The owner of TG Jones, WH Smith’s former High Street business, has won approval for a sweeping restructuring which will see up to 150 shops close as well as steep rent cuts on most of the remaining stores.
Modella Capital bought the chain stores last year and they were then rebranded under the name TG Jones. There are currently 451 stores employing 4,700 workers.
WH Smith travel stores, in railway stations and airports, weren’t part of the deal and the business kept the rights to the historic brand name.
But less than a year later, Modella announced a radical restructuring plan blaming “challenging retail conditions”.
As well as store closures, some 120 landlords will receive no rent for up to three years; and rent will be cut on hundreds of other stores by between 15% and 75%.
Modella says the plans are vital for the survival of the business and will use some of the cost savings to invest in stores as part of its turnaround strategy.
The High Court heard this week that the retailer was on the brink of insolvency and was facing a cash shortfall of nearly £8m by the end of this week, unless the rescue deal was approved.
Tom Smith KC, for TG Jones, told the hearing that the business is “highly distressed” and “running on fumes at the moment”.
He said the business would have run out of cash in April had it not been for a £10m loan from Modella and a deferral in liabilities including a large tax bill from HMRC.
Modella said some of the problems were due to serious underinvestment in stores by the chain’s previous owners, saying long-term sales had declined.
But it also blamed its current poor trading on “challenging retail conditions” and its inability to keep the WH Smith brand name.
There was considerable opposition to the plans, led by property owner British Land who described them as “fundamentally unfair”. Modella sweetened the deal with several concessions, which convinced British Land to drop its opposition. Many suppliers are also taking a big financial hit.
The restructuring plan forecasts the business will end up with 302 stores depending on how many landlords exercise their rights to terminate the lease instead of accepting reduced rents.
The judge, Mr Justice Hildyard, had to decide if the restructuring was fair – whether creditors would be no worse off under than plan than if the retailer were to go into administration.
Mr Justice Hildyard gave the green light to Modella’s plans this morning.
In a summary of his judgement he described the plans as “complex in their terms and far-reaching in their effect”.
He said he’d been most concerned about the potential financial impact on landlords, but was persuaded the rescue deal was “objectively, the lesser of two evils” resulting from the company’s “trading failures and financial predicaments”.
Alex Willson, TG Jones chief executive, welcomed the court’s approval.
He said: “This decision allows us to move ahead with our turnaround strategy.
“The plan protects the substantial core of the store estate and makes TG Jones a stronger, more sustainable business.
“We are incredibly grateful to all the colleagues, partners and stakeholders who engaged constructively throughout the process, and to Modella Capital for its continued financial commitment.”
