Troubled cinema chain Cineworld asks High Court to approve restructure plans
Lawyers for four companies which form part of Cineworld said they would likely go into administration if the plans were not approved.
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Four companies which form part of the troubled cinema operator Cineworld are seeking High Court approval for a restructuring plan to allow them to continue trading.
Cine-UK Ltd, Cineworld Cinemas Ltd, Cineworld Cinema Properties Ltd and Cineworld Estates Ltd, which are parts of the UK arm of the world’s second-largest cinema chain, are “presently unprofitable”, the court was told on Thursday.
Lawyers for the four “plan companies” said that the US arm of the business had agreed to provide funding to keep them afloat on the condition that they would restructure, and will enter administration if the plans are not approved.
If the plans are not sanctioned, the plan companies will not have sufficient funds to meet their payment obligations to creditors
As part of the proposals, the companies would renegotiate the leases of some of their more than 100 sites across the UK which are “uneconomic”, and close six sites which are “commercially unviable”.
But the landlords of four sites – the Crown Estate and UK Commercial Property (UKCP) – are seeking an injunction blocking the companies from “compromising” their rental agreements, claiming that the companies entered into agreements last year which meant they could not be changed through restructuring.
Tom Smith KC, for the Cineworld companies, said in written submissions: “If the plans are not sanctioned, the plan companies will not have sufficient funds to meet their payment obligations to creditors.”
He continued: “In these circumstances, the plan companies’ directors will likely have no choice but to file for administration.”
Mr Smith said on Thursday that the companies currently run 101 cinemas in the UK under the Cineworld brand and a further two which are sublet under the Picturehouse name, which it also owns.
A previous hearing was also told that the cinemas employ 4,401 staff, with the wider group operating cinemas in 10 countries, including the US under the Regal Cinemas brand.
But the court heard that the business was “severely adversely impacted by the Covid-19 pandemic and government restrictions”, which was further compounded by strikes by screen actors and writers last year, leaving the companies facing “severe financial difficulties”.
While the group underwent a restructure in the US last year, Mr Smith said in written submissions that the UK arm continued to struggle with a “significant” number of “over-rented” leases, where the rent the company pays is higher than the property’s market value.
The brand announced in July that it would close six sites – in Glasgow Parkhead, Bedford, Hinckley, Loughborough, Yate and Swindon Circus – but that all sites would continue to operate until the restructuring plans were approved.
Mr Smith said that the US arm of the company had provided the UK firms with around 65 million dollars to allow it to keep trading up to the end of June this year, with rent costing £19m also paid for on the condition that the company would undergo a restructuring.
The barrister continued that the US arm had also agreed to pay £16.7m in rent due for the three months up to the end of September as there was “no prospect of raising the money from anywhere else”.
If the plans are approved, £16m of new equity funding from the companies’ indirect parent firm will be released to fund their immediate financial needs, with further funds of up to £35m also made available.
But the Crown Estate, which is the landlord of sites in Newcastle and Harlow, and UKCP, which owns sites in Glasgow Renfrew and Swindon, are seeking an injunction blocking the companies from changing the leases for the four sites under the plans.
What the plan companies promised not to do is precisely what they are now doing
Barristers for the two bodies told the court that they renegotiated the tenancy agreements with the companies last year and that those agreements meant that the terms of the leases could not be further “impaired”.
Ben Shaw KC, for the Crown Estate and UKCP, said in written submissions that there would be “adverse consequences” for the landlords if the leases were subject to restructuring plans, including receiving just one month’s rent.
In court, Mr Shaw said the agreements meant the landlords “bargained to be outside” the restructuring process by renegotiating the terms of the tenancies “in return for contractual protection from further impairment by means of a (restructuring) plan”.
He said: “One of the things they bargained for was the plan companies not coming back for a second bite of the impairment cherry.”
He added: “What the plan companies promised not to do is precisely what they are now doing.”
Mr Smith said that it was fair to treat all landlords equally, and that “there was never any intention” to “impose a further compromise” through restructuring when the agreements were made.
But he added that it was now necessary to make the change thanks to the “unexpectedly poor performance of those sites in the period since the agreements were entered into”.
Mr Justice Miles will give his judgment at a later date.