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12 May 2021

Landlords feel the pinch… again! Virgin Active Restructuring Plan sanctioned by High Court

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The Part 26A Restructuring Plans (the "Plans") proposed by each of Virgin Active Holdings, Virgin Active Limited and Virgin Active Health Clubs Limited (the "Plan Companies") have been sanctioned by the court. This decision has been eagerly anticipated by the restructuring and insolvency market, struggling tenants and the beleaguered landlord community.

In a judgment handed down this morning (12 May), Mr Justice Snowden confirmed that the Plans, which amongst other things sought to compromise arrangements in respect of 67 leases affecting the rights of 46 landlords, had received sanction despite failing to attain the required approval threshold in the class meetings of the landlords in classes B to E.

In so doing, Mr Justice Snowden made use of the ability to effect a 'cross class cramdown', whereby under the relevant legislation plans can still be sanctioned provided the court was satisfied that the prescribed conditions had been met in order to do so. The conditions required the court to consider:

(A) if the Plans received sanction, would the dissenting creditors be any worse off than they would be in the relevant alternative (in this case, the Plan Companies' entry into administration);

(B) has each Plan been approved by 75% of those voting in any class that would receive a payment, or have a genuine economic interest in the company, in the relevant alternative; and

(C) in the circumstances should the court exercise its discretion to sanction?

As the Plans had been approved by an overwhelming majority of both the secured creditors and the class A landlords, condition (B) was met. The court was also satisfied on the evidence provided that no dissenting plan creditor would be worse off under the Plans compared to the relevant alternative of administration. Finally, in determining to exercise the court's discretion to sanction, Mr Justice Snowden cited confidence in the fact that the Plans were likely to have substantial effect in relevant jurisdictions outside of England & Wales as amongst his reasons for so exercising that discretion.

This is the second instance, after DeepOcean, of the court's use of 'cross class cramdown' and the first effecting the rights of landlords who, as a group, are likely to be feeling embattled and disheartened following the court's dismissal earlier this week of the landlords' challenges to the New Look CVA. We can expect to see many more CVAs and restructuring plans launched in the coming months following these pro-tenant decisions.

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