A London judge has approved Cineworld UK’s restructuring plan, which, among other things, will see landlords taking a hit in rent.
The plan was approved by High Court judge Mr Justice Miles at a hearing today. He said landlords will see a “substantial reduction of rent and arrears”.
If the ruling had gone the other way, the company might have fallen into administration as soon as this week. It owes more than £16m in rent, due today, which it can only pay with the help of its US sister company. According to Cineworld UK’s lawyers, that help would have been withdrawn if the restructuring had been rejected.
Cineworld has been negotiating with creditors and landlords to reduce its overheads. The company claims that many of its leases have been at above market rent, and it has been seeking reductions.
Creditors approved the deal at a private meeting earlier this month but some landlords refused to support it. The deal required judicial approval, which Cineworld sought at a hearing last week.
At the hearing, landlords the Crown Estate and UKCP asked the judge to exclude them from the restructuring plan. However, the judge said today that the plan should go ahead and include UKCP and the Crown Estate.
The case isn’t quite finished yet, though. The judge gave UKCP permission to appeal the decision to the Court of Appeal.
At last week’s hearing, lawyers for UKCP argued that the company had reached a deal with Cineworld in 2023, and any further change would be a breach of contract.
“It seems to me that this raises novel points of legal principle,” the judge said today.
If UKCP does win in the Court of Appeal, it is unlikely to stop the restructuring from taking place. Instead, the plan is likely to go ahead without including UKCP.
In response to the ruling, the British Property Federation said that, while it supported “the UK’s corporate rescue culture”, it was “concerned that restructuring plans can be exploited to terminate leases and cut rents beyond what is needed to turn a business around”.
“Restructuring mechanisms need to be fair to creditors and incentivise companies to engage with property owners to find solutions that work for both,” said BPF policy director Ian Fletcher.
He added: “We believe there should be a requirement for businesses proposing restructuring plans to set up creditors’ committees, similar to the US Chapter 11 model, to ensure meaningful engagement throughout the process. There should also be standardised information disclosure requirements so creditors fully understand the financial position of the affected business and the potential consequences if a plan is not approved.
“If nothing changes, restructuring plans will continue to be contentious, which ultimately does not benefit businesses or their creditors.”
Photo © Gareth Everett/Huw Evans/Shutterstock
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