The Poundstretcher restructuring plan is approved

This case involved a restructuring plan seeking inter alia to compromise various leasehold liabilities, following an earlier CVA. In the usual way the plan entailed breaking down the various landlords into different classes. The Class B landlords voted against the plan, but the Class A and Class C landlords voted in favour.

The court noted it was assisted by an expert report from FRP (the “Allocation of Benefits Report”) which provided a detailed assessment of the allocation of the restructuring benefit. As to the contributions made by each creditor, as analysed in the Allocation of Benefits Report there were two possible approaches:

1. The first was to value the contributions by reference to the nominal amounts of the claims of the creditors being compromised, ignoring the likely return on those claims in the relevant alternative.
2. The second was to value the contributions by reference to the amounts of the estimated recovery on such claims in the relevant alternative, whilst making allowance for the fact that (as per Petrofac) the compromise of even “out of the money” claims may contribute towards the restructuring benefits.

However, as counsel for the plan company submitted, and as agreed by the court the problem with the first approach was that it does not differentiate between the provision of new money and the compromise of an existing claim and does not differentiate to reflect the different priority of claims in the relevant alternative. In the circumstances, the court agreed with counsel for the plan company that the better approach was to value the compromise of existing claims by reference to the estimated recovery on those claims in the relevant alternative and to value new money at face value. The caveat to this is that, as is clear from Petrofac, some allowance must be made for the fact that the compromise of claims which would receive no recovery in the relevant alternative (and which are therefore “out of the money”) may nevertheless still be said to make some contribution to the restructuring benefits.

This was a plan under which the equity was retained by the existing shareholder but the court noted that, an indirect shareholder which had made loans to the plan company was under the plan foregoing its right to be paid interest which it was “gifting” in return in effect for the direct shareholder retaining its equity. The Allocation of Benefits Report identified retention by the direct shareholder of its equity as a benefit corresponding to the contributions made by the indirect shareholder lender and the court held that this was justified given the reasonably small day one equity value when compared to the value of market-rate interest forgone by the indirect shareholder lender.
Returning to the issue of overall fairness, the court stated that there were two further matters which caused him pause for thought in sanctioning the plan:

1. The first was the fact that other than the Class A landlords (who would not suffer any reduction in rent or other material adverse effect), of the landlord classes only the Class C landlord class had approved the plan. However, the court drew comfort from the fact that the Plan C class had voted in favour and that in two of the opposing landlord classes, although the statutory majorities were not achieved, there was a substantial vote in favour of the plan.
2. The second was whether the plan had a sufficient prospect of achieving its objective, particularly in light of the failure of an earlier CVA which was intended, by reducing the rentals, to achieve profitable trading, as did the plan. The court stated that there was a lack of detail on this point in the plan company’s evidence and the court was being invited to rely on the fact that financially experienced and successful entities would not spend considerable time and money on a plan of this nature as a false feast. Nor do they forego interest and extend loans to failing businesses unless they see some realistic prospect of profit from successful recovery. The court ultimately concluded that, given also the support of (even though short of a statutory majority) Class B and C landlords, it should accept that there was a realistic prospect of the plan achieving its objectives. Given the uncertainties, the judge did state however that he would expect future restructuring plans to be more specific as to how the relevant plan's objectives were to be achieved.

Accordingly the court sanctioned the plan.

In re Poundstretcher Ltd [2026] EWHC 1438 (Ch), Chancery Division 

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