Cross-class cram down in action: English Court approves River Island's restructuring

Quick read

The English High Court has given the green light to River Island's restructuring plan (RP) – the first of two recent decisions focused on extensive leasehold restructuring (see our alert on Poundland, for the second decision).

Background

River Island, a well-known UK fashion retailer faced severe financial difficulties due to increased costs, reduced in-store sales and high rent payments.

River Island's RP sought to extend the maturity date of existing facilities, provide new funding, close 33 unprofitable stores and amend lease terms for 71 viable stores. Some landlord creditor classes weren't happy with the proposals and voted against the RP.

Decision

The Court started by confirming that the two threshold requirements for cram down were met: no creditor was worse off than in the relevant alternative (receiving 200% of estimated administration returns); and at least one 'in the money' class approved the RP (including certain landlords).

Applying the guidance from the Court of Appeal's decisions in Adler, Thames Water and Petrofac, the Court then exercised its discretion to sanction the RP and cram down dissenting landlord creditors. Here's what convinced the Court:

Genuine restructuring: The RP represented a real attempt to bridge a funding gap whilst the company worked through its operational restructuring.
Rational methodology: Any different treatment of landlords was from a carefully applied rational methodology.
Market-beating terms: The 'rescue' funding was on more favourable terms than River Island could have secured in the open market.
Fair distribution: The RP was a fair sharing of the benefits and burdens between the creditors. Notably, this was one of the first cases to use a 'Plan Benefits Report' – a tool that demonstrated the treatment of dissenting classes was not out of line with assenting classes.