Virgin Active Holdings Ltd, Re

This is an application under Part 26A of the Companies Act 2006 for sanction of restructuring plans proposed by three Virgin Active companies (VAHL, VAL and VAHCL). The court held that the statutory gateway conditions in section 901A were satisfied and that the Plans could be sanctioned notwithstanding that several creditor classes dissented, because (i) the "no worse off" requirement in section 901G(3) was met — the likely alternative was administration with an accelerated sale and unsecured creditors would receive only a de minimis prescribed-part dividend whereas under the Plans they would receive the specified Restructuring Plan Returns; and (ii) the court should exercise its discretion to sanction the Plans in the circumstances. The court accepted Deloitte's Relevant Alternative Report and Grant Thornton's valuation as reasonable and found no legal or procedural "blot" that would bar sanction. The sanction was granted primarily to preserve the companies as going concerns, protect value for secured creditors and deliver a better outcome to unsecured landlord and property creditors than the relevant alternative.

The Plan Companies (three English Virgin Active group companies) applied for sanction of restructuring plans under Part 26A, Companies Act 2006. The Plans compromise certain unsecured landlord and property claims while preserving secured creditors' contractual positions and obtaining new money from the shareholders and affiliates. The court had previously made a convening judgment and directed meetings of creditor classes.

Background and nature of the application

• The Group's trading model (subscription-driven health clubs) suffered severe revenue loss from COVID-19 lockdowns. The Plan Companies faced acute liquidity pressure and forecast a cash shortfall likely to force administration absent a rapid restructuring.
• The intended Restructuring combined shareholder contributions (waivers, subordinated/pre- and post-implementation facilities and an equity contribution), concessions from secured lenders and a classificatory compromise of lease and other property-related unsecured claims. Certain categories (tax, employees, trade creditors) were excluded from compromise.
• The application sought court sanction of the Plans; several classes (notably many landlord classes and general property creditors) voted against the Plans and the court was therefore asked to apply section 901G to cram down dissenting classes.

Issues framed

1. What is the relevant alternative most likely to occur if the Plans are not sanctioned?
2. Would any member of a dissenting class be any worse off under the Plans than in that relevant alternative (the "no worse off" test under section 901G(3))?
3. If conditions A and B of section 901G are satisfied, should the court in its discretion nevertheless refuse to sanction the Plans?

Court's reasoning

• The court accepted the Plan Companies' evidence that the most likely alternative is entry into administration and an accelerated disposals process (Scenario 1 in Deloitte's Relevant Alternative Report), which would produce a significant shortfall to secured creditors and leave unsecured landlord and property creditors largely "out of the money" (limited to the prescribed part under section 176A of the Insolvency Act 1986).
• The court considered valuation evidence (Grant Thornton valuation reports, including Base, Downside and an Updated Case) and Deloitte's analysis. Although the expert reports contained disclaimers and the valuation exercise carried uncertainty, the judge found the methodologies (principally DCF with cross-checks and sensitivity analysis) and the conclusions reasonable and commercially defensible. The absence of a market-testing sale process did not render the Relevant Alternative Report unreliable in the factual and market context of COVID-19 closures and acute liquidity pressures.
• Applying section 901G(3), the court concluded that dissenting classes would not be any worse off under the Plans than in the likely administration alternative; many would receive earlier and higher recoveries (including a 120% uplift of estimated administration returns) and rights such as forfeiture remained preserved where applicable.
• On discretion, the court considered authorities, policy material and practical factors, including that many dissenting classes are "out of the money", the negotiations and contributions from secured lenders and shareholders, and the commercial rationale for differential treatment of creditor classes. The judge found no reason not to exercise the sanctioning discretion and that the Plans were justifiable to preserve value and rescue the business as a going concern.

Procedural and contextual notes: the judge reviewed disclosure and procedural objections by an Ad Hoc Group of Landlords but was satisfied that the evidence before the court was adequate and had been tested in fulsome cross-examination.

First-instance application granted: the court sanctioned the restructuring Plans under Part 26A, Companies Act 2006. The judge found (i) the Plans met the gateway requirements of section 901A; (ii) the relevant alternative most likely was administration with an accelerated sale; (iii) condition A of section 901G was satisfied because members of dissenting classes would not be any worse off than in the relevant alternative; (iv) condition B was satisfied; and (v) in all the circumstances the court exercised its discretion to sanction the Plans to preserve value and rescue the Plan Companies as going concerns.