TG Jones will run out of cash and collapse unless creditors approve its restructuring plan later this month, the retailer’s chief executive has warned.
Alex Willson, who became chief executive in March, said the business has reached a critical stage and cannot continue trading without support for the proposed rescue deal.
Mr Willson said: “We just don’t have the cash to continue.
“I’ve been very open with the colleagues in the business that [collapse] will happen if the [court] hearing doesn’t get passed.”
The former WHSmith high street chain, which is owned by private equity firm Modella Capital, employs around 5,000 people across 450 stores.
Mr Willson said: “Yes, it’s a punchy restructuring plan, but this is the one opportunity where we can save TG Jones.”
A court hearing scheduled for the end of June will determine whether the company can proceed with its proposed turnaround plan.
The restructuring would result in up to 150 stores closing permanently, while landlords at the remaining sites would be required to accept significant rent reductions.
Modella Capital famously turned WHSmith into TG Jones | GETTY
In an attempt to win over creditors, TG Jones and Modella have enhanced the terms of the deal by offering landlords a larger share of any future profits.
Under the revised proposal, landlords would receive 50 per cent of earnings above £40million generated over the next three years.
The previous offer would have provided creditors with 12.5 per cent of profits above £47.5million, or 25 per cent of earnings exceeding £64.2million.
Modella will retain its stake in the business under the plan, although it has agreed not to take dividends while landlords remain subject to reduced rental agreements.
TG Jones collapse warning as chief executive says retailer will fail without rescue plan
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LINKEDIN/ALEX WILLSON
The investment firm has also committed to reinvesting savings generated from lower rents back into the retailer.
Directors have formally pledged not to use accounting measures to artificially suppress reported profits.
However, some property owners remain opposed to the proposals.
British Land has publicly criticised the restructuring package and said it remains dissatisfied despite the improved terms offered to creditors.
A spokesman for British Land said: “We will not support proposals we consider fundamentally unfair, with deep rent cuts even on profitable stores at fair market rents placing the lion’s share of the restructuring burden onto property owners, and zero equity from the shareholders who stand to benefit.”
The landlord has raised concerns that profitable stores would still receive rent reductions under the proposals.
British Land has also questioned why Modella would retain its equity stake without injecting additional capital into the business.
Some landlords are reportedly considering taking back vacant properties rather than agreeing to the revised terms.
Modella Capital acquired WH Smith’s high street division last year for an initial £10million, with a further £32million linked to future performance targets.
The private equity firm, led by restructuring specialist Steve Curtis and managing director Joseph Price, also owns retailers including Hobbycraft, Claire’s UK and The Original Factory Shop.
Claire’s and The Original Factory Shop both entered administration earlier this year.
Mr Willson said the turnaround strategy for TG Jones includes lowering prices, simplifying product ranges and refurbishing stores.
The retailer also plans to expand partnerships with Toys R Us, the Post Office and Hobbycraft as part of efforts to drive sales growth.
TG Jones said the business has also been affected by recent Government budgets, estimating that changes introduced over the past two rounds of tax measures have increased costs by around £11million.