Cineworld clears first hurdle in controversial restructuring plan

Troubled exhibition giant Cineworld has cleared the first hurdle in its bid to get its controversial restructuring plan over the line.  

At the High Court in London on Wednesday (Aug 28), the judge, Justice Edwin Johnson, agreed to make the order convening the “plan meetings” on September 18, thereby approving the process to move on to the next stage.

A sanction hearing is then due to be held around September 26. If Cineworld landlords vote against the restructuring plan in sufficient numbers, that hearing won’t take place, although this isn’t expected to happen.

During Wednesday’s session, the procedure for the restructuring was laid out, but the merits and fairness of the scheme were not under discussion.

Cineworld, which emerged from a Chapter 11 bankruptcy in the US in September 2022, is seeking to avoid insolvency in the UK where it has 101 sites. The exhibitor is arguing a “significant number” of its UK leases are currently over-rented, meaning the exhibitor believes the contractual rent is more than market rent.

Landlords were contacted on July 26 with a “Practice Statement Letter”. This had details of a court-supervised Part 26A plan which, if accepted, will result in sharp reductions in the current rent landlords receive from Cineworld at some sites and with landlords getting zero rent at others.

The landlords now face some tough decisions. It is not in their interest to defeat the restructuring plan as this will almost certainly lead to formal insolvency and a huge loss of value for stakeholders as well as further Cineworld cinemas being closed (following the six sites already announced).

However, if the restructuring plan is accepted by the court, it will bind all the creditors including those who did not vote in its favour.

Dissenting creditors can make challenges to the restructuring proposals if, for example, they feel its terms are not “fair”.

The “unfairness” could be based on multiple factors. 

Among the issues that are worrying landlords are the threat Cineworld will rip out seats and seize control of projectors at sites that don’t fall in line. This would make it difficult for the landlords to run the cinemas themselves or get other operators in. 

Some landlords feel they have not been given enough time or information to mount a challenge. (There were 32 days between the sending of the Practice Statement Letter and the Convening Hearing.)

There has also been talk of a “lack of visibility of data”.

Cineworld has claimed that without the turnaround plan, it won’t be able to cover its quarterly rent, service charge and insurance payment of £19.1m, due in late September.

What the exhibitor refers to as its “June 2024 liquidity” crisis may have been eased to some extent by the strong box-office results for films including Inside Out 2, Deadpool & Wolverine and It Ends With Us.

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