Troubled cinema chain Cineworld Group has experienced financial difficulties in recent years due to film industry strikes, a rise in home streaming services, and Covid causing forced cinema closures with audiences failing to return to pre-pandemic levels.
In 2023, Cineworld entered lease renegotiations with its landlords to write off arrears and reduce its rental payments. As part of those arrangements, Cineworld gave undertakings to various landlords in side letters that it would not seek further amendments to its leases in the event there was a further restructuring plan.
Cineworld’s financial position significantly deteriorated, and it proposed another restructuring plan under Part 26A of the Companies Act 2006. This would reduce the rents payable under various leases, including those where Cineworld had given undertakings that it would not seek any further compromise of the rents.
Prior to the final sanction hearing of the restructuring plans, two landlords, the Crown Estate and UKCP, applied for injunctions to enforce the terms of the undertakings given by Cineworld not to seek further lease amendments.
High Court Decision
The High Court decided that the rights of the two landlord objectors were capable of being compromised by the further restructuring plans. This was not a private dispute turning on the construction of a contractual agreement, and instead the dispute had to be considered within the context of the wider sanction proceedings for the restructuring plans.
Additionally, it held that in this context the objectors were not being placed in any worse position than the other landlords whose leases had been placed in the same restructuring category. The courts were required to treat the creditors on an equal footing (the “pari passu” principle) unless there was a good reason for treating the objecting landlords differently.
The High Court did not consider that the undertakings provided this justification, and certainly treating the objectors differently would not assist the proposed restructuring. It refused to grant the injunctions.
Conclusion
A key aspect to the decision was that the High Court found that Cineworld provided the original undertakings in good faith. However, time had passed since they were given, and Cineworld’s financial position had deteriorated beyond what could have been predicted at the time of the first restructuring.
It stressed that the impact of the decision should not be to provide tenants with the ability to get out of previous deals made when restructuring and that each case would need to turn on its facts. However, this does seem to provide a major opportunity for struggling tenant companies to renegotiate further compromises of existing contracts and leases.
