Putting plans into action

Under section 901A of the 2006 Act, a company in financial difficulties may propose a restructuring plan to some or all of its creditors designed to eliminate or reduce its difficulties. Each class of affected creditors votes on the plan, and if 75% in value of the votes cast for each class are in favour of the plan, then the court may sanction it. The plan then binds all creditors regardless of how they voted.

If any class votes against a plan then the court may exercise its “cross-class cram down” power under section 901G of the 2006 Act to overrule them.

Two conditions must be met for this. First, the dissenting class must be no worse off under the plan than they would be in the “relevant alternative”, which is what is most likely to occur if the plan is not sanctioned – usually administration. Second, the plan must be supported by at least one class of “in the money” creditors, meaning they would receive some payment from the company in the relevant alternative.

Not all plans involve tenant companies and property owners but, where they do, the courts have tended to cram down dissenting property owners, who are unsecured creditors and usually “out of the money”, imposing the plan on them.

Sold down the river

This use of restructuring plans by tenants to reduce rents or terminate unwanted leases is not new and shows no signs of abating, as two cases from recent months demonstrate.

The first is Re River Island Holdings [2025] EWHC 2276 (Ch), in which the tenant ran a well-known fashion chain with 224 leasehold stores. The business was in decline and claimed that some of its rents were significantly above market levels. It was projected to suffer an immediate cashflow shortfall of £43m, rising to £50m after the Christmas 2025 trading period.

A restructuring plan was proposed, under which 34 stores were to be closed and 71 would have their rents reduced at between 25% and 75% for three years. The remaining 97 profitable sites, plus 22 located in Ireland, were unaffected.

In return, property owners received a payment said to be more than they would have received in an administration. They were also given the right to participate in a profit share fund representing 25% of profits exceeding £55m in the first three years. This followed on from Re Thames Water Utilities Holdings Ltd [2025] EWCA Civ 475, which confirmed that “out of the money” creditors were entitled to a share of the restructuring surplus.

The courts are now live to this requirement. In Re Petrofac [2025] EWCA Civ 821, decided shortly before River Island, most of the upside was allocated to investors lending new money to the business, since they were taking the risk, rather than creditors whose claims had been compromised, increasing the equity value of the company. The Court of Appeal held that this was wrong: there was no evidence that the new money was provided at any better cost than could be obtained on the open market, especially as the company had failed to take into account that the post-structuring equity would be much more valuable.

The company in River Island hastily put together a “plan benefits report” to evidence that the plan represented a fair distribution of the upside. This expressed the level of return that each creditor was due to make as a percentage of what they were contributing, in terms of new money or rights given up.

Sold for a pound

In Re Poundland Ltd [2025] EWHC 2755, the company operated out of 822 stores in the UK and Ireland. It blamed an unsuccessful diversification away from its core business of discount consumer goods within a narrow price-band into chilled and frozen foods, as well as opening a costly e-commerce channel, for its financial distress.

The company was sold for £1, although the buyer agreed to provide an £80m working capital facility, of which £60m could be drawn immediately. The company still claimed to be in financial difficulties, with a funding requirement of £27.9m, rising to £58.6m.

Of the company’s stores, 471 were within the scope of the restructuring. The rest were either vested in other companies, held under leases that were expiring or subject to Irish law. The stores in scope included 379 that were marginal or loss making but the rest were profitable.

The profitable stores were left intact, but those with marginal profitability saw rents reduced by 15%-75% in order to be “viable”. Other sites had their rents reduced to zero and/or were closed.

Again, property owners were to receive a payment linked to the relevant alternative and a profit share. This provided that any cumulative earnings before interest, taxes, depreciation and amortisation during the three-year period of the plan above a threshold of £75m would be shared with compromised creditors.

The company provided an allocation of benefits report, which now appears to be a standard requirement for restructuring plans. This compared each class’s percentage contribution with its percentage share of

the upside.

Objection overruled

In both cases, most of all of the classes of property owners voted against the plan, but the court nevertheless sanctioned it.

The court distilled the approach derived from the previous cases into 11 principles to be adopted when deciding whether to sanction a plan:

• There must be a fair sharing of the burden and a fair allocation of its benefits.
• It is only the perspective of dissenting creditors that the court need concern itself with.
• The burden lies on the company to persuade the court that the plan is fair.
• The starting point is how those creditors would be treated in the relevant alternative.
• In most cases, the relevant alternative will be an insolvency process in which they would be treated pari passu, ie ranking equally with each other.
• Differential treatment between classes of creditors can be justified on proper grounds.
• The primary focus is on their interests as a creditor (clearly a reference to one of the creditors in River Island which block voted against the plan because it was a competitor).
• The court is allowed to stand back and consider those who are kept outside the plan, and shareholders.
• Crucially, the court is entitled to take into account the source of the benefits.
• In doing so, it should consider the substance not the form, such as the new money in Petrofac which looked like a benefit but may have been a burden if the terms were less favourable than market.
• Overall, the court will assess “whether it is a genuine attempt to formulate a fair and reasonable solution to a critical problem or an attempt to impose arbitrary compromise terms upon creditors with a view to extracting advantage in a critical situation”.

Much of the above is designed to protect creditors. It will assist property owners seeking to challenge any plan which appears not to compensate them fairly for the fact that compromises imposed on them have significantly increased equity value for the benefit of secured creditors and shareholders.

In neither case, however, did dissenting property owners attend court to explain their objections, which the court in Poundland said “speaks volumes”. In the absence of adversarial argument, the court could do no more than take a “high level” view of the plan. The company proposing it could not be expected to argue the case for dissenting creditors. While the court appreciated the difficulties faced by creditors and recognised that they had little time to respond on a collective basis, it would be preferable for them to present the court with a fairer alternative which casts genuine doubt on the company’s plan.

The message for property creditors seems clear: to get a better deal they should engage with the process. It won’t be enough to shout from the sidelines.

An earlier version of this article appeared in Estates Gazette on 24 November 2025.

Authored by Mathew Ditchburn.