[1]Poundstretcher Limited (which I shall refer to as the “Plan Company”) seeks an order pursuant to Section 901C of the Companies Act 2006 convening plan meetings of certain of its creditors (who I shall refer to as the “Plan Creditors”) for the purpose of considering and, if thought fit, approving a proposed restructuring plan between the Plan Company and its Plan Creditors (the “Plan”).[2]The Plan Company is a discount retail chain that operates the Poundstretcher business through a network of 298 stores across the United Kingdom. That includes Scotland and also Northern Ireland. The Poundstretcher group of companies targets customers seeking value and provides a wide variety of products at low prices. I initially confused the Plan Company with another well-known company Poundland Limited and wondering why a second restructuring plan had come before the Court. But Mr Tom Smith KC, leading Mr Henry Phillips and Miss Annabelle Wang, swiftly put me to rights on this, and I will deal with it accordingly.[3]The Plan Company is ultimately owned through a series of intermediate holding companies by Fortress Investment Group, LLC (“the Fortress Fund” or “Fortress”).[4]The context of the Plan, which follows a Company Voluntary Arrangement entered into by the Plan Company in 2020, is a substantial fall in turnover and its available cash. These losses, which are substantial, have been driven by present market conditions which suggests some deterioration in demand, but also, and of importance in the context of my consideration of the Plan, by the size and cost of the group’s leasehold portfolio. It is its case, in short, that it is over-rented and it needs to make arrangements through the medium of the Plan for the reduction of its obligations in respect of a number of its many leases. I think there are some 304 leases in total which are the subject of the proposals.[5]The Plan Company’s evidence is if the Plan is not sanctioned, it will have insufficient funds to meet its funding requirements of £2.8 million in the week commencing 28th June. This will increase, it is envisaged, to some £9.7 million in the week commencing 26th July 2026. In these difficult financial circumstances the directors of the Plan Company have concluded that they will likely have no choice but to file for administration, in the course of which the administrators are anticipated to continue trading for a limited period while available liquidity is used to support a sale of the stock, intellectual property and chattels of the Plan Company. That scenario is presented as the “Relevant Alternative” which is a central concept in the context of Part 26A restructuring plans.[6]To avoid this, the purpose of the Plan is to restore the Plan Company and the group to financial stability and to enable them to implement the turnaround business plan which has been devised (“the Turnaround Business Plan”).[7]The Plan has five basic features:(1) The first is the amendment of the Asset-backed Lending Facility (or “ABL Facility”), which is secured by a first ranking debenture with a supplemental fixed charge over assets.(2) The second is to amend the Shareholders’ Loan Agreement (the “SLA”), which is secured by a second ranking debenture. The SLA sets out the terms of a £30 million term loan (the “SLA Facility”) from CF PS Holdco (the “SLA Lender”), which is a subsidiary of Fortress Funds and an indirect shareholder of the Plan Company. The SLA Facility was in effect in two tranches: one facility (Facility A) which committed to £20 million in lending, and the other (Facility B) of £10 million. Already some £15.5 million has been drawn under Facility A. The Plan is calculated to enable the Plan Company to access the remaining £4.5 million from Facility A.(3) The third feature is a compromise and release in full of the Plan Company’s liabilities in respect of intercompany loans of a substantial amount.(4) The fourth is the restructuring of the Plan Company’s portfolio of leases.(5) The fifth is the compromise and release of the Plan Company’s unsecured business rate liabilities and certain other unsecured liabilities.[8]There are various classes of unsecured creditors, and in particular employees, suppliers and HMRC, which are not part of the Plan. They are carved out, as is conventional, from its proposed effect.[9]Accordingly, the Plan includes the following Plan Creditors only:(1) the ABL Lender;(2) SLA Lender;(3) the Intercompany Lender;(4) six classes, as has been proposed, of Landlord Creditors, three classes of Guaranteed Landlord Creditors – that being a reference to landlords who also have a guarantee from the immediate holding company of the Plan Company called PLL;(5) General Property Creditors; and(6) Business Rate Creditors. A total of some 14 different class meetings are thus proposed.[10]It can be seen that, in effect, the constituencies affected can be divided generally between the financial creditors on the one hand, the landlord creditors on the other hand, and (if I had a third hand) the other more general liabilities. The proposals altering the first group, in respect of the Plan Company’s capital structure, involves certain amendments to the ABL; secondly, amendments to the SLA, most importantly to extend its maturity date from 31st December of this year to 13th June 2029. The third, as previously intimated, is to forgive the inter-company loans in the sum of £8.9 million.[11]The second category, which is the one which causes most of the heavy lifting as it were, relates to the 304 leases. The landlords have, for the purposes of identifying the requisite class meetings to be convened, been divided into three basic classes with sub-groups: class A, class B and class C; with the sub-groups being class A1, class A2, and class A2 Guaranteed Leases, class B1 leases and class B1 Guaranteed Leases, class B2 leases, class B3 leases, class C leases and class C Guaranteed Leases.[12]In the case of class A leases of all three varieties, these are forecast to make a sustainable EBITDA contribution or are considered by the directors to be strategically important, and no reduction in the lease payments is proposed as regards them. In the case of class B Leases of both sorts, they are forecast to require rent reductions of 25% to make a sustainable EBITDA contribution in 2026. Class B2 Leases comprise leases which are forecast to require a greater rent reduction of 50% to make a sustainable EBITDA contribution. Class B3 Leases are forecast to require rent reductions of 75% to the same end. Class C Leases and class C Guaranteed Leases comprise premises where the Plan Company is no longer trading, and those leases that are forecast not to make a sustainable EBITDA contribution, even with a 75% reduction.[13]Also of note is that a common feature for all classes of Leases is the entitlement of Landlord Creditors to receive a “Compromised Property Liability Payment” in exchange for the compromises under the Plan. The Compromised Property Liability Payment is an amount equal to 175% of the returns which the relevant Landlord Creditor is estimated to receive in the Relevant Alternative, plus contractual rent, insurance and service charge payments for respective periods of(a) 84 days (for Class A1, A2 and A2 Guaranteed Leases to the extent a Class A1, A2 or A2 Guaranteed Landlord takes steps to determine its Lease prior to the expiry of its term,(b) 28 days (for Class B Leases) or(c) 14 days (for Class C and Class C Guaranteed leases). This is to reflect the fact that the Landlord Creditors would be likely to be paid these sums for this period in the Relevant Alternative, given that administrators would be expected to remain in occupation for this period to realise the Plan Company’s inventory through store closing sales. The Compromised Property Liability Payment will be calculated by reference to the Landlord Creditor’s unsecured claims against the Plan Company, and there are provisions stipulating how and within what time period any such claim is to be made.[14]Further details as regards each of these proposed classes, and the effect on each of the Plan, are set out in considerable detail in a long Practice Statement Letter. This, despite its length, is readily understandable and which I have found very useful and consider that it should be of use to anyone wishing to interrogate more closely the content and effect of what is proposed. Suffice it to say for the present that the division of the Leases into six categories follows a review by the Plan Company’s management and there analysis of the level of store contribution required for each store to cover a portion of the central costs and overheads of the Plan Company, using store gross profit less store payroll, rent, rates, service charge and directly attributable store costs. The use of such criteria to categorise leases into different classes has been used in a number of restructuring plans involving lease liabilities, including (for example) Re Poundland Limited [2025] EWHC 2755 (Ch) at [21].[15]Turning to the issues to be determined now, it is both conventional and important to stress at the outset my limited function at this particular juncture of the process, that is the convening hearing. As David Richards J (as he then was) emphasised in Re Telewest Communications plc [2004] EWHC 924 (Ch), the function of the court at this stage is “emphatically not” to consider the fairness of the proposal. That is a matter left to any sanction hearing which follows.[16]My function for present purposes is to consider the questions of jurisdiction, sufficient notification – both in time and content – and the class composition which the Plan Company has proposed. I am also required, especially under the latest Practice Statement, to consider whether there are any roadblocks or even any objections which might require further evidence or submission. The purpose of this is both to put an end to a plan which plainly has no hope of success, but in the other category to make directions to enable a convenient and efficient sanction hearing, with everyone having had their chance to put in their objections (if there are any) and for the relevant plan company to respond.[17]In this case, I should note that an objection has been notified as likely to be made at the sanction hearing, and indeed when I asked whether there was any objection presently, a director of two of the landlords made submissions to me in a very concise and clear form that they would be objecting at the sanction stage. I have also received letters explaining this both from the two landlords themselves (dated 30th April), and from lawyers recently instructed on their behalf, namely, Edwin Coe LLP. But having carefully considered what was said and what is stated in those letters, it seems to me plain that the objection is not to the class competition or a jurisdictional issue; it is the fairness of the proposals which will have to be considered at the later stage and not now.[18]In terms of jurisdiction, there is no real issue. The Plan Company is plainly a company for the purposes of Part 26A, being incorporated in England and Wales and centred here.[19]So far as the conditions which are specified in Part 26A as the gateways to the availability of the Part 26A machinery, I am in no doubt, having regard to the description given of the Plan Company’s financial affairs, that the two conditions can be seen to be satisfied.[20]In short, I do not consider there to be any want of jurisdiction on either ground. Put another way, I think that the conditions have been fulfilled. I need only add that there is always a question whether what is proposed constitutes an arrangement within Part 26, or Part 26A in this case. There must be give and take, but there plainly is in every aspect of what is proposed, especially bearing in mind the somewhat exiguous nature of what is required, in that the court does not inquire as to the adequacy of the give or take, simply the fact of something moving from each constituency to the plan company and vice-versa.[21]Moving on to the real nub of the day, which is the question of class composition, it is for the plan company, which will have detailed knowledge of what is proposed, to put forward to the court its recommendation as to how classes should be composed, and it is then for the court to assess whether that appears sensible. In this case, as I have stated, the class composition proposed of the landlord creditors is of separate meetings for class A1, class A2, class A2 Guaranteed, class B1 Landlords, class B1 Guaranteed Landlords, class B2 Landlords, class B3 Landlords, class C Landlords, class C Guaranteed Landlords. I have discussed during the hearing with Mr Smith whether that number was truly required, or whether, for example, all the Guaranteed Landlords could commune together with a view to their common interests, but he has persuaded me that the class composition proposed is rational, even if it might tend towards the cautious. In circumstances where it is not apparent that there is any contrivance in what is proposed, nor would I expect there to be, I am prepared to approve what is proposed with respect to the classes of landlords.[22]So far as the financial creditors are concerned, it seems to me plain that the ABL Lender, the SLA Lender and the Intercompany Lender must each be in separate classes, as is indeed proposed. Finally, the General Creditors and the Business Rates Creditors must also be in separate classes – making 14 classes in all.[23]So far as the notification of those constituents is concerned, I have already mentioned the comprehensive nature of the Practice Statement Letter, which I understand was sent some 37 days before today. In addition, there was a virtual townhall meeting for landlords who wished to attend to have it explained to them. Mr Smith made clear that that was for the purposes of presentation rather than consultation, but within that purpose appears to have been a useful adjunct by way of further oral explanation.[24]The period is, in my view, even having regard to the length of the Practice Statement Letter and a certain complexity consequent on the number of classes, sufficient. It appears to me that the relevant constituencies have each been notified and given sufficient information to assess the position with the benefit (if they sought it) of legal advice.[25]So far as the directions to be given, which is the last of the matters before I deal with any roadblocks, what is proposed is set out in the draft order which Mr Smith has explained seems to me sensible, subject to two points. The first was, that I raised with Mr Smith, my anxiety lest a virtual only meeting might in effect exclude people from participation if they happen not to get in their relevant paperwork by a given date, without any prospect of asking the Chairman to make an exception in their case because they might not have the link. This was a point I raised in another matter, in fact yesterday, where some wording was devised to ensure that people could by application to either the Information Agent or some other email address obtain any link that might be necessary. Mr Smith very kindly agreed that that also would be inserted by amendment.[26]The second aspect relates to the evidence and submissions of the notified objectors. It had been proposed that they should have two weeks to put in submissions and evidence, and I have slightly curtailed that so that, in lieu of them having to do this by 4 p.m. on 22nd May, they should do so by 4 p.m. on 20th May. This is to enable the Plan Company to respond by 27th May in lieu of 29th May, and will also enable all skeleton arguments to be provided by 12 p.m. on 1st June, which will be in court vacation but will enable whoever is to deal with this matter as much time as is possible. I do stress that the objectors must put in any evidence upon which they rely, as well as any submissions on which they intend to rely, by the dates indicated.[27]Apart from one or two smaller points relating to drafting, which I also raised with Mr Smith, that leaves only the issue of potential roadblocks. There will be a point of some interest with regard to the recognition and effectiveness of a scheme which also extends to leases governed by Scottish law and by, in other cases, Northern Irish law, and that is to be catered for by expert evidence. The draft provides for four areas of expert evidence to be provided in accordance with the provisions of CPR 35. Beyond that, I have not seen either any wrinkle or roadblock at the present stage. I am content, therefore, that the matter should proceed to the class meeting stage, subject to the directions I have given. Digital Transcription by Marten Walsh Cherer Ltd., 2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP. Telephone No: 020 7067 2900. DX 410 LDE Email: info@martenwalshcherer.com Web: www.martenwalshcherer.com