Modella Capital is preparing to launch a formal restructuring of the former WH Smith high street chain within months, a move that could result in store closures and hundreds of job losses less than a year after its £52 million acquisition.

Sky News reported that the private equity firm, which bought roughly 550 high street stores last June and plans to rebrand them as TG Jones, is in early discussions about a court-sanctioned restructuring or company voluntary arrangement. Modella later secured a £12 million reduction in the purchase price, reflecting difficult trading conditions.

According to Sky News, restructuring advisers are expected to be formally appointed by the end of March. People close to the situation told the broadcaster that a “significant minority” of stores could close and that rent reductions from landlords would form part of the proposals.

The Telegraph reported that Modella has engaged advisers at Teneo to draw up options to place the business on a more sustainable footing. It said around 80 stores out of approximately 480 are considered most at risk after a period of weak trading, with further sites vulnerable if rent concessions cannot be agreed. No final decisions have been taken.

The restructuring timetable is complicated by a transitional services agreement between WH Smith and Modella that restricts major changes for 12 months following completion of the deal. However, people close to the matter told Sky News that the agreement is unlikely to be enforced, potentially allowing Modella to proceed before the first anniversary.

The high street arm employed about 5,000 people at the time of the sale. Sky News reported that trading at TG Jones has been weak since the start of the year, accelerating the need for action.

Retail industry sources told The Telegraph that rising employer National Insurance contributions and increases to the National Living Wage have added several million pounds to overheads. One industry source told the newspaper that retailers were facing a “dark market”.

Modella has built a reputation for acquiring distressed chains, with mixed results. The Original Factory Shop and Claire’s Accessories both fell into administration last month, leading to about 2,200 job losses and nearly 300 store closures, while Hobbycraft has been put up for sale after receiving takeover interest, according to Sky News.

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