Turbo Group – A practical application of recent restructuring plan developments

Background to the plans

The thirteen plan companies formed part of the Turbo Group, a UK-based builders' merchants business operating a network of 176 branches with approximately 2,000 employees.  Those 176 branches were subject to 210 leases, the majority of which were to be compromised by the plans.

The Turbo Group had suffered financial distress over recent years triggered by inflation and rising interests rates consequential on the pandemic and the Ukraine war.  The Court also pointed in its convening judgment^] to an “energetic acquisition program” which resulted in bringing together a large number of companies at considerable cost, necessitating expensive borrowing.  In 2024, the Turbo Group made a loss, after tax, of £105.7 million and was forecast to run out of liquidity in August 2025.

The plans had three central features: (a) the release of £218m of senior secured term loan debt, an amendment to the terms, and extension of the maturity, of the remaining senior secured debt and the injection by the senior secured creditors of £20m of new money at 5% plus SONIA, (b) the compromise of unsecured liabilities owing to various classes of landlords and (c) the compromise of certain unsecured liabilities owing to local authorities for business rates and to other various unsecured creditors.

The relevant alternative was accepted as an administration or liquidation of the plan companies.

The plans were approved by 34 of the 68 classes of creditors across the thirteen plan companies.  Only 3 of the 34 classes which did not approve the plans actively dissented; in the remaining classes, no creditor had voted either for or against the plans.  99.8% in value of those creditors who voted, voted in favour of the plans.  The Court recognised that overemphasising the high rate of support by value would undermine the purposes of having classes (consistently with the principles relating to the horizontal comparator set out in Adler²) but noted that it did indicate a commercial approval of the plans in general terms.

Approach to sanction

The court was comfortable that the various jurisdictional requirements for it to sanction the plans, including its power under s901G of the Act to cram-down the dissenting creditor classes, had been satisfied.  In the usual way, the creditors comprising the landlord classes had had their rights of forfeiture preserved or had been given additional termination rights to allow them to exit any unsatisfactory leases following the implementation of the plans and ensure they were no worse off than in the relevant alternative.

Interestingly, the court queried whether a term of the plan which reduced the rent payable under certain leases to zero might trip the jurisdictional bar on the court extinguishing proprietary rights in sanctioning schemes of arrangements or restructuring plans³ – but was satisfied it would not, albeit in the apparent absence of detailed submission or contest, so this may be a point which we see re-visited in future schemes/plans involving landlords.

In considering the exercise of its discretion and whether the plans were fair, the court adopted four questions suggested by counsel for the plan companies.  These are set out below with some commentary on the court’s findings, and reflect the position on fairness following Adler and the recent trilogy of judgments in Thames⁴, Petrofac⁵ and Waldorf⁶.

1. Does the restructuring plan treat creditors of the same ranking in broadly the same way (or if not, is there a good justification for any differential treatment)?

Consistent with its approach historically, the court accepted it was justifiable in this instance for the senior and unsecured plan creditors to receive differential treatment given the difference in the ranking of their claims, for the landlords to be dealt with as a separate class given their specific rights and for certain creditors such as the super senior lenders, critical trade creditors, employees and HMRC to be excluded from the plans.  The court also considered that the quid pro quo being offered to the unsecured creditors in the form of a cash payment was essentially the same across the various unsecured creditor classes.

2. Does the plan include any special benefits or incentives in the form of fees, new money entitlements and the like? If so, are they properly justified and explained?

The court did not require specific evidence that the new money was being provided on commercially competitive terms given it was modestly priced (5% plus SONIA) and no fees, incentives or other special benefits were to be charged for provision of the additional financing – indicating that lay and/or expert evidence as to price and market-testing in respect new money (or similar restructuring contributions by plan creditors) may only be required where the relevant economics are contested or might otherwise raise eyebrows

3. Has the company demonstrated that it has taken reasonable steps to consult with its creditors and to give genuine consideration to any alternative proposals that have been put forward, giving proper commercial reasons for rejecting any such alternative proposals rather than dictating or steamrolling ahead and ignoring its creditors’ views?

Prior to the convening hearing, the plan companies prepared a table explaining the ways in which all 403 creditors had been contacted – the court noted across its convening and sanction judgments that the plan companies took steps including (a) identifying alternative contact details for 18 plan creditors from whom bounce-backs/failure messages were received in response to communications sent to contact details identified in the plan companies’ books and records (b) hosting a virtual town hall meeting to which all landlord creditors were invited⁷ and (c) promptly and accurately responding to queries about the plans from unsecured creditors.  No plan creditor suggested an alternative proposal to the plans nor did any plan creditor object to the plans at the convening or sanction hearings. The court described the level of engagement as “exemplary”.

4. In all the circumstances, has the benefit of the restructuring been fairly allocated as between different groups of creditors?

In an approach which we also saw adopted in River Island⁸ (see our analysis of that restructuring plan here), the plan companies prepared an expert plan benefits report explaining how the benefits of the restructuring were to be shared between the secured and unsecured creditors – we expect reports of this nature will become a regular feature of restructuring plans moving forward to demonstrate to the court that the fairness requirements set out in Thames, Petrofac and Waldorf have been satisfied.

The court took a mathematical approach to assessing the fairness of the distribution of the restructuring benefits amongst the plan creditors, which it could do in this instance given the relatively straightforward nature of the benefits (being the costs saved by avoiding administration/ liquidation) and the contributions made by each plan creditor to those benefits,  but acknowledged it may be difficult in more complex cases.

The court determined that:

• in respect of contributions to the restructuring benefits:

• the secured creditors were contributing 95.9% of the benefits by way of writing off £218m of secured debt and providing £20m of new money;
• the unsecured creditors were contributing 4.1% of the benefits by way of writing off £10.18m; and

• in respect of distribution of the restructuring benefits:

• the secured creditors were receiving 85.6% of the benefits by a £10.92m net saving on the costs of avoiding a pre-pack administration;
• the unsecured creditors were receiving 14.4% of the benefits by way of an uplift in the payment to be made to them under the plans compared to their returns in the relevant alternative.

The court found that the unsecured creditors were therefore receiving a “good deal” in comparison to the secured creditors and the allocation of the restructuring benefits was fair.  We would observe that a mathematical approach of this nature may be less helpful or indeed inappropriate where the restructuring contributions under a plan include intangible and therefore less numerically quantifiable benefits such as preserving a business as a going concern to facilitate an M&A deal.

Having regard to the satisfactory answers to the above four questions and the clearance by the plan companies of the jurisdictional hurdles, the court sanctioned the plans.

Take aways

The court’s willingness to sanction a complex suite of inter-conditional plans — despite ostensibly extensive creditor apathy — underscores how restructuring plans can be flexibly deployed to rescue fundamentally viable businesses grappling with the lingering effects of the pandemic, high inflation and tightened monetary conditions.

The deployment of a plan benefits report by the plan companies and the transparent quantification of the restructuring benefits allocation indicates that the plan companies sensibly took stock of the court’s increasing scrutiny of creditor engagement and the fairness of value allocation and formulated the plans accordingly, which saw them sanctioned without opposition or apparent delay.  The approach plan companies take to more complex or contentious restructurings may require more nuance than was called for here, given the relatively straightforward nature of the restructuring benefit contributions and allocations, but Turbo Group nevertheless provides a helpful demonstration of how the principles arising from Thames, Petrofac and Waldorf can be applied in the formulation of restructuring plans to streamline court approval and sanction.