Restructuring Plans: how to plan for an exit

Over the last 18 months we have seen a number of retailer restructuring plans, which have rewritten landlords’ leases and imposed sweeping rent cuts, whilst leaving other classes of creditors, including shareholders, group companies and secured lenders, materially unimpaired.

Brief background to restructuring plans 

Restructuring plans were introduced by way of the Corporate Insolvency and Governance Act 2020 (CIGA 2020), which introduced a new Part 26A into the Companies Act 2006. In short, a restructuring plan provides a mechanism for companies to restructure their obligations to creditors, including secured creditors, subject to obtaining the approval of at least some affected creditors. Each class of creditors, distinguished by their differing interests, votes separately on whether to approve the plan. 

Unlike company voluntary arrangements (CVAs), restructuring plans need to be sanctioned by the High Court and, unlike schemes of arrangement, they can be sanctioned by the Court even if, in the case of multiple classes of creditors, only one class of “in the money” creditors (meaning that they would receive a return in the event of the company’s insolvency) votes in favour by the required 75% majority. This is because CIGA 2020 introduced a mechanism known as the cross-class cram down, which allows the company proposing the restructuring plan to ask the Court to sanction the plan in such circumstances. 

The problem for landlords 

Landlord creditors have to act quickly and decisively if they want to oppose sanction on, for example, grounds of unfairness. There are many reasons for this including issues relating to so-called information asymmetry (the lack of financial information provided by the plan company), the tight timetables which restructuring plans now run to (with the whole process taking as little as two months) and the costs of bringing any sort of challenge. 

Landlord creditors will also be facing a plan company that will have invested heavily in the restructuring plan process. The government’s interim report on CIGA 2020, issued in 2022, makes this clear: “…at the top of the market [the costs of bringing forward a restructuring plan] are estimated to be in the region of £2m - £10m. In the mid-market the costs are estimated to be between £1m and £2m.” 

Where this leaves many landlord creditors is that they are disinclined to commit the time or resources to challenge a restructuring plan, even if there are valid grounds for challenging the same. Recent restructuring plans have demonstrated that landlords can successfully force a negotiation upon the company and procure better terms than those on offer, by taking steps to challenge the plan; but what if that is not an option? 

What else can the landlord do? 

The starting points is that, if a lease is going to be compromised under the terms of a restructuring plan, then the quid quo pro for this compromise is that the landlord should always be given a termination right. This follows case law in the context of CVAs where the Courts have held that a termination right for compromised creditors cures any unfairness in their treatment under the terms of the CVA as compared with unimpaired creditors, as it allows unhappy landlords to “get off the bus” ; that is, remove themselves entirely from the process (Lazari Properties 2 Limited & others v New Look Retailers Limited & others [2021] EWHC 1209 (Ch)). 

However, not all leases will be compromised under the terms of a restructuring plan. The most profitable leases (sometimes referred to as Class A leases), which the company will be most concerned about losing, will not be compromised, and as a result the landlord will not benefit from a termination right. 

Forfeiture 

Nevertheless, there remains a powerful remedy at a landlord’s disposal, which is the right to forfeit the lease. As was made clear in Discovery (Northampton) Ltd and others v Debenhams Retail Ltd and others [2019] EWHC 2441 (Ch), a CVA cannot compromise a landlord’s proprietary rights, including rights to forfeit. It appears to have been universally accepted that this principle applies equally to restructuring plans. 

Most modern commercial leases will include various forfeiture rights linked to tenant insolvency. For example, the Model Commercial Lease for a retail unit in a shopping centre includes a right to forfeit if a tenant “enters into a compromise, scheme of arrangement or restructuring under Part 26 or Part 26A of the Companies Act 2006”. The reference to Part 26A captures restructuring plans. 

Depending on how the lease is drafted, there may be other forfeiture grounds that would be triggered by a restructuring plan. Other examples include rights to forfeit for: 

• “proposing an arrangement”. This wording is broad enough to capture a restructuring plan; and 
• a Court order being made pursuant to section 901C Companies Act 2006. Section 901C deals with a Court order to call various voting meetings for creditors to vote on a restructuring plan. 

The result of this is that landlords are likely to have a right to forfeit, which will arise at some point during the restructuring plan process, and this will apply to leases even if they are not being compromised under the terms of the restructuring plan. It is also worth remembering that, unlike administration, there is no automatic moratorium that prevents a landlord from forfeiting without permission. This gives the landlord the option of taking back the premises. Even if a landlord does not want to relet the premises, the mere threat of forfeiture can be powerful leverage. The risk of losing a profitable Class A lease is often enough to encourage the plan company to enter into negotiations with the landlord for improved terms or a regear of its Class A lease. If the landlord has multiple sites with the company, which sit in various different classes, it can use the threat of forfeiture to improve the position of those non-Class A sites. 

What should landlords bear in mind?

Landlords should check their forfeiture rights carefully as, depending upon the precise wording of the right, it will arise at different times. For example, if the landlord’s right to forfeit is for “proposing an arrangement”, then this will arise at an early stage, at the latest when a Practice Statement Letter (which starts the process) is issued by the company. A well-advised landlord relying on such a right to forfeit would pre-emptively take steps before the restructuring plan is launched to avoid waiving the right. Such steps will include implementing a rent stop and ceasing open communications with the tenant. 

A tenant will always be entitled to apply for relief from forfeiture; however, as a general rule, in order to obtain relief the tenant must remedy the breach for which the landlord forfeited. Given that the tenant will be unable to remedy the breach if it relates to the restructuring plan process, it is likely to face an uphill battle in obtaining relief. 

What if the right to forfeit is not linked to the restructuring plan process? 

If there is no right to forfeit triggered expressly as a direct result of the restructuring plan process, the landlord may still be able to rely upon more general forfeiture rights, such as a right to forfeit for a company being unable to pay its debts. 

In such circumstances, the precise wording of the forfeiture right will be important. For example, does the right to forfeit only arise once the tenant is unable to pay its debts, or does it arise if the company “will” (i.e. in the future) be unable to pay its debts? 

A recent court decision involving WeWork (SBP 2 SARL v 2 Southbank Tenant Limited [2025] PT-2023-001162) has made clear that where a forfeiture right relating to inability to pay debts is by reference to sections 122 and 123 of the Insolvency Act 1986, and a landlord is relying on the grounds set out in section 123(1)(e) or section 123(2), which require the inability to pay its debts to be proved to the satisfaction of the Court, a prior Court determination is required before the right to forfeit in question arises, absent clear wording to indicate the contrary. 

Whilst the decision involving WeWork related to a US Chapter 11 bankruptcy restructuring process, the same principles will apply to a restructuring plan. Having to obtain a Court judgment that a company is unable to pay its debts is likely to be unworkable, given the tight timescales restructuring plans work within, because once the plan has been implemented the tenant will likely argue that, since its debts have been compromised, it is no longer unable to pay its debt. 

It is also worth noting that section 123(1) includes other grounds upon which a company will be deemed unable to pay its debts, including where a company has failed to pay a debt for 21 days following service of a statutory demand. However, this will be of no assistance to a landlord if there are no arrears outstanding. 

Takeaways 

The ability to leverage a right to forfeit, which a restructuring plan cannot compromise, is a powerful remedy which a landlord may be able to deploy to mitigate some of the compromises and concessions being imposed by a restructuring plan. What landlords do need to be careful of is inadvertently waiving the right to forfeit once it has arisen, which means landlords should carefully check their forfeiture rights to understand when they arise. 

As long as the landlord has not waived the right to forfeit, forfeiture can be threatened even after a restructuring plan has been sanctioned, which gives the landlord time to negotiate better terms with the company on a “without prejudice” basis and/or with an alternative occupier. 

An earlier version of this article appeared in Estates Gazette. 

Authored by Ben Willis.