A judge who sanctioned a rescue strategy for the former WH Smith retail chain, now operating as TG Jones, expressed concerns regarding the retailer’s future viability, highlighting significant challenges ahead for a successful recovery.
In his ruling released on Wednesday, Mr. Justice Hildyard remarked that the restructuring plan, which entails closing 150 of the company’s 450 locations, resembled a risky equity investment. His comments followed his approval of the plan last month.
The judge noted that the proposed turnaround initiatives may appear more as broad aspirations rather than solid foundations for optimism about achieving success. He emphasized the substantial risk involved in executing the plan, pointing out that the company’s current valuation of £3 million starkly contrasted with its acquisition price of approximately £40 million just a year earlier, indicating potential for both significant losses and gains.
Previously employing around 5,000 workers, the retailer was acquired last year by Modella Capital, a private equity firm also associated with Hobbycraft and previously owning the UK branches of Claire’s and The Original Factory Shop before their recent failures. Modella has also recently acquired Flying Tiger, a Danish company recognized for its affordable home goods and craft supplies, which operates around 1,000 stores globally.
The former WH Smith continues to operate in airports, hospitals, and train stations, prompting Modella to swiftly rebrand the high street outlets to TG Jones.
Following the acquisition, sales rapidly declined, leading Modella to warn of potential administration if the restructuring, which includes writing off supplier debts and reducing rents for several landlords, was not approved.
Despite his reservations regarding the likelihood of success, the judge approved the restructuring plan due to Modella’s commitment to invest further in the business.
Alex Willson, the CEO of TG Jones, stated last month that the plan’s approval enables the company to progress with its recovery strategy. He asserted that the plan safeguards the core store operations and positions TG Jones as a more resilient and sustainable business.
The court’s approval was necessary for what is referred to as a “cram down” scheme, as several creditor groups, who would incur losses under the plan, had opposed it. This legal framework allows courts to enforce a restructuring on dissenting creditor classes under specific conditions.
Less than one-third of general creditors, including manufacturers of cards and pens, supported the plan, while no landlords of underperforming stores—where rents will be reduced to zero or eliminated—endorsed it. Smaller suppliers, such as toy manufacturers, were expected to lose at least half of the amounts owed by the former WH Smith high street chain due to the restructuring.
Hossein Dabiri, the head of courtroom reporting in Europe for the credit analysis firm Debtwire, commented that Justice Hildyard’s ruling underscores the delicate balance UK courts must maintain with restructuring plans that involve cross-class cram downs. He highlighted the need for careful examination to prevent these processes from becoming tools for exploitation or maneuvers by private equity, while also considering the genuine risk of imminent collapse faced by one of the remaining major high street retailers.
