Up to 150 former WH Smith high street stores are to close after the High Court approved a sweeping restructuring that will also impose steep rent cuts on hundreds of remaining shops and write off millions of pounds in debts to suppliers.
The chain, now operating as TG Jones after being bought by private equity firm Modella Capital last year, employs about 5,000 staff across 450 stores. The court heard this week that the retailer was on the brink of insolvency – “running on fumes at the moment”, as Tom Smith KC told the hearing – and facing a cash shortfall of nearly £8m by the end of this week unless the rescue deal was approved.
“High Court approves restructuring of former WH Smith chain, closing up to 150 stores and cutting rents.”
Mr Justice Hildyard, who gave the green light to the plan on Wednesday morning, described it as “complex in their terms and far-reaching in their effect”. He said he had been most concerned about the potential financial 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, approved under a so-called “cram down” model that allows courts to impose a plan on dissenting creditors, will see as many as 150 stores shut. Some 120 landlords will receive no rent for up to three years, while rents on hundreds of other stores will be cut by between 15% and 75%. More than 80% of landlords controlling TG Jones’s top stores voted to support the deal, but most other classes of landlords, facing steep cuts, voted against it. Under the rules, approval from just one class of creditor with 75% backing – plus a judge’s sign-off – was enough.
TG Jones’s lawyers described the company’s financial position as “horrendous”. The business would have run out of cash in April had it not been for a £10m loan from Modella and a deferral in liabilities including a large tax bill from HMRC, the court heard. Modella blamed “challenging retail conditions” and serious underinvestment by previous owners for the decline.
There was considerable opposition to the plans, led by property owner British Land, who called them “fundamentally unfair”, but Modella sweetened the deal with concessions that convinced British Land to drop its opposition. The judge, however, criticised the short amount of time given for the court to consider the matter, and noted it was “difficult to swallow” that Modella now valued TG Jones at no more than £3m – compared with its acquisition value of about £40m only a year ago.
TG Jones’s chief executive, Alex Willson, welcomed the ruling. “This decision allows us to move ahead with our turnaround strategy,” he said. “The plan protects the substantial core of the store estate and makes TG Jones a stronger, more sustainable business.” Modella said it would use some of the cost savings to invest in stores as part of its turnaround strategy. The restructuring plan forecasts the business will end up with 302 stores, depending on how many landlords exercise their rights to terminate leases instead of accepting reduced rents.