Re Virgin Active

The court considered whether the Plan Companies should be ordered to pay the costs of opposing creditors (an Ad Hoc Group of Landlords and Riverside) incurred at the convening hearing for proposed restructuring plans under Part 26A of the Companies Act 2006. The judge reviewed authorities on costs in Part 26 scheme proceedings and related authorities, and concluded that there is no automatic principle requiring a scheme or plan company to pay the costs of objecting creditors. The question of costs is a discretionary, fact-sensitive enquiry and relevant considerations include whether opposing creditors raised genuine issues, whether their participation assisted the court, and the risk that adverse costs rules might deter legitimate participation.

Applying those principles, the court refused to make a costs order in favour of the Ad Hoc Group or Riverside at this stage and instead reserved the question of their costs of the convening hearing until after the sanction hearing. The Plan Companies had already agreed to pay the costs of Pure Gym and the manager of Canary Riverside, and those limited awards were appropriate given the discrete roles they played.

Background and parties: Three Virgin Active companies (the Plan Companies) applied under Part 26A of the Companies Act 2006 for approval of restructuring plans and for directions to convene creditor class meetings. An Ad Hoc Group of Landlords (the AHG) and Riverside Crem 3 Limited (Riverside), together with other participants such as Pure Gym and the manager of Canary Riverside, appeared at the convening hearing. The Plan Companies had agreed to pay the costs of Pure Gym and the manager for their limited participation.

Nature of the application: The immediate issue was which party should bear the costs of the convening hearing: whether the Plan Companies should be ordered now to pay the AHG's and Riverside's costs or whether the question should be reserved until the later sanction hearing.

Issues framed by the court:

• Whether there is a general or established practice that companies proposing Part 26 or Part 26A arrangements must pay the costs of opposing creditors who attend and raise bona fide points;
• To what extent authorities on Part 26 scheme costs apply to Part 26A plans and the appropriate principles for exercise of the court's discretion on costs; and
• Whether, on the facts of this case, an order for costs in favour of the AHG or Riverside should be made now.

Court's reasoning: The judge reviewed earlier authorities (including Re Buckton, P&O, Royal & Sun Alliance, Re Inmarsat, Re Stronghold, Re Ophir Energy and Re Noble Group) and extracted guiding principles: the issue of costs is in the court's discretion; the general CPR rule that "costs follow the event" ordinarily does not apply to Part 8 proceedings for convening or sanctioning schemes/plans; objectors who raise non-frivolous points that assist the court may receive their reasonable costs, but there is no presumption or principle requiring that outcome; and the court must balance encouragement of legitimate scrutiny against the risk of encouraging objections intended to be subsidised by others.

The judge accepted that these Part 26 authorities provide the starting point for Part 26A, but did not decide whether the end-point for Part 26A must be identical to Part 26. Given the fact-sensitive nature of the enquiry and that key matters (including any role played by disclosed information and how opposition contributes to scrutiny at sanction) would be clearer after the sanction hearing, the judge exercised his discretion to reserve the AHG's and Riverside's costs of the convening hearing until after sanction. The judge distinguished the modest, discrete contributions of Pure Gym and the manager, whose costs the Plan Companies had agreed to pay.

Wider context: The judgment emphasised that parties with genuine issues should not be deterred from participating by undue fear of adverse costs, while also rejecting a rigid rule of immunity from normal costs principles; the decision to reserve costs reflected the hybrid nature of the convening hearing and the need to assess contributions at sanction.

This is a first instance decision. The court declined to make an immediate order that the Plan Companies pay the costs of the Ad Hoc Group or Riverside incurred at the convening hearing. The judge held that the issue of costs is discretionary and fact-sensitive, and therefore reserved determination of those costs until after the sanction hearing. The Plan Companies had agreed to pay the modest costs of Pure Gym and the manager, which the court considered appropriate given their limited contributions.