Virgin Active Holdings Ltd & Ors, Re Part 26A of The Companies Act 2006

For a restructuring plan under Companies Act 2006 Part 26A, creditor classes are determined by the legal rights which are released, varied or conferred, assessed against the relevant counterfactual. Separate commercial interests do not ordinarily require separate classes.

The usual Part 26 class principles generally apply, but the court must also avoid artificially multiplying classes merely to facilitate use of the cram-down power. At the convening stage, the court considers the form of the explanatory statement, not its final accuracy or adequacy. A manifest defect may justify withholding a meetings order, but such cases are rare. Commercially confidential material may instead be disclosed under a suitable restricted regime for the sanction hearing.

Three companies in the Virgin Active group applied for orders convening meetings to consider restructuring plans under Companies Act 2006 Part 26A. The group had suffered severe cash-flow pressures following pandemic-related club closures. The plans proposed amendments to secured debt, differing treatment for five categories of landlords, and compromises of unsecured property-related claims.

Landlords and a property manager raised issues concerning class composition, the adequacy of the explanatory statement, disclosure, and the compressed timetable. The principal questions were whether the statutory threshold conditions were met, how creditors should be classed, and whether meetings should be convened with protections for later challenges at sanction.

1. Application granted. The court ordered the convening of 21 plan meetings, subject to directions on notice, disclosure, timetable and virtual conduct.

2. The threshold conditions in section 901A were met. Each company had encountered financial difficulties affecting its ability to continue as a going concern. The plans involved sufficient give and take: secured facilities would be amended and extended, lease liabilities varied, and general property claims released for a plan return. Their purpose was to mitigate the financial difficulties.

3. The Part 26 class principles generally govern Part 26A plans. The court must identify creditors’ legal rights in the relevant counterfactual and compare them with the rights released, varied or conferred by the plan. Different commercial interests are not determinative. In the Part 26A setting, however, the court should also avoid creating an artificial proliferation of classes simply to provide a basis for cram down.

4. The proposed classes were appropriate. Secured creditors formed one class. The materially different proposed treatment of leases justified five separate landlord classes. General Property Creditors formed one class: in the administration counterfactual, actual and contingent unsecured claims would be proved and rank alike, and their common plan treatment was sufficiently similar. The manager’s accrued claim and possible rights against third parties did not require a separate class.

5. The court would not require unrestricted disclosure of commercially confidential material through the explanatory statement. At a convening hearing, the court examines the statement’s form and leaves detailed challenges to its accuracy and adequacy for sanction, absent a manifest defect. Nevertheless, the companies ought to provide their business plan, cash-flow forecasts, 2019 site-level financial information and lease-classification analysis to appropriate professional advisers under confidentiality undertakings because they could bear on the relevant alternative, fairness and cram down.

6. Despite inadequate notice for detailed objections, urgency justified convening the meetings. Creditors retained the right to challenge jurisdiction and class composition at sanction. The meetings could proceed virtually, and notice was required of applications to inspect the companies’ court-file evidence.

not stated in the judgment.