CR-2025-004514 - [2025] EWHC 2755 (Ch)

Because the restructuring plan has not been approved by all classes of creditor the question arises whether the Court should exercise its power to “cram down” the dissenting creditors. There are two threshold requirements.

First, section 901G(3) of the 2006 Act requires that no member of the dissenting class shall be any worse off under the restructuring plan than it would be in the relevant alternative. This is to be analysed primarily, but not exclusively, in terms of the anticipated return on their claim. In the instant case that test is satisfied in relation to each dissenting class. All receive 170% of their Estimated Return: and compromised creditors who receive less than 100% of their claim can participate in a profit-sharing mechanism. All receive that payment earlier than they would in the relevant alternative. Landlords have their rent and property costs in a notional asset realisation fully replicated under the plan and remain able to recover possession if they do not wish to accept the amended lease terms.

Second, section 901G(5) of the 2006 Act requires that the restructuring plan be assented to by at least one class of creditor which would receive a payment or have a genuine economic interest in the relevant alternative. This test is also satisfied. The restructuring plan has been approved, in particular, by the Unsecured Loans Creditor (which does worse under the plan than in the relevant alternative), the Class B3 landlords and the Business Rates creditors. The application of this test requires careful scrutiny to see the that the statutory condition has not been satisfied by the vote of an artificial class created with the object of it approving the plan and therefore providing the restructuring plan with the requisite anchor for the purposes of the section. There are in the instant case three single member classes; but they derive from the terms of a robustly conducted open market sale (albeit one that had a restructuring plan firmly in view).

The satisfaction of those two threshold conditions opens up the exercise of the discretion to approve the restructuring plan notwithstanding its failure to secure the approval of all classes. The purpose of this discretion is to enable the Court to prevent any one class of creditor from exercising an unjustified right of veto: Re Petrofac [2025] EWCA Civ 821 at [131]. But that does not mean that that only a single class may be “crammed down”. I shall adopt again the principles which I summarised in Re River Island Holdings [2025] EWHC 2276 (Ch) based upon the guidance provided in the three recent Court of Appeal decisions in Re AGPS Bondco plc [2024] EWCA Civ 24, Re Thames Water Utilities Holdings Ltd [2025] EWCA Civ 475 and Petrofac (supra).

Those principles are:-

In the instant case no dissenting creditor appeared at the sanction hearing to argue which of the foregoing principles is violated by the present restructuring plan or to argue that there is some other fairer and achievable plan: and Poundland, bearing the burden of persuading the Court that the restructuring plan should be approved, cannot be expected to argue the case for the dissenting creditors. I entirely share the view of Richards J expressed in paragraphs [75] - [77] of his judgment in Re Revolution Bars [2024] EWHC 2949 (Ch) that in the absence of adversarial argument a judge can do no more than take a “high level” view of the restructuring plan.

The absence of reasoned opposition at the sanction hearing speaks volumes. Poundland has made serious attempts to engage, in particular, with its landlords. I have already noted the attempts to negotiate consensual adjustments to the leasehold estate and the difficulties it faced. Following the circulation of the Practice Statement Letter Poundland offered meetings with its top 16 landlords (representing about 20% of the leasehold estate). 13 landlords engaged in this process. Since the Convening Order attempts have been made to engage with a further 27 landlords who between them had 220 units spread across each landlord class. None responded. Enquiries were received from a further 41 landlords and were dealt with. Notwithstanding these efforts there has been no collective response from any class of landlord; and no articulated challenge to the plan. (I should add that there has been engagement with the British Property Foundation, but whilst it could comment upon the restructuring plan from a property perspective, highlight where the proposal could generate opposition and make suggestions for improvement, the BPF plainly could not negotiate the terms of that plan on behalf of landlords).

After the Convening Order solicitors for one multiple landlord (British Land (“BL”)) did seek further information and did enter into correspondence which led to a letter dated 20 August 2025 (received after the conclusion of the plan meetings that day and five days before the scheduled sanction hearing) purportedly advancing “an alternative restructuring…that is better and fairer than the one proposed by [Poundland]”. But this letter simply set out proposals for BL to be treated substantially more favourably than other members of the relevant class e.g. that the rents should not be reduced to the same degree or that rent arrears or dilapidations claims were not to be compromised. It did not say whether the additional benefits conferred on BL (which amount to over £300,00 in respect of rent alone) were to be taken from other class members or from other creditor classes or from those providing funding for the plan. It did not set out an alternative plan. It proposed that these advantages should be conferred by way of a “side deal” that would not be put before other creditors (as an “alternative restructuring” that was better than Poundland’s plan would have to be). BL did not appear at the sanction hearing: it merely required its exchange of correspondence to be placed before me. Unsurprisingly Ms Peters (following Mr Smith KC) reminded me of the observation of Snowden J (as he then was) in Re Smile Telecom Holdings [2022] Bus LR 591 at [53] that dissentients “must stop shouting from the spectators’ seats and step up to the plate”.

I appreciate the difficulties faced by creditors. The applicant will generally have had weeks (or perhaps months) to put the restructuring plan together. The Practice Statement Letter often fires the starting gun for the creditors, and they have little time to respond on a collective basis, which is the desirable way forward. It is desirable because at the sanction hearing the task of dissenting creditors arguing that there is a fairer alternative (as opposed to simply identifying some fundamental unfairness in the applicant’s plan) will be to present to the judge a coherent and comprehensive plan which has a real prospect of implementation, a plan which leaves the judge in genuine doubt as to whether the applicant’s plan is fair (and so prevents the applicant company from discharging the persuasive burden upon it). What the judge cannot be presented with is a jumble of incoherent requests for different treatment.

Whilst Part 26A exists precisely because it is not possible for a company in financial distress to negotiate with each of its creditors on a bi-lateral basis, and there is no requirement that it should attempt to do so, individual creditors can engage with the plan company directly (both before and after the Practice Statement Letter) so that, if appropriate, consensual arrangements can lead to them being placed within a different class or being treated as an excluded creditor and the plan amended accordingly. After the convening order, which will have constituted the plan meetings and directed the circulation of an Explanatory Statement setting out the restructuring plan in its then form, subsequent consensual arrangements could lead to amended proposals being put before the plan meetings upon proper notice. After the plan meetings have been held consensual arrangements which depart only in minor ways from the treatment of the class as set out in the plan before the plan meeting might still be placed before the Court at the sanction hearing if suitable for consideration pursuant to any modification provision in the plan itself. Otherwise, fairness to the creditors as a whole requires that any notable change needs reconsideration by reconvened class meetings: and it may not be possible to reconvene such before insolvency intervenes. I restate my view that the judge at the sanction hearing cannot be presented with a jumble of incoherent requests for different treatment.

BL had all of these opportunities. Poundland engaged with BL before the circulation of the Practice Statement Letter on 12 June 2025. It then had a series of informal contacts with BL ending in a formal meeting on 17 June 2025. The Convening Order was only made on 8 July 20025. The plan meetings were not held until 20 August 2025. The course taken by BL was most unwelcome in this respect: it was also unwelcome and unhelpful in not engaging properly with the Court.

The exercise of the discretion must therefore be undertaken by way of a high-level review of the plan according to the principles I have summarised.

The essential benefit of this plan is that it allows Poundland to continue trading whilst it seeks to deliver a turnaround enabling it to meet its obligations to creditors from operational cashflows during the restructuring period and thereafter.

The outstanding feature of this plan is that this benefit is primarily generated by Pepco which has subordinated its financial interests to its desire to preserve the business and to transfer it to new owners rather than to liquidate it. It has thus extended the maturity of its secured loan, extended a substantial overdraft facility at a preferential rate and written off unsecured loans standing at some £245 million in return for a 30% stake in the surviving business (whose entire equity has a Day 1 valuation of £0-£4 million according to an Equity Valuation Report by Alexis Anaman of FTI Consulting). Pepco has, in effect, at the outset contributed by way of write-off and new or confirmed lending about £327 million (twice the contribution of all other creditors combined) to underpin the survival of Poundland: and one day might recover £124 million (its Secured Loan and overdraft and the speculative value of its equity holding) if the target EBITDA is reached. Pepco therefore has a strong voice in the allocation of any benefit. The eventual allocation results not from some arbitrary choice by Pepco but from a robust and competitive sale process focussed upon the purchaser willing to provide the most post-sale finance to support the business in its attempted preservation.

The secondary source of the benefit of preservation is Peach which has contributed £95 million. Although strictly only £35 million results from the approval of the plan, the balance was originally advanced to provide a liquidity runway whilst the plan was promoted, and it is in reality a direct contribution to the preservation of the business. Once again, if (and it is a real “if”) the target EBITDA is reached Peach will obtain repayment of its lending and also have an equity holding worth a speculative £118 million, the result of the application of the skills of Gordon Brothers’ specialist turnaround team made available to Poundland at no cost, and the generosity of Pepco. No-one has appeared to argue and no-one has adduced evidence to suggest that this is a disproportionate return upon the risks run. In the 2025 sales process no other prospective purchaser of Poundland was prepared to advance more or to accept less: and that seems to me to indicate that the return to Peach is in line with market expectations.

Accordingly, I see no basis for holding that either the priority accorded to funds injected into Poundland to preserve the company or the allocation of equity is unfair vis-à-vis the landlords and other creditors.

The dissenting classes are all unsecured creditors. In an asset-realising administration they would rank pari passu.Under the restructuring plan within the category of unsecured creditors there is differential treatment. All do better than in the relevant alternative, but the degree of adjustment of their rights varies as does the compensation for that adjustment (because that compensation reflects their respective returns in the relevant alternative).

The differential treatment within the landlord class has an established and rational basis; those who have in the past made and will in the future make the greatest contribution to the preservation and success of the ongoing Poundland business benefit more than those whose properties are over-rented and have contributed to the present crisis. Nor is this differential treatment imposed upon an unwilling landlord: each has a “break right” enabling market opportunities to be exploited.

Nevertheless, all but one of the landlord classes voted (or is treated as voting) against the plan (notwithstanding that it satisfies the rationality test). That volume of class opposition must obviously give pause for thought. Is it right to “cram down” almost an entire category of creditor (landlords) to impose a plan favoured by another category (financial creditors)?

I do not think that question can be answered in the abstract. It depends upon the reasons underlying the opposition, as to which I have no assistance. Particularly puzzling are the votes of the classes that are not really impaired – the Class A and DC landlords. Why would you vote against the payment in full of your rent during the rent concession period (albeit at a different time) and of your property costs and by that vote risk in consequence the cessation of all payments, the vacation of your property and the disorderly termination of your lease? Of course, 73% of the Class A landlords did not vote in that way. It suggests that there is some factor extraneous to class interest that influenced the vote of some at least of the other 27%. One real possibility is that they were multiple landlords with leases in other classes who decided to “block vote” against the plan irrespective of the merits of the treatment of individual classes. Another possibility is that they did not consider the pending insolvency to be real (whatever the Explanatory Statement said). The sole DC landlord who voted probably objected to the ability of Poundland to exit the DC leases through use of the break clause: but the relevant alternative would seem to offer a worse eventuality.

Since I accept the evidence of imminent insolvency and have held an asset-realisation administration to be the relevant alternative I do not consider it unfair to impose upon the Class A and DC landlords a restructuring plan which addresses this reality and leaves them substantially unimpaired and with a right to exit.

The dissenting Class B landlords are treated differentially inter se and in relation to the Class A and DC landlords. There is a rational basis for this treatment. The differing adjustments under the plan are simply a result of the degree to which the current rent has to be reduced to make the demised premises sustainable as a Poundland store: and the differing outcomes are simply a reflection of claims in the relevant alternative. No-one appeared at the sanction hearing to argue that the same benefit could be achieved for Poundland by treating Class B landlords differently in relation to other creditor groups or by sharing the burdens or benefits differently amongst the Class B landlords themselves and I do not think it for the Court of its own motion to devise such a plan. One can see that landlords like those in Class B might reject a plan at their meetings in order to call the bluff of shareholders and financial creditors and prompt some better offer. But on the evidence neither Peach nor Pepco is prepared to inject more money: and I accept that evidence. After all, Peach paid nothing for its equity and would recover all its lending in an administration; and Pepco would recover its Secured Loan in the relevant alternative and something (more, in fact, than it gets under the plan) in respect of its Unsecured Loans, which monies it placed at risk since before the restructuring plan was created. Any different treatment of the Class B landlords would therefore seem to involve an impairment of the Class A and DC landlords and a departure from the rational methodology which underpins the present allocation of benefit: and I do not consider that “fairness” requires such an approach.

The same applies to the Class C landlords whose leases may well be terminated under the plan: and also to the General Creditors. Their returns in relation to other classes simply reflect the weakness of their bargaining positions given what they would receive in the relevant alternative.

Poundland put in evidence an expert “Allocation of Benefits Report” prepared by Lindsay Hallam of FTI Consulting commenting upon the contribution made by various creditor classes and the distribution of plan “benefits to plan creditors”. This is only the second such report I have seen. Whilst I commend its thoroughness such a report does have its limitations. As the Report itself says it “does not purport to contain all information that may be required to evaluate the proposed restructuring plan”, and of necessity it piles assumption upon hypothesis. It cannot place a figure upon some beneficial aspects of the plan, such as Pepco’s sacrificial approach, Peach’s contribution of turnaround expertise, the avoidance of empty property risk, the ability to recover possession and offer a property to the open market or the value of the continuation of Poundland as a viable rate-paying and job-preserving entity. Its methodology treats the repayment of new money advanced on market terms (or indeed, at below market rates) as a benefit received under the plan. It focusses upon the term of the restructuring, and so, for example, assumes that Pepco’s lending will be repaid by 1 September 2028 (even though the facility extends until 1 September 2030). I do not in these observations make any criticism of Ms Hallam, whose work is impressive. I am simply commenting upon the inherent limitations of the exercise. But the exercise has been undertaken, and its results deserve consideration.

The results are set out in a table and detailed commentary. Excluding the potential profit share the figures are these:-

The variance in the table reflects both the treatment of all repayments of restructuring finance as a benefit and the fact that the payments under the plan are linked to the differing “trade-out” periods assumed in the relevant alternative. Any over-statement of the benefit to one creditor class will, I think, lead to an understatement of the proportionate benefit of other credit classes. Nor can one place too much weight on small figures given the margin for error in calculation. So, I do not consider that this table demonstrates any fundamental “unfairness” (other than towards Pepco which supports the plan) such as would indicate that, even in the absence of reasoned opposition, I should refuse to sanction the plan.

I have undertaken one further cross-check on my own initiative. Taking a broad overview the value of the votes cast in favour of the plan (rounding to one decimal place) was £358.4 million and that of those cast against the plan was £42.9 million. If one disregards the votes of Peach and of Pepco those voting favour totalled £50 million (compared the £42.9 against). Plainly one cannot place a great deal of weight on overall voting figures (given that the statutory scheme requires voting by classes and prescribes a 75% threshold). All one can say is that there is more support for the plan than there is opposition to it. As Mr Perkins reminded me in his submissions, no plan will satisfy everyone, no plan is perfect.

I have also taken a step back and looked outside the confines of the restructuring plan itself. In my judgment there is no unfair allocation of benefit to those who are not scheme creditors. As to the excluded creditors, there are sound commercial reasons for not including them within the scope of the plan. There are parties with whom for operational reasons an unbroken relationship on existing terms is essential to the implementation of the performance improvement plan (or those with whom terms have been negotiated which reflect the current market).

In the result I was satisfied that the restructuring plan ought to be approved and I so ordered.