A High Court judge has approved a sweeping restructuring of the former WHSmith High Street chain that will see up to 150 stores close and steep rent cuts on hundreds more, after the retailer was described as “running on fumes” and facing a cash shortfall of nearly £8m by the end of this week.
Modella Capital bought the chain last year and rebranded it as TG Jones, leaving WH Smith’s travel stores in railway stations and airports untouched. The business currently runs 451 shops employing 4,700 workers. But less than a year later, Modella announced a radical restructuring, blaming “challenging retail conditions” and serious underinvestment by previous owners. The loss of the historic WH Smith brand name also hurt trading.
“Up to 150 former WHSmith stores to close as court approves rescue plan.”
Some 120 landlords will receive no rent for up to three years, and rent will be cut on hundreds of other stores by between 15% and 75%. Modella said the plans were vital for survival and would free up money to invest in stores as part of its turnaround strategy.
The High Court heard this week that TG Jones was on the brink of insolvency. Tom Smith KC, for the retailer, told the hearing the business was “highly distressed” and “running on fumes at the moment”. He said it would have run out of cash in April if not for a £10m loan from Modella and a deferral of liabilities including a large tax bill from HMRC.
There was considerable opposition to the plans, led by property owner British Land, which described them as “fundamentally unfair”. Modella made several concessions to sweeten the deal, convincing British Land to drop its opposition. Many suppliers are also taking a big financial hit.
The judge, Mr Justice Hildyard, gave the green light this morning. In a summary of his judgment, he described the plans as “complex in their terms and far-reaching in their effect”. He said he had been most concerned about the potential impact on landlords but was persuaded the rescue deal was “objectively, the lesser of two evils” resulting from the company’s “trading failures and financial predicament”.
The restructuring forecasts that the business will end up with 302 stores, depending on how many landlords exercise their right to terminate their leases rather than accept reduced rents.