Before the Cineworld group restructuring plans were put together, UKCP and the Crown Estate had both undertaken lease renegotiations with their respective Cineworld tenants. They had agreed substantial concessions to assist the Cineworld group to recover from the difficult trading conditions it had faced during the COVID pandemic. As part of those deals, the Cineworld tenant companies had agreed in contractual side letters that if Cineworld proposed a restructuring plan at any time in the future, the group would not seek to compromise the renegotiated leases any further. On that basis, UKCP and the Crown Estate asked for their leases to be excluded from the Plans.

The judge, Mr Justice Miles, approved (sanctioned) the plans, dismissed the requests for injunctions and refused to exclude UKCP and the Crown Estate from the Plans, holding that:

• The Plans applied notwithstanding the terms of the settlements concluded before the launch of the Plans by UKCP and the Crown Estate. The result was that the Plans could, in effect, "undo" those settlements;
• UKCP and the Crown Estate were therefore in the same position as other landlords in the same class within the Plans;
• That in turn meant that UKCP and the Crown Estate had to be treated in the same way as the other landlords. Had the pre Plan agreements been upheld, UKCP and the Crown Estate would have received, wrongly, preferential treatment over other landlords.

The takeaway for landlords is stark – any promise by a tenant company purporting to ring-fence a lease or protect a landlord from the effects of a future restructuring plan is very unlikely to be worth the paper on which it is written. 

UKCP has been given permission to appeal. It therefore remains to be seen whether the sanction judgment of Miles J will be reversed. At first blush, we consider that to be unlikely as his judgment is on the face of it consistent with earlier plan rulings, most notably that of the Court of Appeal in the Adler case earlier this year. However, this does not mean that it is now impossible for landlords to negotiate terms by which their leases might be excluded from a restructuring plan. Cineworld reached consensual agreements with several landlords shortly before launching its restructuring plans, resulting in their exclusion from the plans. Indeed, experience shows that the proponents of restructuring plans very often conclude such agreements with creditors "at the door of the plan". In those cases, the proposal of a restructuring plan becomes the catalyst and lever for the conclusion of settlements with key creditors. That is because concluding a bespoke settlement will almost always be more cost effective and "certain" in outcome than making a plan challenge.

The full judgment can be found here. If you have any queries or would like advice on the issues raised here, please contact Rachael Reynolds or Joe Bannister. Joe is one of the DAC Beachcroft restructuring partners. He and his colleagues will shortly produce an article analysing the judgment from the perspective of other Plan cases and the wider restructuring and insolvency market.