Background

Following a period of financial difficulty and the completion of a comprehensive site analysis, it was concluded that the River Island business could only continue to operate on a viable basis by closing certain retail sites and implementing a transformation plan. River Island Holdings Limited (the Plan Company), the parent of River Island Clothing Co. Limited and River Island Fashion Limited (together, the Plan Opcos), launched the Restructuring Plan, which compromised debts owed to the landlords of certain retail sites, local authorities in respect of business rates and certain other unsecured creditors. The Restructuring Plan was fully supported by River Island’s secured lender (the Secured Creditor) through the injection of £40 million of new money financing.

At the plan meetings, the Restructuring Plan was approved by five of the 10 classes of plan creditor. The Court was therefore asked to sanction the Restructuring Plan using its cross-class cram-down power under Section 901G of the Companies Act 2006.

The judge highlighted the following factors as he sanctioned the Restructuring Plan, which crammed down five classes of dissenting landlord creditors:

• the assistance provided by a detailed Plan Benefits Report, setting out the return that each class of plan creditor is expected to receive in respect of its contribution to the benefits preserved or generated by the Restructuring Plan;
• the fairness of the shareholder (the Shareholder) retaining its equity in the Plan Company, given its contribution to the cost of the Restructuring Plan (establishing a plan creditor fund and profit share fund for distribution to unsecured plan creditors);
• the Court’s primary focus on the interests of the creditors in their capacity as creditors (for example, the Court may disregard a creditor’s interest as a competitor of the plan company) when considering whether the treatment of a class or differential treatment is fair.

11 principles guiding the exercise of cross-class cram-down powers

Three recent Court of Appeal cases on restructuring plans have considered factors to be considered when a Court is asked to exercise its discretion to approve a restructuring plan, notwithstanding one or more classes of dissenting creditor. The River Island judgment distils the Court of Appeal’s guidance in the Adler, Thames Water and Petrofac cases into 11 principles, which may well become touchstones in future cases:

1. There must be a fair sharing of the burden of the restructuring plan among those whose rights are compromised, and a fair allocation of the benefits of that plan.
2. The Court will assess the fairness question from the perspective of the dissenting creditors, to ask why the compromise approved by the assenting classes should be imposed upon them.
3. The plan company has the burden of persuading the Court that the sharing of burden and benefit is fair, even if no objectors appear at the sanction hearing.
4. The starting point (but only the starting point) is the treatment of the dissenting class in the relevant alternative.
5. Where the relevant alternative is an insolvency process, the initial expectation will be pari passu treatment of creditors within each insolvency class.
6. Differential treatment within an insolvency class is permissible if justified on proper grounds.
7. When considering whether the treatment of a class or any differential treatment within a class is “fair”, the primary focus of the Court is upon their interests qua creditor.
8. When considering the sharing of burdens and benefits, the Court is not confined to a consideration of the restructuring plan itself but is entitled to stand back and consider also the effect of the restructuring plan on those who are not parties to compromises (such as creditors outside the scope of the plan or shareholders).
9. When considering the sharing of burdens and benefits, the Court is entitled to take into account the source of the benefits.
10. When assessing the burdens and benefits, the Court is concerned with substance, not form: the provision of new money on terms more advantageous to the provider than would be required by a lender in the market is in reality a benefit conferred on the provider, rather than a contribution to the cost of the plan,
11. The Court will have regard to the evolution of the restructuring plan and will seek to assess whether it is a genuine attempt to formulate a fair and reasonable solution to a critical problem or an attempt to impose arbitrary compromise terms upon creditors with a view to extracting advantage in a critical situation.

Applying these principles to River Island’s Restructuring Plan

Benefits to Unsecured Creditors

The Restructuring Plan was designed to ensure that a fair return was made to unsecured creditors in respect of their contributions by way of the compromises set out in the plan. That return consisted of:

• a payment equal to 200% of their “no worse off” high-case estimated return in an administration (the relevant alternative). This payment would be made from a “Plan Creditor Fund” established by the Shareholder;
• a sum equal to three weeks’ rent and property costs (representing the trade-out period in administration), to be paid to compromised Class B and Class C landlords; and
• pro rata rights to participate in a “Profit Share Fund”.

The Profit Share Fund represents 25% of the excess over £55 million profit before interest and tax (the Profit Gateway) made by River Island during the five years following the effective date of the Restructuring Plan. The Profit Gateway was set at a level which ensures that the compromised creditors will share in the profits in priority to (a) any reduction in the River Island group’s net indebtedness to the Secured Creditor and (b) any return to the Shareholder.

The Court noted that, although there was differential treatment of various classes of unsecured creditor, this derived from a “carefully applied rational methodology”, and accordingly did not prevent the sanctioning of the Restructuring Plan.

Analysis provided to the court to demonstrate the overall benefits package to creditors

The Court of Appeal’s Petrofac decision was published on 1 July 2025, midway through the River Island restructuring plan process. Greenberg Traurig, LLP reacted swiftly to this decision and advised the company to prepare a Plan Benefits Report, which was compiled by PWC.

The judge considered this report in detail and concluded it demonstrated that:

• the treatment of the dissenting classes was not out of line with that of the assenting classes;
• all Landlords are provided with a “day 1” return on their contribution;
• the Secured Creditor was making the most significant contribution in that it would not recover its existing and new loans even in three years.

In addition to the benefits set out in the Plan Benefits Report, the unsecured plan creditors have the potential to receive further returns through their participation in the Profit Share Fund described above. Landlords would also have the additional benefit of being able to recover possession of relevant sites if they were of the view that a better return was available in the market.

Being satisfied with the approach and analysis provided in the Plan Benefits Report, the judge moved on to look outside the confines of the restructuring plan itself, to ensure that there was no unfair allocation of benefit to those who are not scheme creditors. Having done so, he concluded that he “was entirely satisfied that the restructuring plan ought to be approved.”

The “rationality test”

The Court usually accepts that creditors are likely to be the best judges of their own commercial interests, but the Court is not bound by their view and has discretion in this regard. The Court will cross-check any possible influence of collateral interests in assessing whether the plan is one that an intelligent and honest class member might, having regard to their class interests, reasonably approve. The judge applied this test in connection with two multiple-site landlords who “block voted” against the Restructuring Plan in every class.

As regards one landlord, the judge commented, “One can well understand why a rival high street clothing retailer with a notable skill in acquiring additional brands out of administration might prefer to see the Plan Company cease operations and go into administration: but it is not easy to see why, from the perspective of a pure landlord, that is the preferable alternative”.

As to the other landlord (who, the judge noted, was invited by Greenberg Traurig to state their objections to the Restructuring Plan but declined to do so), the judge concluded that “it is again not easy to see why, from the perspective of a landlord, it was preferable to risk the closure of the 15 stores on the excluded estate by voting against the proposals for dealing with the 7 in-scope stores”.

Accordingly, the judge gave little weight to the dissenting votes of those particular creditors.

Business rates creditors

Some business rates creditors had a policy of refusing, at contested hearings, the adjournment of business rates liability hearings, not only after the Practice Statement Letter was sent but also after the convening order was made. The judge described this as “regrettable – an unnecessary cost to the general body of rate and taxpayers, an unnecessary expense for a company in financial distress and an unnecessary burden upon an overstretched judicial system”.

Facilitating the Restructuring Plan through a Deed Poll

To facilitate the Restructuring Plan, the Plan Company entered into a deed poll in respect of certain liabilities of the Plan Opcos (the Deed Poll). The Deed Poll enabled the Plan Company to assume liability as primary co-obligor to the plan creditors, jointly with the Plan Opcos, and the Plan Company’s liability to the plan creditors was reinforced by contribution payment agreement and other related arrangements.

If the Deed Poll had not been executed by the Plan Company (and the Restructuring Plan was instead launched by each of the Plan Opcos) the launch of such alternative restructuring plans would have resulted in, amongst other things, cross-defaults and lease and contractual termination rights across the leasehold estate and supply chain network, including those which are critical to the continuation of business operations.

Conclusion

The sanctioning of the Restructuring Plan was a welcome step in River Island’s restructuring transformation. The judgment is equally welcome for the clear practical guidance it offers in relation to the Court’s discretion to exercise cross-class cram-down powers in general, and in the landlord context in particular.

[1] Re River Island Holdings Limited [2025] EWHC 2276 (Ch).

[2] Re AGPS Bondco Plc [2024] EWCA Civ 24 (Adler), Kington S.A.R.L. and others v Thames Water Utilities Holdings Ltd and others [2025] EWCA Civ 475 (Thames Water) and Saipem S.P.A and others v Petrofac Ltd and another [2025] EWCA Civ 821 (Petrofac).