Virgin Part 26A Scheme

• Published date: 25 May 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Landlord & Tenant - Leases
• Law Firm: Moon Beever
• Author: Mr Daniel Moore

The tension between landlord creditor rights on the one hand and corporate rescue on the other that was at the core of Zacaroli J's recent judgment in Lazari Properties 2 Ltd v New Look Retailers Ltd continues. The New Look case (now being appealed) 'was about CVAs; Snowden J's 12 May 2021 judgment in Re Virgin Active Holdings Ltd & Ors [2021] EWHC 1246 (Ch) deals with restructuring plans proposed by three Virgin companies to certain groups of creditors under Part 26A Companies Act 2006. It follows two prior judgments in the case, one given in connection with the convening of meetings of creditors ([2021] EWHC 814 (Ch)), a second on costs ([2021] EWHC 911 (Ch)); and that of Trower J last year in Re DeepOcean 1 UK Limited [2020] EWHC 3549 (Ch), the first case in which the new "cram down" jurisdiction was used.

All three Virgin companies were part of the Virgin Active group which operate health clubs which depended on membership subscriptions. Unsurprisingly, they experienced financial difficulties as a result of club closures during the pandemic. Restructuring became necessary to cope with those difficulties. Part of that process entailed recourse to the new Part 26A restructuring plan, the only alternative to which appears to have been administration which was not thought to be in the best interests of creditors. The proposed plans provided for the varying treatment of the different groups of plan creditors. The broad effect was that the debts due to secured creditors would not be reduced in exchange for certain concessions. Although the landlord creditors would all rank pari passu, leases would be divided into five classes for the purpose of their treatment under the plans: classes A and B related to the most profitable leases which Virgin wanted to retain; class D and E leases related to loss-making sites which Virgin did not want to retain; class C leases fell into "something of a middle ground" in that they had produced a small profit before the pandemic but were now likely to be loss-making. The claims of what were described as "general property creditors" were to be compromised in favour of a return paid out as part of the relevant plan.

Plan meetings were duly convened, and each plan was approved by those voting at all the class meetings of the secured creditors and the class A landlords; but none of the other classes voted in favour of the plans by the requisite statutory majority. There was one class of the class C landlords that voted in favour...