Re Virgin Atlantic Airways Ltd

The court sanctioned a restructuring plan under Part 26A of the Companies Act 2006 proposed by Virgin Atlantic Airways Limited to vary the rights of four classes of creditors and to enable a wider Recapitalisation. The judge applied the familiar multi-stage approach derived from Part 26 authorities: (i) statutory compliance with Part 26A (including the section 901A threshold tests and the convening/sanctioning procedure); (ii) whether classes were fairly represented at the meetings and votes were bona fide; (iii) whether the plan was one that an intelligent and honest member of the class might reasonably approve; and (iv) whether there was any blot or defect in the plan. The court was satisfied that the procedural requirements had been met, that the Plan Creditors had been properly informed and consulted, and that the Restructuring Plan produced materially better returns than the likely administration alternative. The judge considered but did not need to decide the statutory "cross-class cram down" power under section 901G because the required majorities were obtained. The use of a power of attorney/agency mechanism to implement many of the amendments was treated as consistent with recent authorities. International recognition issues (notably proposed Chapter 15 recognition in the United States) and the practical rationale for excluding certain trade creditors were also accepted as relevant to the exercise of discretion. As a result the restructuring plan was sanctioned.

The company operated a major international airline and, as a result of the COVID-19 pandemic, faced an acute liquidity crisis that threatened an administration. To avoid an insolvency process that was projected to produce poor recoveries, the Company proposed a Restructuring Plan under Part 26A CA 2006 as part of a broader Recapitalisation which included new-money injections and bilateral arrangements with several creditors.

Nature of the application: an application under section 901F CA 2006 for the court to sanction a restructuring plan affecting four classes of creditors (the RCF lenders, aircraft operating lessors, certain connected parties and 162 specified trade creditors).

Background and procedure: the Convening Hearing was determined by Trower J (see Re Virgin Atlantic Airways Limited [2020] EWHC 2191 (Ch)); an explanatory statement was circulated and virtual class meetings were held. The plan was approved by the requisite voting majorities: unanimous in three classes (100% in number and value) and 99.24% by value (with 66.05% turnout in number) in the trade creditor class. The Company also sought to secure international effectiveness, including an application for Chapter 15 recognition in the United States.

Issues for decision: whether the statutory requirements of Part 26A were satisfied; whether the classes were fairly represented and the majority votes were bona fide and not coercive; whether the plan was fair such that an intelligent and honest creditor might reasonably approve it; whether any "blots" or defects existed (including the validity of the agency/power of attorney mechanism); and whether the plan was likely to have sufficient international effect.

Court's reasoning:

• The statutory threshold and convening/sanctioning requirements under Part 26A were satisfied and Trower J's earlier determinations were followed.
• The court applied the established Part 26 principles (as summarised in Re Telewest and Re Noble Group) to Part 26A, noting that Part 26A contains new features (for example the section 901G cross-class cram down) but that established authorities remain instructive. Because the requisite majorities were obtained, the court did not need to resolve novel cram-down questions.
• Class composition and the exclusion of certain trade creditors were examined. The exclusion of categories such as essential suppliers and small creditors under £50,000 was explained in the explanatory materials and found to be commercially reasonable and properly disclosed.
• The plan produced materially better returns for creditors than the likely administration outcome (supported by updated Alvarez & Marsal analysis), such that an intelligent and honest member of the trade creditor class could reasonably approve it.
• The power of attorney/agency mechanism commonly used in modern restructurings was endorsed as appropriate for implementing many of the indebtedness variations.
• There were no identifiable "blots" or material defects and the prospects of foreign recognition (notably in the United States under Chapter 15) strengthened the plan's overall effect.

Result: the Restructuring Plan was sanctioned.

The court sanctioned the Restructuring Plan under Part 26A CA 2006. The judge concluded that the statutory requirements had been satisfied, the classes were properly convened and represented, the plan was one an intelligent and honest member of the classes might reasonably approve, there were no material defects, and international recognition prospects supported its effectiveness. The court therefore exercised its discretion to grant sanction.

Prior procedural steps included a Convening Hearing and a detailed Convening Judgment of Trower J: Re Virgin Atlantic Airways Limited [2020] EWHC 2191 (Ch), which determined jurisdictional and convening issues and directed the circulation of an explanatory statement and the convening of class meetings.