, had argued that deferred future rent concessions should be treated as the economic equivalent of new money contributed to the restructuring.
“They had argued that landlords that chose not to exercise their termination rights were effectively choosing to ‘invest in the business’, and the additional future rent reductions were ‘a contribution to cashflow’, which was just as much new money as an injection of cash,” Dabiri said.
“Importantly, however, Mr Justice Hildyard ultimately declined to accept the argument. While describing the point as ‘interesting’ and potentially significant for future restructuring plans, he concluded that such rent deferral ‘obviously’ isn’t a loan. It’s not new cash coming in that’s advanced; it is a deferral of an obligation that already exists on which they would only receive pence in the pound in the alternative scenario to the plan.”
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