Up to 150 former WH Smith High Street stores are to close after the High Court approved a sweeping restructuring plan that the retailer’s owner said was vital to stave off collapse. The judge, Mr Justice Hildyard, gave the green light to the rescue deal this morning, describing the plan as “complex in their terms and far-reaching in their effect” but “objectively, the lesser of two evils” given the company’s trading failure.
The stores, bought last year by private equity firm Modella Capital and rebranded as TG Jones, employ about 4,700 workers across 451 shops. The court heard that the business was “highly distressed” and “running on fumes at the moment”, according to Tom Smith KC for TG Jones. It faced a cash shortfall of nearly £8m by the end of this week, forcing the company to seek urgent court approval for the restructuring.
“Up to 150 former WH Smith stores to close after High Court approves TG Jones restructuring plan.”
Under the plan, steep rent cuts of between 15% and 75% will be imposed on hundreds of remaining stores. About 120 landlords will receive no rent for up to three years. The restructuring will also write off debts to suppliers, leaving many taking a significant financial hit. The plan forecasts that TG Jones will end up with 302 stores, depending on how many landlords choose to terminate leases rather than accept reduced rents.
Modella Capital blamed the crisis on “serious underinvestment” by previous owners and “challenging retail conditions”, as well as the company’s inability to keep the historic WH Smith brand name, which remains with the separate travel-store business. The retail chain had been on the brink of insolvency; Tom Smith KC told the hearing that the business would have run out of cash in April had it not been for a £10m loan from Modella and a deferral of liabilities including a large tax bill from HMRC.
The plan faced opposition from major property owner British Land, which described it as “fundamentally unfair”. Modella sweetened the deal with several concessions, convincing British Land to drop its opposition. More than 80% of landlords controlling TG Jones’s top stores voted to support the deal, although most other classes of landlords voted against it. The restructuring plan required approval from at least 75% of one class of creditor and the judge’s approval to go ahead.
Alex Willson, chief executive of TG Jones, said: “We welcome the court’s approval of our restructuring plan. This decision allows us to move ahead with our turnaround strategy. The plan protects the substantial core of the store estate and makes TG Jones a stronger, more sustainable business.”
The judge said he was “most concerned” about the financial impact on landlords but was persuaded the rescue deal was necessary. He also noted it was “difficult to swallow” that Modella valued TG Jones after the restructure at no more than £3m, compared with its acquisition value of about £40m only a year ago.
Hossein Dabiri, head of court reporting in Europe for credit analysis firm Debtwire, said the approval under the “cram down” model “has made it easier for companies to pursue faster and more aggressive restructurings, particularly when renegotiating retail leases”. The closures will affect thousands of jobs, with the full impact yet to be determined as landlords decide whether to exit or accept reduced rents.