High Court draws a line around landlord plans

The High Court has released its full reasons for sanctioning two restructuring plans for TG Jones, the rebranded former WH Smith high street business, while warning that landlord plans test the limits of the court’s power to impose compromises on dissenting creditors. The judgment, which was handed down on 5 August, elaborates on the Court’s previous Summary of Reasons for sanctioning the plans, which was issued in early July shortly after the sanction hearing due to the urgency of the matter.

TG Jones faced an immediate liquidity crisis following a 12% fall in like-for-like sales after the 2025 rebranding. Without the plans, the companies were expected to enter a value-destructive trading administration involving the accelerated sale of stock and piecemeal disposal of other assets. Estimated realisations of £64.9 million would have been available against claims of approximately £143.7 million.

The plans provide for the business to continue from a reduced estate of about 302 stores, supported by £32.4 million of planned capital expenditure. Landlords are divided into classes based on store profitability and rental levels, with rents reduced for three years and landlords entitled to terminate affected leases.

Most landlords will receive only 25% of contractual rent in the first year. Up to £9.1 million of the additional reduction will be deferred rather than extinguished, secured in favour of eligible landlords and payable after the end of the third year. Creditors may also receive 50% of cumulative EBITDA above £40 million for the 2027 to 2029 financial years.

The plans were substantially improved after negotiations with British Land landlords. Changes included the rent deferral, a sharp increase in the EBITDA-sharing entitlement, protection for certain dilapidations claims, commitments to reinvest rent savings and the elimination of licence fees payable during the concession period to a Modella Capital entity.

Justice Hildyard said the original licence arrangement for the newly created TG Jones name appeared to bear the hallmarks of value extraction for the shareholder’s benefit and “smacked of self-interest.” The removal of those fees and other negotiated changes helped establish that the final plans were a genuine attempt to reach a fair solution rather than exploit the companies’ financial crisis.

Modella will retain the group’s equity, despite the compromise of creditor claims. The Court accepted that result because Modella had provided £10 million of rescue funding, committed a further £15 million, agreed to extend its loan maturity and surrendered secured debts that would have been repaid in full in an administration. The post-restructuring equity was valued at between nil and £3 million, although Justice Hildyard acknowledged that the potential upside could be greater.

The judgment nevertheless cautions against treating the relevant alternative as resolving every fairness concern. Justice Hildyard said landlord plans explore the “outer reaches of a potentially draconian jurisdiction” and must be scrutinised carefully to prevent Part 26A becoming an engine of abuse or private equity power plays.

The Court also declined to establish a general rule that deferred rent should be treated as equivalent to new money. Although the deferrals helped justify enhanced treatment for certain landlords, Justice Hildyard said compromising an existing right whose value would be greatly diminished in the relevant alternative is not equivalent to providing new money on market terms.

Read the decision here.

Professionals involved:

• Tom Smith KC, Ryan Perkins and Jon Colclough, each of South Square (instructed by Slaughter and May) for TG Jones

• Ben Shaw KC of Erskine Chambers (instructed by Hogan and Lovells) for the British Land landlords

• David Adams for the St Albans City and District Council