In the space of just over a week two large retailers, Poundland and River Island, have announced that they are embarking on massive restructuring processes that will involve store closures, job losses and significant rent reductions on their commercial leases.

Both companies are utilising formal Restructuring Plans, the still relatively new insolvency and restructuring tool that was first introduced by the Corporate Insolvency & Governance Act 2020.

It is most likely the case that a lot of commercial landlords in Northern Ireland will not have had any cause to give much consideration to Restructuring Plans before now but may well have had to consider the detail of two such Plans within a matter of days recently.

The Restructuring Plans proposed by both Poundland and River Island contain a variety of proposals that will have serious financial implications for landlords such as zero rent being paid in certain stores or a significant reduction in rent for an agreed period in other stores as well as huge compromises and amendments to the leases regarding rent arrears, future rent reviews and future dilapidation claims.

A Restructuring Plan is essentially a compromise or arrangement between a company and its creditors and borrows elements from a variety of other existing insolvency and restructuring tools such as Company Voluntary Arrangements (CVAs), Schemes of Arrangements and even features from US Chapter 11 bankruptcies.

There does not necessarily have to be “insolvency” for a company to avail of a Restructuring Plan but there does at least need to be degree of financial distress, be that presently or even forecasted, and the purpose of the Plan is to seek to eliminate, reduce, prevent or mitigate the level of that financial distress as far as possible.

Much like the more traditional CVA, a Restructuring Plan can be incredibly flexible in what it proposes in terms of compromise and in fact it can contain any such proposals as the company sees fit in order to secure its long-term future.

The whole process is overseen by the Court and there are two key stages, the first hearing to essentially obtain the permission of the Court to convene the necessary meetings to consider the Restructuring Plan and the second hearing to effectively sanction the Restructuring Plan – even if the necessary support from creditors was not obtained.

Of particular importance to commercial landlords is this new ability for a company to invite the Court to “cram down dissenting classes”, which basically means that the Court has, if certain criteria is met, the ability to impose the terms of the Restructuring Plan on all classes of creditors even if a particular class of creditors does not support the Plan.

In practice what landlords will see in the detail of the Restructuring Plans is how their particular store has been classified and it will quickly become clear whether their store is one that the company wants to retain because it is profitable (or likely to become profitable in the future) or whether it is a store that the company do not wish to retain or is indifferent about.

In the first instance landlords will need to consider whether they agree with the logic of their own classification and the composition of the particular class within which they have been placed or whether they wish to formally challenge same at the first Court hearing.

Landlords will therefore need to wade through the voluminous financial and background information that the Plans will inevitably contain and extract the detail of what the Plan actually means for them and their store(s) in terms of dilapidation claims, rent arrears, future rents, service charges, insurance, break clauses and lease termination.

Millar McCall Wylie have a wealth of expertise in the specific areas of both commercial property and corporate insolvency. If you require any assistance in relation to such matters, please contact our Insolvency & Restructuring Team on 028 90 200050