Virgin Atlantic Airways Ltd, Re

Where every creditor class approves a restructuring plan under Part 26A of the Companies Act 2006, the court may apply the established principles governing the sanction of schemes under Part 26. It must examine statutory compliance, fair representation and voting, substantive fairness, and any defect in the plan.

A company may select the creditors whose rights it proposes to compromise. The selection must have a proper commercial justification rather than manipulate voting. Creditors must receive enough information to compare the plan with the relevant alternative and to assess any more favourable treatment given to creditors outside it. A plan is fair if an intelligent and honest member of the relevant class, acting in that member’s interests, might reasonably approve it.

The company operated an international airline whose liquidity had been severely affected by the COVID-19 pandemic. Without restructuring and new finance, it was expected to enter administration and produce a materially lower and delayed return for creditors.

The company proposed the first restructuring plan considered by the court under Part 26A of the Companies Act 2006. The plan compromised four classes of creditors and formed part of a wider recapitalisation. Each class approved it by at least the required 75% in value, with overwhelming support among trade creditors.

Following the convening decision in Re Virgin Atlantic Airways Limited [2020] EWHC 2191 (Ch), the company applied for sanction. The principal questions were whether the established Part 26 sanction principles applied, whether the exclusion of certain trade creditors impaired representation or fairness, and whether any defect or concern about international effectiveness justified refusing sanction.

1. The restructuring plan was sanctioned. Part 26A of the Companies Act 2006 confers a general discretion to sanction. Because every class had approved the plan, the established Part 26 approach was appropriate. The court was not required to decide any question concerning cross-class cram down under section 901G.

2. The applicable four-stage inquiry was whether: the statute had been complied with; each class was fairly represented and the majority was acting bona fide without coercing the minority for an adverse interest; the plan was one that an intelligent and honest creditor might reasonably approve; and the plan contained any blot or defect. Commercial creditors are generally better judges of their own interests, so the court should be slow to depart from an informed and representative vote.

3. The statutory requirements were satisfied. The threshold financial-difficulties and restructuring-purpose requirements had been determined at the convening stage. The explanatory statement and meetings complied with the convening order, and every class achieved the statutory majority.

4. The classes were fairly represented. The turnout was substantial and there was no evidence of collateral motives or special interests. A company may propose a plan to some creditors while leaving others outside it. However, its selection must not be arbitrary or designed to manipulate the class. More favourable treatment of creditors outside the plan must be fully explained so that affected creditors can assess fairness.

5. The excluded trade creditors had been omitted for respectable commercial reasons. Essential suppliers had to be paid to maintain the business. Excluding more than 1,000 creditors with claims below £50,000 avoided a disproportionate logistical burden for only a modest additional debt reduction. The reasons and consequences were adequately disclosed.

6. The plan was fair. It formed part of a supported recapitalisation, offered trade creditors approximately four times the estimated administration return, and had received overwhelming informed approval. No dissenting creditor appeared to allege unfairness.

7. The power-of-attorney and agency mechanisms were valid techniques for implementing the restructuring. No other blot was identified. The plan would have substantial effect because creditors holding most affected liabilities had consented, and persuasive expert evidence indicated that recognition in the United States was likely.

This was a first-instance sanction application following an earlier convening hearing in the same restructuring proceedings.

• High Court (Companies Court): In Re Virgin Atlantic Airways Limited [2020] EWHC 2191 (Ch), Trower J held that the threshold requirements of Part 26A of the Companies Act 2006 were met, determined the class composition and ordered meetings of the four creditor classes.
• High Court (Companies Court): The present court followed the convening decision on those matters and sanctioned the plan after every class approved it.