Re Cineworld Cinemas

Hearing date: 26 September 2024

Approved Judgment

Introduction

Cine-UK Limited (“CUKL”), Cineworld Cinemas Limited (“CWCL”), Cineworld Cinema Properties Limited (“CCPL”) and Cineworld Estates Limited (“CWEL”), (together, the “Plan Companies”) seek orders pursuant to sections 901F and 901G of the Companies Act 2006 sanctioning four restructuring plans (the “Plans”) between each of the Plan Companies and certain of their creditors (the “Plan Creditors”). This judgment adopts some defined terms used in the Plan documentation; where relevant the definition is given below.

The Plan Companies are part of a group of companies (the “Group”), which operate cinemas in ten countries, including in the US and the UK.

The Group's UK cinemas are operated under the “Cineworld” brand and the “Picturehouse” brand (the “UK Group”). The Plans mainly concern the “Cineworld” cinemas of the UK Group.

The business of the Group was severely adversely impacted by the Covid-19 pandemic and government restrictions. This resulted in the Group undertaking a reorganisation under Chapter 11 of the US Bankruptcy Code in 2023. The Chapter 11 plan provided some liquidity and headroom in relation to the Group's financial indebtedness, but did not address the UK Group's lease liabilities in respect of its cinema sites.

A significant number of the UK Group's leases are described in the evidence as “over-rented” (that is, the contractual rent is in excess of market rent). This factor, together with difficult trading conditions arising from the screen actors' and writers' strikes in 2023, has resulted in the UK Group continuing to suffer severe financial difficulties.

The Plan Companies' case is that if the Plans are not sanctioned, the Plan Companies will have insufficient funds to meet their payment obligations to creditors including, materially, their quarterly rent, service charge and insurance payments of £16.7 million (and total obligations of £19.1 million) due on 29 September 2024. Their case is that, if the Plans are not sanctioned, the most likely outcome is that the Plan Companies' directors will have to place the companies into administration. They say that in that event it is most likely that some of the business and assets of the UK Group would be sold by way of a pre-packaged sale to US companies of the Group or to the Group's secured lenders.

The Plan Companies say that this is the “relevant alternative” for the purposes of the Act. They also say that this would result in a worse outcome for each class of Plan Creditors than that proposed under the Plans.

The Plans have five main features: (i) compromising and releasing the Plan Companies' secured loan obligations to the US Group in exchange for warrants for shares in the Plan Companies, and releasing the Plan Companies' unsecured intercompany liabilities, (ii) recapitalising the UK Group through £16 million of new equity funding from the Plan Companies' indirect parent company to fund the UK Group's immediate liquidity needs, with further funding of up to £35 million available to fund capital expenditure on the satisfaction of certain conditions, (iii) amending and extending time for payment in respect of the Plan Companies' obligations to their secondary secured lenders, (iv) restructuring the Plan Companies' portfolio of leases, and (v) compromising and releasing the Plan Companies' unsecured property and business rates liabilities.

The landlord-related provisions of the Plans follow the model used in a number of other plans including Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch), Re Listrac Midco Ltd [2023] EWHC 460 (Ch) and Re Fitness First Clubs Ltd [2023] EWHC 1699 (Ch).

The convening hearing took place on 28 August 2024 before Edwin Johnson J, who made an order granting the Plan Companies permission to convene thirty-one meetings of Plan Creditors.

The Plan meetings took place on 18 September 2024. Each of the Plans was approved by over 75% in value of those voting at the meetings of two classes of creditors: the Intercompany Lender class and the Term Loan Lender class. In addition:

(a) the CUKL Plan was approved by the requisite majorities of the CUKL General Property Creditors and the CUKL Business Rates Creditors;

(b) the CWCL Plan was approved by the requisite majorities of CWCL Business Rates Creditors; and

(c) the CCPL Plan was approved by the requisite majority of the Class B Landlord Creditors.

The requisite majority was not obtained at the other class meetings.

The Plan Companies now seek an order sanctioning the Plans under section 901F of the 2006 Act, including an order for cross-class cram down of the dissenting classes under section 901G.

The Plan Companies' position is that: (i) the statutory conditions for cross-class cram down are satisfied; (ii) the dissenting creditors are “out of the money” in the relevant alternative, save in two very limited respects, and their views therefore carry very little or no weight; and (iii) the Plans are fair to all classes, and there is no or no good reason why the Plans should not be sanctioned. The Plan Companies say that the Plans are necessary to save the Plan Companies from an insolvent administration, in which Plan Creditors would be materially worse off, and represent a fair distribution of the benefits of the Plans.

There were no opposing creditors at the convening hearing.

There has been correspondence with a number of creditors concerning the Plans. The Plan Companies have been able to reach consensual resolutions with a number of Landlord Creditors who have raised particular issues.

There are however two creditors who have very recently issued applications for injunctive relief against two of the Plan Companies at the sanction hearing:

(a) UK Commercial Property Finance Holdings Limited (“UKCP”) issued an application for an injunction on 20 September 2024. The application arises from two side letters provided to UKCP in respect of the renegotiations of CUKL's lease of a property in Swindon and CWEL's lease of a property in Glasgow. In the side letters CUKL and CWEL agreed that, in the event that they proposed a restructuring plan, they would not seek to make further amendments to UK Commercial Properties' leases in respect of those two premises.

(b) The Crown Estate Commissioners (“the Crown Estate”) issued proceedings on 25 September 2024 concerning leases in Newcastle upon Tyne and Harlow, Essex the terms of which were renegotiated in September 2023. In a Side Letter dated 27 September 2023 CUKL and CWCL undertook for the period of three years not to seek further to compromise the relevant leases by way of a restructuring plan.

UKCP and the Crown Estate (“the Objectors”) contend that by promoting a restructuring plan which seeks to compromise liabilities under or by reference to the relevant Leases the Plan Companies have breached these undertakings. They seek injunctions to remove the relevant Leases from the Plans.

The evidence in support of the sanction application consists of:

(a) the first and second witness statements of Roei Kaufman. Mr Kaufman is a director of the Plan Companies. His first statement sets out the relevant background to the Plans. His second statement updates the court on matters since the convening hearing;

(b) the second witness statement of Katie Lacey of the information agent describes the steps taken to distribute the Explanatory Statement and related documentation to Plan Creditors following the convening hearing;

(c) the first statement of John Curry, a director of US Group companies;

(d) the first statement of James Watson; and

(e) the first witness statement of Simon Granger.

There was separate evidence in relation to the Objectors' applications for injunctions which I shall refer to below.

Factual background

The Plan Companies and the wider Group

The Plan Companies are each incorporated in England and Wales and are the primary tenant entities within the UK Group.

The Group also operates a substantial number of cinemas in the United States under the “Regal Cinemas” brand (the “US Group”). As already explained, the US Group underwent a Chapter 11 plan of reorganisation in 2022 and 2023. The Chapter 11 plan did not address the UK Group's lease portfolio. The Plan Companies say the lease portfolio is “over-rented” in the sense already explained.

The Plan Companies are guarantors of the Group's principal financing arrangements, comprising: (a) a loan of about US$1.6 bn (the “Term Loan”) made pursuant to a New York law governed agreement, the principal borrower of which is Crown UK Holdco Limited; and (b) a revolving credit facility of US$250 million (the “RCF”, together with the Term Loan, the “Senior Facilities”), the principal borrowers of which are Crown UK Holdco Limited and Crown Finance US Inc.

The Plan Companies' business is deeply...