Riverside CREM 3 Ltd v Virgin Active Health Clubs Ltd

The court considered competing applications: the claimant landlord's application for summary judgment under CPR 24.2 for unpaid rent and the defendant tenant's application for a stay of the claim (or of any judgment) to permit a restructuring under Part 26A of the Companies Act 2006 to proceed. The judgment applies the court's discretion under the Civil Procedure Rules (notably CPR 3 and related stay provisions) and relevant authority (including Roberts Petroleum, Sea Assets and Bluecrest) to balance the private interests of the claimant against the interests of the wider class of creditors.

The Chief Master found that the defendant had triggered the Part 26A restructuring process, that there was a realistic prospect of the restructuring being sanctioned (conditions A and B in section 901A were met or likely to be met), and that the restructuring timetable was short (convening and sanction hearings were listed). On the particular facts, the court concluded that granting a stay was justified because the interests of the wider class of creditors outweighed the claimant's private interest in immediate enforcement; accordingly the court ordered a stay of the claim under CPR Rule 3, including a recital that the claimant is entitled to judgment and a permission to apply.

Background and parties:

• The claimant is landlord of premises let to the defendant under an underlease (35-year term, passing rent £741,047.20 pa). The defendant admitted arrears amounting to £928,727.04 plus costs and interest. The claimant issued proceedings and sought summary judgment under CPR 24.2.
• The defendant applied for a stay of the claim or, alternatively, a stay of judgment on the basis that it had initiated a restructuring under Part 26A of the Companies Act 2006 and that the restructuring timetable (convening hearing 25 March 2021; creditors' meetings 16 April 2021; sanction hearing 23 April 2021) was imminent.

Issues framed by the court:

1. Whether the restructuring plan had a reasonable prospect of being approved and sanctioned by the court.
2. Whether entry or enforcement of judgment would undermine the purpose of the restructuring or result in unequal treatment of creditors.
3. The appropriate duration of any stay and whether a stay would unduly prejudice the claimant.

Court's reasoning:

• The court accepted that the defendant satisfied the threshold conditions to trigger Part 26A and that there was at least a reasonable prospect the restructuring would be approved and sanctioned, in part because secured creditors had indicated strong support.
• The court applied principles drawn from authorities including Roberts Petroleum, Sea Assets and Bluecrest: a stay may be justified where the debtor is insolvent and a scheme or arrangement has a reasonable prospect of proceeding, and where refusal would prejudice the wider creditor body or undermine the restructuring. The decision is fact-specific and requires balancing the prejudice to the creditor seeking enforcement against prejudice to the class of creditors supporting the restructuring.
• On the facts — short, fixed timetable for sanction; risk that judgment enforcement would materially undermine distributions to classed landlords (claimant classified as class B) and thereby the restructuring's purpose; limited prejudice to the claimant because there was an admitted debt and procedural safeguards could be imposed — the balance favoured granting a stay.

Relief sought: The defendant sought a stay of the claim under CPR 3.1(2)(f) or the court's inherent jurisdiction, alternatively a stay of any judgment. The claimant sought summary judgment.

Disposition: The court made an order staying the claim under CPR Rule 3, including a recital that the claimant is entitled to judgment and provision for permission to apply, thereby protecting the restructuring process for the short period to the sanction hearing.

Wider context: The court noted the policy and statutory framework behind Part 26A, emphasising creditor equality and that Part 26A permits restructuring to proceed with lower thresholds and potential court override of dissenting classes; these features weighed in favour of allowing the restructuring process to run its short course.

The court granted the defendant's application for a stay. The Chief Master exercised the court's discretion under the Civil Procedure Rules and stayed the claim (order made under CPR Rule 3) for a short period to allow the Part 26A restructuring process to proceed, recording that the claimant is entitled to judgment and giving permission to apply. The rationale was that the restructuring had a reasonable prospect of sanction, the timetable was imminent, and the interests of the wider class of creditors outweighed the claimant's private interest in immediate enforcement.