(Bloomberg) -- Cineworld’s restructuring plan, designed to slash the company’s rent costs and stave off insolvency, is facing a court challenge from landlords who argue the plan treats them unfairly.
A unit of the £4 billion ($5.4 billion) listed property firm Tritax Big Box REIT Plc and the Crown Estate challenged the cinema chain’s restructuring in a London court on Thursday. Both Tritax and the Crown Estate are landlords of some of Cineworld’s 100 or so UK cinemas.
The challenge centers on agreements that Cineworld struck with the two landlords in September 2023 that pledged to not compromise leases on certain sites in future restructuring. Those agreements were made in return for rent reductions, lawyers for Crown Estate and Tritax said.
Cineworld filed for Chapter 11 bankruptcy in the US in 2022, after coronavirus-linked lockdowns led to the enforced closing of many of its cinemas. In August last year the firm delisted from the London Stock Exchange and was effectively taken over by its lenders. The firm has more recently been affected by a reduction in the number of films released as a result of screen writers and actors’ strikes in 2023.
Property costs of more than £16 million are due at the end of September, and Cineworld’s UK unit is currently unable to pay it, lawyers for the company said. The US group that ultimately owns Cineworld is willing to put in more money but only if the UK unit restructures. The only alternative for the chain’s UK operations is for it to enter a second administration process in two years.
“The UK part of the group is presently unprofitable,” Tom Smith, a barrister for Cineworld, said in court on Thursday. Without the funding from the US group, Cineworld will have to file for insolvency as “there is no prospect of raising the money from anywhere else.”
The landlords argue that agreements entered into last year are being violated by the restructuring plan, and that they are being treated unfairly. Both companies wrote to Cineworld saying they would challenge the plan in the last week, shortly after other creditors voted in favor of the plan.
Part of Cineworld’s argument is that the chain’s position has worsened over the last year, in large part driven by the actor and writer’s strike. Lawyers for the landlords argued in court that this is something that should have been envisioned when Cineworld reached deals to reduce its rent in September 2023, given that the strike ended that month.
The Crown Estate owns three sites that Cineworld leases in Newcastle, Rushden and Harlow, while Tritax owns two of the cinema buildings in Glasgow and Swindon.
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